The value of the local Islamic finance industry was estimated at US$ 1.2 to 1.5 billion encompassing sectors such as trade and motor finance.
Roshan Madawela, Research Intelligence Unit’s Chief Executive Officer who together with KPMG Ford, Rhodes, Thornton and Co. under took a survey on Islamic finance in the island, speaking at a seminar on Thursday (November 3) said that Islamic finance is about profit and loss type of trading as opposed to interest based.
He said that in Sri Lanka a large number of village level institutions practiced Islamic finance. The customer base exclusive of high networth individuals was close to 2,000.
The challenge needed for the growth of the industry was the requirement for more professionals. Madawela said that only 13.4 per cent serving the Islamic finance industry had a diploma certificate behind their name.
Amana Bank Ltd. Chairman Osman Kassim in his speech said that interest free financing was not something new. Jews will not lend to each other charging usury. Sri Lanka has the opportunity to be the Islamic financial hub in the SAARC region, he said.
Islamic banking is another law and economic system. Many local banks are looking at opening an Islamic banking window. It’s the second system of finance.
Nirmal Fernando, Senior Partner KPMG in his speech said that bottlenecks hindering the growth of Islamic finance are legal and tax issues and structural problems.
He however said that the last budget brought in certain amendments to facilitate Islamic finance. Fernando said that KPMG under Islamic financial rules helped Amana Bank that functions under laws governing Islamic finance to make a Rs. three billion private placement.
Reyaz Mihular, Partner, Advisory Head KPMG in his speech said that if Sri Lanka is to be a financial hub there needs to be access to finance as Central Bank Governor Ajith Nivard Cabraal had said at a recent seminar.
For that one has to have all types of financial instruments on call, he said. The consumer needs to have a choice if the island aspires to be a financial hub. “If you don’t have those instruments to fulfil their needs then you are not a hub,” said Mihular.
He said that the 2008 financial crisis however saw no Islamic banks coming a cropper. This safeguard was because Islamic finance is built on substance.
Mihular also said that the regulator had told him that a Middle-Eastern leader had told President Mahinda Rajapaksa that they would come to the island’s assistance only if it has the Sharia instruments. He further said that there are 37 players of Islamic finance in the island – inclusive of 10 in banking, six educational institutes and 10 consulting institutes.