Sukuk ideal instrument for Sri Lankan funds

The end of the 30-year civil war in Sri Lanka has generated a significant amount of interest in necessary rebuilding and infrastructure development. Market estimates suggest that funds worth around US$150 million are in circulation among Sri Lanka’s Muslim community.

The end of the 30-year civil war in Sri Lanka has generated a significant amount of interest in necessary rebuilding and infrastructure development. Market estimates suggest that funds worth around US$150 million are in circulation among Sri Lanka’s Muslim community. However, no Shariah-compliant formal investment tools are available to channel the millions of dollars into development projects. As a result, experts are suggesting that the country should use sukuk to draw in and channel funds. “Islamic financial institutions that cater to the local Muslim community also have the same problem. They don’t have an investment instrument. The available investment opportunities that conform to Islamic religious principles are limited, and can only absorb a portion of their funds. So these financial institutions don’t make an effort to increase their deposits because they have no way of re-investing a large portion of their funds,” CEO of RAM Ratings Lanka Adrian Perera told reporters after a conference on sukuk last week. Despite the obvious need for an Islamic investment tool, the Sri Lankan legal framework does not currently accommodate sukuk. “We do not have the required legal, regulatory, supervisory and accounting structures for Sukuk in Sri Lanka at the moment,” explained Director General of the Securities and Exchange Commission (SEC) of Sri Lanka, Channa de Silva. “We also don’t have a Sharia Council here. The Sukuk has to be approved by a Sharia Council before being used. So at this point we are looking into the possibilities,” he said. According to RAM Ratings, sukuk is a perfect instrument for infrastructure or project financing.