Thursday, February 10, 2011

Religious Banking is here!

Religious Banking is here!: "In a previous post, we had pointed out how India has progressively moved towards compliance of religious laws. As it stands now, India is nearly as compliant as Pakistan, certainly more compliant than Malaysia.

By its ruling to allow religious banking/finance institutions, the Kerala High Court has opened up a whole new paradigm. But are we ready?

Sure enough, the current entity expects to operate wholly within the framework of Indian laws. But what does Indian law exactly mean? Who creates laws? The track record of our lawmakers starting from institutionalizing medieval religious practices through constitutional sanction to Shah Bano to more recent cases does not inspire any amount of confidence.

The most alarming aspect of the case is that this is not a private company trying to offer just another product with a largely superficial label, with not much consequence to anyone else. The entity in question is Kerala State Industrial Development Corporation (KSIDC), a state owned entity. The rationale being provided is absolutely bunkum - this is a real estate investment Public-private-partnership deal with a mutual fund type arrangement. Religious issues most certainly are not in the way of getting Gulf based Kerala diaspora into infrastructure - and this appears to be the primary pitch!

Secular blowhards have been trying to legalize religious banking for several years now, with The RBI steadfastly opposing such moves. For instance this report shows what a minefield this can quickly become in terms of regulations and bureaucratic overload. Even under the current arrangement, there will be regulatory costs. Someone has to pay for it. What if investments come a cropper? It would be too tempting to do a social justice bailout.

The reasons for this enthusiasm is quite clear. This type of moves are cheap popularity stunts performed for the M-Street. Additionally, the religious label will make sure law enforcement and financial regulatory bodies keep their hands off. Like most other religion tinged concepts, it will likely morph into a money laundering operation with other attendant ill effects.

We have let the camel's nose in the tent, the beast will come in.