Islamic Finance shows growing interest, taking root in Sri Lanka

In an indication that Islamic finance is taking root in Sri Lanka, the Islamic Finance News (IFN) roadshow took place in Colombo last week and in that the Islamic Finance industry and key stakeholders in the country assembled together to examine the issues and the future. There were panel discussions on Islamic Finance in Sri Lanka on - 'Where We Stand, Challenges and Opportunities'; 'The Possibilities and Opportunities for New and Current Islamic Products in Sri Lanka'; 'Moving Towards an Enabling Regulatory and Tax Environment'; 'Resolving Divergences in Accounting between AAOIFI and IFRS'; 'Liquidly Management and Islamic Investing in Sri Lanka' and 'Crucial Steps to Take Sri Lanka's Islamic Finance to the Next Level'. The day-long session also included several presentations and case studies.

It was revealed at this session that Islamic Finance could play a key role in the development of infrastructure projects and the capital markets in Sri Lanka. The booming the industry and the development of the 'Sukuk' Market has the potential to attract foreign investors to finance projects such as roads, bridges, ports, airports and others.

Sovereign Sukuk is a means of attraction of funds as an alternative to conventional sovereign bonds. Sri Lanka in its drive for rapid development could grasp opportunities that emerge due to the transition of Islamic finance into the mainstream global finance.

Faizal Salieh, Managing Director and CEO, Amana Bank said that the challenges range from leveling the legislative, regulatory and fiscal playing fields, developing a wider range of products to meet the financial and banking requirements of the customers and achieving consensus among scholars towards uniformity in the application of Sharia principles on transactions. He said the Islamic Finance industry offers plenty of scope for research and development, adding that under their system they could attract foreign investors. Mr Salieh said there are opportunities as well as some challenges and noted that there are barriers in the tax statutes that place Islamic Finance products in a disadvantaged position in relation to their conventional counterparts. He said that Sri Lanka's tax laws only recognize the conventional interest based financial products in the application of tax and in allowing tax deductibility.

Nivard Cabraal, Governor, Central Bank who made the keynote address said Sri Lanka has one of the best economies and indicated that the country's stock market is sound and vibrant. Within a 10-year period the market has grown 10 times over from $2 billio in 2002 to $ 20 billion in 2011 and it would grow to a very sound level in a few years. He said that the country's growth rate was at 8% for two years.

Though he did not offer any statistics of the areas in which the economy is faltering at the present, he in fact conceded that when the development and growth moves so fast, that would also create complications and said that they are comfortable and content the way the country's development and the other growth areas move forward.

Mr Cabraal said infrastructure development in the country commenced well before the war ended and development is visible everywhere in the country, in every town and in every village. He said that the government has taken measures to ensure food security and added that all areas of the economy, agriculture, industry, apparel industry, tourism together moves smoothly.