Ash-Sheik Hassan Kaleem joins Amana Bank Sharia Council

Amana Bank further strengthened its Independent Sharia Supervisory Council with the inclusion of Ash-Sheik Mufti Muhammad Hassan Kaleem, an established Islamic banking academic and practitioner from Karachi, Pakistan.

Ash-Sheik Hassan Kaleem is a permanent faculty member of Jamiah Darul-Uloom Karachi (a leading Institute of Islamic Sciences in Pakistan) and the Centre of Islamic Economics, Karachi. He is also a trainer of Sharia standards at the Accounting and Auditing Organization for Islamic Financial Institution (AAOIFI), Bahrain and a visiting faculty member of the National Institute of Banking and Finance (State Bank of Pakistan).

Ash-Sheik Hassan Kaleem is a Sharia Board member in many finance institutions including Pak Kuwait Takaful Company Limited, Pak Qatar Family Takaful, Deloitte (Global Islamic Finance Team), Siraj UBL Funds, Hanover Re Takaful Bahrain and Takaful Emirate. He has also served many years as a Sharia Advisor to Al Baraka Islamic Bank (Pakistan Operations) and to various Sukuk issues. He is a member of the committee for revising the Takaful rules 2005, formed by Security & Exchange Commission of Pakistan. He holds an Alimiyyah (Masters in Islamic Sciences) and Takhassus (Specialization in Fatwa) degree from Darul-Uloom, Karachi.

Ash-Sheik Hassan Kaleem will join an experienced team of Sharia scholars including Rtd. Justice Ash-Sheik Mufti Muhammad Taqi Usmani (Executive Member and Chairman of the Sharia Board of AAOIFI and a former member of the Sharia Appellate Bench of the Supreme Court of Pakistan), Ash-Sheik M.M.A Mubarak (former President and the present Vice-President of the All Ceylon Jamiyyathul Ulema), Ash-Sheik Mufti M.I.M. Rizwe (President of the All Ceylon Jamiyyathul Ulema) and Ash-Sheik Mohd Nazri Bin Chik (Assistant General Manager and the Head of Sharia Division of Bank Islam Malaysia Berhad).

http://www.dailynews.lk/2012/05/24/bus11.asp

Amana Takafull makes losses, says lack of investment options is hindering growth

Sri Lanka’s Amana Takafull PLC has recorded a Rs. 109.3 million loss during the financial year 2011, owing to the impact caused by increased claims and volatility in investments.

“Increased claims, volatility in investments, especially equities and gold in the latter half of the year, took its toll on profitability, resulting in negative bottom-line”, Chairman of the Amana Takafull PLC Tyeab Akbarally stated in the company’s annual report.

However, the revenues from the company’s local business operations have grown from Rs. 917 million in 2010 to Rs. 1,269 million in 2011, recording a growth of 38.4%.

The firm’s local general business has grown up to Rs. 965.3 million during the reference year, from Rs. 676.9 million recorded in 2010, which is a growth of 42.6%.

“Similarly Life business grew by 26.5 percent which amounts to Rs. 64.0 million, by recording a gross written premium of Rs. 304.0 million compared Rs. 240.0 million in 2010”, added the Chairman in his review.

Amana Takafull says its subsidiaries, Amana Global, Amana Takaful Maldives and IGL have contributed positively to the Group.

According to Akbarally, lack of investment options for the firm still persists.

“Equity and bullion being volatile investments where fortunes can swing ways, the Islamic finance system and especially Takaful requires more avenues of investments in the form of Islamic Bonds and relaxation of rules to invest in Islamic finance windows in banks, where there is low volatility” says Akbarally.

http://www.news360.lk/business-finance/14052012-amana-takafull-makes-losses-says-lack-of-investment-options-is-hindering-growth-9912

HNB launches Al-Najah Islamic banking unit

Hatton National Bank PLC, the premier private sector commercial bank in the country, entered into Islamic banking with the introduction of an Islamic banking unit to cater to the rapidly-growing Islamic banking market.

Al Najah, the first Islamic banking unit launched by HNB, will serve its Islamic banking clients with a special banking unit located at its head office at HNB Towers. The unit is fully equipped with trained staff and systems and well-structured products to serve its customers.

The unit will operate under the overall supervision of HNB and will offer a broad spectrum of Shariah compliant products and services to its entire clientele.

In addition to the current accounts, the bank’s Islamic Banking Unit (IBU) will provide depositors with profit sharing Mudaraba savings and Mudaraba investment options which will provide depositors with a Shariah based return on their investments.

For business and personal customers seeking financing, the bank would offer a range of trade related services, leasing for vehicles/equipment and machinery, home financing, working capital requirements and other personal financial services.

All operations of the Islamic Banking Unit will be in accordance with the CBSL guidelines and shall also be in conformity with the Shariah principles. This will also ensure that the fund management operations and earnings of the IBU will be segregated and distinct from the conventional banking activity.

The bank has already appointed a Shariah advisory panel headed by Ash-Shaikh Mufti Yoosuf Haniffa comprising of extremely knowledgeable and experienced well-known Shariah scholars who would supervise and advise on Shariah-related aspects of the IBU business.

Commenting at the official launch, the Head of the Islamic Banking Unit L.A.M. Hisham opined that HNB’s range of Shariah based services provide customers with the option of choosing a product or service in harmony with their individual ethical considerations.

Speaking at the inauguration, HNB MD/CEO Rajendra Theagarajah stated that HNB, a bank with a longstanding history of 123 years, saw its initiation in the hill capital with the objective of serving the nation at a grass root level. “HNB, which ranks amongst one of the largest private sector commercial banks in the country with an asset base of over Rs. 380 billion, is delighted to venture in to the domain of Islamic banking and finance.”

He went on to state that Islamic banking caters to the ever-growing demand of customers. Theagarajah stated that it was a great pleasure to have obtained the fullest support and cooperation of the HNB Board of Directors and corporate management for this venture. This, he stated, was a true testimony of HNB’s far-sighted vision in going the extra mile.

Speaking at the occasion ADL Capital Chairman A.I. Marikkar, the former Managing Director of Amana Investments Ltd. (presently known as Amana Bank), stressed that HNB with its widespread islandwide coverage and the cooperation of its management had ventured out to provide an efficient customer service to its Islamic banking customers. He also stated that the HNB Shariah Board comprises well-known eminent Shariah scholars and that the Islamic banking unit of HNB would be well received by customers due to HNB’s strong brand affiliation.

The first deposits of the Islamic banking unit were accepted by HNB Chairperson Dr. Ranee Jayamaha. The vote of thanks was delivered by HNB Islamic Banking Unit Manager Fariz Fuad.

The event was graced by members of the Shariah Board Ash-Sheikh M.M. Mubarak, Ash-Shaikh Fazil Farook and Ash-Shaikh Mohamed Mashood Muhamed Insaf. ADL Capital Limited Chairman A.I. Marikkar, ADL Capital Managing Director Ishrath Rauf and members of ADL Capital Ltd. Azad Zaheed, Shabri Abdul Cader and Ishrath Mohideen were also present.

HNB Chairperson Dr. Jayamaha, MD/CEO Theagarajah, HNB Deputy CEO Jonathan Alles and members of HNB’s corporate management, senior management, customers and staff of HNB were also among the distinguished gathering.

http://www.ft.lk/2012/02/29/hnb-launches-al-najah-islamic-banking-unit/

Sri Lanka, Malaysia partners to promote Islamic banking, bonds

Sri Lanka's Wealth Lanka Management (Pvt) Ltd, an investment house, and Al Tayseer Advisory Services Sdn. Bhd a Malaysia based consultancy has linked up to provide Islamic banking and bond market instruments, officials said.The firm advices on Islamic banking and corporate finance and advisory services for specialist industries like steel, cement and cotton.

"We find Sri Lanka as an emerging market for Islamic finance with immense future growth potential," Al Tayseer Advisors Services, chief executive and partner Fahd Hashim, told reporters in Colombo.

"Sri Lanka is the second fastest growing economy in Asia right now and growth is linked to public sector investment with imports of cement steel."

Al Tayseer can help with setting up plants or acquiring them to supply commodities to Sri Lanka, Hashim said.

The firm was also working in Pakistan. Hashim said it was already advising a Pakistan based cement maker that is exporting to Sri Lanka. In addition to corporate finance the consultancy also advised in materials and energy efficiency and use of carbon credits.

Mangala Boyagoda, head of Wealth Lanka Management, a senior fixed income specialist in Sri Lanka said the new partnership could provide Shariah based bond market products to help create an interbank market in Islamic finance.

"You cannot develop Shariah banking without an interbank market," Boyagoda said. "We are looking at the possibility of raising a Shariah government bond."Though several banks have Islamic finance units in the country, they have constraints in Treasury management due to lack of compliant products.

The partnership will also advice on setting up Islamic banking units or outsource such units for banks, finance companies and leasing firms, Hashim said.

http://www.lankabusinessonline.com

Plans to develop Shariah interbank market

The Shariah interbank market will be developed in Sri Lanka to position the country to become a regional player. The possibilities are being looked at to raise a Shariah bond and negotiations are taking place at present.

The Sri Lankan banking industry landscape needs to be changed to incorporate better practices. Hence, Shariah is a concept that could be adopted by any customer not only Muslims, we need to promote this banking model, Wealth Lanka Management Chairman Mangala Boyagoda said.

“We will combine our exclusive strengths to introduce specialized Shariah linked financial instruments, incorporating true Shariah principles to the local market for the benefit of not only for Muslim brethren, but also for the country at large,” he said.

Islamic finance specialist Al Tayseer Advisory Services (Al Tayseer), a part of International Al Tayseer Group, signed a Memorandum of Understanding with Wealth Lanka Management (Pvt) Ltd, a local consultancy firm to jointly develop Shariah linked financial instruments for the local market by pooling their individual expertise. Many banks and financial institutions are experiencing increased demand for Shariah linked products and this demand is expected to grow further. As such, our focus will be to develop short and medium-term Shariah based financial instruments for banks, finance companies, leasing companies, corporate entities as well as the government,” he said.

“We are confident that entering into this new venture is both timely and appropriate. The launch of the venture would help support the government endeavours as well as offer alternative and innovative financial products in line with Shariah principles. In the backdrop of the dawn of peace and the government’s commitment to develop capital markets will have positive impact on the venture, Boyagoda said. The Shariah concept is different from commercial banking and there is a need to educate and train the public to gain benefit. The country’s Shariah banking will be developed according to the Malaysian model and discussions are underway with two banks to develop a road map, Al Tayseer Director Edwin Das said.

“Al Tayseer has identified Sri Lanka as an emerging market for Islamic finance. We have much to offer for the country’s business community in terms of Islamic banking advisory, consultancy, training, legal and compliance, regulatory framework and policies,” he said.

http://www.dailynews.lk/

A closer look at Islamic finance in Sri Lanka by MM (Published by CIMA-UK)

The buzzphrase in today’s business world is ‘Islamic banking and finance (IB&F)'.

Background

Islamic finance takes its principles and rules mainly from primary and secondary sources. The primary sources include the Quran (text of god) and Sunnah (Words or Acts of the Prophet [SAW]).

Secondary sources include Ijma - consensus, Qiyas - Analogy and Ijthihad – interpretation of learned jurists and scholars. Other authorities of interpretation such as Sharia supervisory boards (SSB) and ‘The Islamic Fiqh Academy’ – KSA are also important elements in Sharia.

Sharia has been translated as ‘Islamic Law’ but comprises not only Islamic law, but also moralities, ethics and guidelines for a complete way of human life. In the field of Islamic Banking and Finance Sharia plays a vital role.

Islamic finance in Sri Lanka

Sri Lanka is not well known for this niche market, but Sri Lanka's recent resolution of its civil armed conflict has given new hope and positive views about the future of Sri Lankans.

Sri Lankan Sharia conscious investors and other interested groups were pleased to see the country's first fully fledged Islamic commercial bank inaugurated by the central bank governor in August 2011.

This was a remarkable event in the history of Islamic banking and finance in Sri Lanka. It took more than a decade to achieve, due to issues like double taxation, separate banking rules and regulations, corporate governance and other issues that needed to be addressed to cater to this new market.

The Sri Lankan financial market consists of a number of Islamic financial service providers in the form of investment companies, leasing companies and subsidiaries of finance companies.

Additionally, the government owned Bank of Ceylon has started its own Islamic windows model operating under the brand name of Al-Noor a year ago.

These market needs were witnessed by the current retail banking market leader in conventional banking - Commercial Bank, which kickstarted its operation as a specialised branch and a delivery channel for Islamic banking customers under the name of Al-Fadhla two months ago.

As per the estimates and research studies, there is an Islamic banking asset base within the country of more than approximately USD 1,000 million in 2010.

Global Islamic fund assets under management grew by 7.6% to $58 billion in 2010, up from $53.9 billion in 2009, according to Ernst & Young Islamic funds and investments report (2011). 

According to the figures released by research firm - Cerulli Associates (2011), global Islamic finance assets will reach USD 5 trillion by 2015.

Creating an infrastructure

To create the infrastructure for the Islamic banking and finance market, other components play a major part - the insurance industry.

The Islamic insurance (Takaful) industry was started in Sri Lanka with a very few players catering to Sharia conscious insurance holders. The current players are winning the trust of the whole Sri Lankan community in terms of Islamic insurance by highlighting its unique features of rewarding the policy holders, where Takaful scheme payments will be pooled and invested in acceptable Islamic investment opportunities and the return shared with customers.

The Sharia conscious investors have more options in terms of Islamic Finance in Sri Lanka. They have a golden opportunity to invest in Colombo Stock Exchange (CSE), by way of participating in the Islamic funds (Eg: Amana-Namal Equity Funds) and unit trust (‘Crescent I-fund’  is an open ended Shariah compliant fund).

The myth that Islamic finance caters only to the high end market and does not consider the needs of lower income earners is not entirely accurate. In fact, there are institutions in Sri Lanka striving to alleviate Sri Lankans by providing Islamic Micro Finance facilities throughout the island in order to make difference in their lives.

Change and local implications

Although Islamic Finance has proved groundbreaking, with far reaching impacts worldwide while flourishing as a young market, there are issues and critical challenges to be addressed locally.

The Islamic banking and finance industry is facing challenges around the globe - a lack of Sharia scholars with in depth knowledge of finance products (in a recent press release for The Star news media, Dr Zambry said statistics by the International Islamic University of Malaysia (IIUM) showed that two million Islamic finance professionals were required to fill positions in IFIs worldwide by the year 2020), modern technology (the current software systems and other technologies have been developed based on interest bearing tools and products which Islamic banks cannot use without customisation).

This has been addressed by some Islamic finance education institutes in Sri Lanka through classroom education, public awareness and events enhancing knowledge in the field. This has helped Sri Lanka shine globally with well educated, qualified and experienced industry professionals who work outside Sri Lanka as top executives in Islamic banks.

Islamic finance as a solution

It can be argued that Islamic finance is a solution provider for many current local and global economic ills, since Islamic finance functions without interest/usury (Riba), uncertainty (Gharar), gambling (Qimar) and speculation (Mysir).

To safeguard global financial markets, Islamic finance industry experts should have a global view and take actions to develop Sharia, accounting, auditing, ethics and corporate governance standards for banking, insurance, leasing, capital market and money market sectors.

As a value addition, the Bahrain based Accounting and Auditing Organisation for Islamic Financial Institute (AAOFI) and Malaysian based Islamic Financial Services Board (IFSB) is working closely with other international standard setting bodies to integrate global norms, standards and best practices of Islamic and conventional banking and finance.

Islamic finance and information technology

Islamic finance's growth has been fuelled by many factors, including rapidly changing information communication technology.

Even though Sharia compliance is the key for Islamic banking, competitive technological advancement facilitates fully automated branches - a touch screen for banking transactions with no human resources, advanced mobile applications for smart phones, hightech security ATM machines, SMS and GPRS banking services and so on.

These drive the industry forward with rapid changes in the modern business environment. Modern world customers are smarter and more knowledgeable and can easily switch to other banks just by a click of mouse. And information systems strategy is the heart of the banking sector and will determine the success of the business.

Customising software for Islamic finance

We need to customise conventional core banking software to be used as ready made products since there is no standalone core banking software system for Islamic banks.

The customisation should be done to Islamic banking principles, accounting, cash management, credit facilities and other operational requirements as per Islamic finance regulations.

Standalone software

Because of the customisation of conventional banking software for Islamic banks, the urgency or need for the stand alone Islamic banking software has been shadowed.

One of the important issues is the change in legal and tax systems for Islamic finance. The banking act of 2005 brought in some changes to accommodate a profit and loss sharing banking system and is a proactive action of the government.

There are some tax modifications such as double taxation, stamp taxes (for Islamic banking transactions) that have been proposed by Islamic Finance Focus Group (IFFG) which includes experts of the industry from Sri Lanka. These are positive signs which accommodate this niche market by making amendments to the current legal and tax system which has been developed over period of time to suit conventional banking products.

Other countries - especially the UK - are aspiring to become Islamic finance hubs by making changes in legal framewors through their budgets.

The UK has five Islamic banks regulated under FSA.

The following list of the countries shows the global appetite for the fast growing Islamic banking industry: 

Thailand	Thailand already has the Islamic Bank of Thailand, backed by the government to attract Foreign Direct Investments through Islamic finance, which is to be used for economic development
Singapore	The first regional bank launched, which is the Asian Islamic Bank with a $100Mn investment
India	An emerging market for Islamic finance, deliberations going on with the Reserve Bank of India (RBI) with Islamic finance propositions
Canada	Canada is seriously looking into regulatory issues in accommodating Islamic banking and finance institutions
Germany	Appetite portrayed through their debut in the industry: Saxony Sukuk worth USD 100 million
Oman	Already given approval for the second full-fledged Islamic Bank
Malawi	Very recently created an Islamic Pension Fund
Mauritius	They have launched the first Islamic bank in the country in the middle of this year
Kazakhstan	Banking and financial institutions are looking at different options for investments because the world sees this country as the hub for Commonwealth (CIS) countries
Australia	Pushing through legislation to remove tax barriers on Sharia-compliant products that would pave the way for issuing of Islamic bonds
Nigeria	Stanbic IBTC Bank, a unit of South Africa's Standard Bank Group, has been issued with a preliminary licence to offer Islamic banking services in Nigeria
Gabon	Changing its financial laws to accommodate Islamic Finance and attract FDI as a part or their economic reform
Hungary	Magyar Iszam bank will be the first Islamic bank to be launched very soon
Afghanistan	Expects to enact an Islamic Banking law before end of 2011

A new future

Sri Lanka is a conflict affected middle income country with high national achievements in social indicators like literacy rates, doctors per patient, medical expenditure per patient and more.

The country’s economic performance improved vastly in 2010, reflecting the post war era optimism and reduced negative impact of the global financial crisis.

GDP growth is estimated at around 8% for this year based on the positive expectations of healthy growth in investments and business opportunities.

Islamic finance can contribute to the development of infrastructure of the Sri Lankan economy, especially by attracting foreign direct investments from oil rich nations for upcoming development projects in the country.

The global banking and finance system market is shifting from conventional systems to Islamic finance systems by understanding benefits from it.

Well articulated and effective government policies, an appropriate Sharia compliance framework, efficient, effective and market based regulations and tax and legal frameworks accelerate institutional infrastructure. Comprehensive Islamic finance market products and service offerings will drive this local niche and young market segment the next level.

http://www.cimaglobal.com/en-gb/Thought-leadership/Newsletters/Regional/The-CIMA-Edge-South-Asia-and-Middle-East/September--October-2011/A-closer-look-at-Islamic-finance-in-Sri-Lanka-/

Amana starts first Sri Lankan commercial bank under Islamic law

(Reuters) - Sri Lanka's Amana Bank on Friday said it will next week start the operations of the island nation's first sharia-compliant commercial bank with the opening of 14 branches across the country.

The bank in a statement said it from Monday will offer a range of products including trade and treasury services.

Over the last 10 years, Amana developed its insurance and investment divisions as it prepared to become a bank.

Analysts estimate the island nation's Islamic finance industry has the potential to become a $1.5 billion business, given appropriate tax and other laws approved by Sri Lankan government based on sharia, the Islamic legal system.

Muslims make up about 8 percent of Sri Lanka's 21 million people, but Islamic financial products are also popular among non-Muslims due to their interest-free nature.

Amana's insurance arm, Amana Takaful has already been listed on the island nation's stock exchange .

In February, the bank's shareholding amounted to 3.4 billion Sri Lanka rupees ($31.1 million).

Bank Islam Malaysia Berhad accounts for 20 percent of Amana's strategic investments, while AB Bank, Bangladesh, has a stake of 15 percent and Saudi Arabia'a Islamic Development Bank has 10 percent. ($1 = 109.450 Sri Lanka Rupees) (Reporting by Shihar Aneez; Editing by Bryson Hull)

First ever open-ended Shari’ ah-compliant fund launched

By Cassandra Mascarenhas

The first ever open-ended Shari’ah-compliant fund, the Crescent i-Fund, a joint initiative of the pioneer asset management company in Sri Lanka Comtrust Asset Management and ADL Capital Limited, was launched last week in the midst of many prospective investors.

Looking to invest chiefly in Sri Lankan equities, the Crescent i-Fund will provide Shari’ah conscious investors the chance to enjoy significant returns in the Sri Lankan stock markets and the fund’s objective of achieving long-term capital appreciation by investing in a portfolio of Shari’ah compliant equity securities listed on the Colombo Stock Exchange will allow them to do so.

The fund was granted approval by the Securities and Exchange Commission (SEC) of Sri Lanka last month and a Shari’ah Committee consisting of a distinguished panel of scholars of domestic and international repute will ensure that the operations of the Fund will be in accordance with Shari’ah principles and the Deutsche Bank will act as the Trustee on behalf of the investors.

Comtrust Asset Management, a member of the CT Holdings Group is one of the pioneer Unit Trust Management companies to be registered with the SEC and has a senior management team with extensive experience in the Sri Lankan equity markets.

The CT Holdings Group is one of the largest listed conglomerates on the Colombo Stock Exchange, with interests spanning retail, food and beverage, manufacturing, plantations, property development and financial services.

Some of the companies in the group include Cargills (Ceylon), Lanka Floortiles and Lanka Walltile, Horana Plantations, CT Land Development, CT Smith Stockbrokers and CT Properties.

ADL Capital Limited is registered by the SEC as an investment manager and its team of qualified professionals has extensive experience in the burgeoning Islamic finance industry with the combined experience of the key personnel in this industry spanning over a decade. The senior executive team at ADL has also been involved in equity markets, which enabled the company to actively contribute to the development of this pioneering effort.

With an investment policy of investing in long term stocks, the Fund will concentrate on engaging in fundamental research to identify stocks which would provide above-average returns over the long term and will invest in sufficiently diversified portfolios at all times to mitigate the risk of excessive volatility and achieve a satisfactory risk-return trade-off.

Created on 16 May 2011 by a Trust Deed executed between Comtrust Asset Management as the managing company and Deutsche Bank Ag Colombo as the trustee, the Fund will operate as an open-ended unit trust which can offer units to investors on a continuing basis.

The investment objective of the fund will be to achieve long term capital appreciation by investing in a portfolio of equity securities thus allowing investors the opportunity to invest in shares that have been deemed Shari’ah compliant by Shari’ah scholars as per the guidelines issued by the Accounting and Auditing Organisation for Islamic Financial Institutions, the standard setting body for Islamic financial institutions based in Bahrain.

http://www.ft.lk/2011/07/19/first-ever-open-ended-shari%E2%80%99-ah-compliant-fund-launched/

The next milestone: Islamic banking and finance in Sri Lanka by Muath Mubarak

With a civil war behind Sri Lanka, MUATH MUBARAK highlights the mechanisms needed by the Islamic finance industry to facilitate the country’s economic development.

Today, Islamic fi nance is a thriving industry partly because the benefit derived from the Islamic economic system is more beneficial to society than that offered by prevailing conventional banking practices.

Some developing and developed countries; namely, Australia, Canada, France, Hong Kong, India, Malta, Singapore and Thailand, are actively engaged in building this young and niche market by making amendments to their regulations and legal frameworks.

The miracle of Asia Following the end of Sri Lanka’s civil war, the government is committed to ensuring the country’s long-term economic development. It has already achieved several successes, including establishing the fi rst fully fl edged Islamic bank.

There was a period where Islamic banking and finance (IB&F) was unlikely to respond to the changes needed to meet the aspirations of IB&F in the country. These include providing the basic and more innovative products.

Over the last decade, there have since been many efforts put forward to develop the local industry, such as the establishment of the country’s first Islamic bank.

There is a pivotal need to review and assess all underlying legal and tax systems to nurture, direct and protect

the industry. Otherwise this emerging industry will not facilitate economic development in the country.

This understanding has led countries with complicated tax regimes, such as the UK and US, to the process of reforming and restructuring their tax laws and other relevant regulatory requirements to attract Islamic investors. It is a longterm plan involving constant review to overcome disputes with more workable

solutions.

It is only by ensuring Sri Lanka’s legal and tax systems are aligned with Islamicprinciples that healthy competition among Islamic fi nancial institutions (IFIs) with more innovative business strategy can grow and in turn, develop the economy. This is a strategic investment issue for foreigners from the GCC and other interested parties to invest in Sri Lanka.

The Islamic Finance Focus Group was formed of industry experts in the fi eld of IB&F to work with regulators and other authorities. Following this, law and tax suggestions were proposed in the country’s budget 2011 in order to eliminate the tax barriers and help IFIs to compete and strategically position themselves on a level playing fi eld in the global fi nance sector.

This proposal of tax reformation must consider stamp duty, value added tax, nation-building tax, tax returns and withholding tax. It will be a wide open and unique banking segment to experience the true Islamic banking. There is room to make certain concrete and visible changes in order to allow Islamic finance to prevail in the country.

Corporate governance, compliance and risk management of Islamic banks are also very important to fuel the

industry’s healthy growth. The relevant authorities must make the required changes to mitigate future risks such as corporate failures, scams and collapse of the banks which can occur in the absence of sufficient corporate governance codes.

Once the system is in place it will be easy to monitor the banks’ operations and issue guidelines to direct the financial institutions and banks. This can be done by implementing prudential regulations ratios such as capital adequacy, liquidity and risk management and other financial measurements.

Even though the Islamic capital market in Sri Lanka has a long way to go,some initiatives have given birth to

new ventures aimed at identifying and assisting Islamic fi nance investors to invest in the country. The absence of capital and money market regulations for Islamic fi nance institutions will hinder the growth of this market segment.

Continuous lobbying with the relevant authorities will help address these issues. Recent IPOs in the country have illustrated the expansion of listed companies and can encourage foreign direct investments, particularly from GCC investors. These investors can also invest more eff ectively if the current system is reformed.

A strong foundation for the growth of this industry has yet to be laid down. Lack of research in Islamic banking in Sri Lanka has prevented the market from identifying the industry’s precise growth rate or asset size. Another issue is the lack of human capital in the industry in Sri Lanka.

There are more than fi ve institutions which have been educating the public about the industry while creating some public awareness and promoting the industry by inviting world renowned speakers, scholars and experts.

Yet there is a huge gap between knowledgeable and experienced industry professionals in the market and the

demands of the industry. This is a global issue and needs to be addressed to take this industry to the next level.

With Sri Lanka at peace and making an effort to be the ‘Miracle of Asia’, this will pave the way for the country to grow in leaps and bounds. Rapid infrastructure developments will require significant capital funding. The country can easily attract investors, particularly Islamic finance investors, to these lucrative projects.

Muath Mubarak works in the fi nance control department at Barwa Bank in Qatar and he can be contacted at muath.2009@gmail.com or muath@fi rstglobal-group.com.

This was published by Red Money Group in IFN on 8-Jun-2011

Sri Lanka: Uncovering the Islamic Finance Framework By Muath Mubarak

With the end of the civil war in the country that had plagued the economy for more than three decades, it is high time Sri Lankans began thinking about the development of the nation. Sri Lanka has to grow like other developed countries within a short time by exploiting untapped opportunities.

The post-war period requires rapid development in all sectors of the economy, especially the banking and financial sector. Unfortunately, the sector has seen lackluster growth due to the global fi nancial crisis. The crisis however has led experts and economists alike to consider an alternative financial system.

As one of the fastest growing industries in the world today, Islamic finance is growing at 20%-25% a year, according to analysts and rating agencies. It is forecasted that the industry will hold assets totaling US$4trillion by 2012. In addition, seven of the top 10 conventional banks with an international presence have commenced Islamic banking.

The following are the main barriers for the growth of Islamic fi nance in Sri Lanka (and most other emerging countries):

• Regulation

• Taxation

• Standardization

• Awareness

• Skill

The Islamic fi nance framework

Islamic fi nance and Takaful are not unfamiliar to the Sri Lankan business community. The concept was introduced a decade ago, and several initiatives via seminars and workshops have also been undertaken by companies and organizations to create public awareness and educate the masses and offi cials concerned.

The Banking Law of Sri Lanka was amended in 2005 to allow both commercial banks and specialized banks to operate on a Shariah compliant basis. But there is no specifi c law for Shariah compliant fi nancial transactions.

For example, the defi nition of “deposit” in the law provides the same treatment for deposits in conventional banks and Islamic financial institutions, which disadvantages these institutions in terms of taxes and statutory requirements.

On the other hand there is an initiative by the Securities and Exchange Commission of Sri Lanka to enact a law on securitization to facilitate the issuance of asset-backed securities through the creation of special purpose vehicles (SPVs) and for the regulation and supervision of securitized transactions.

One of the key principles of Islamic fi nance is that almost all the financial transactions should be backed by real assets. The proposed law can lead to the promotion of Sukuk in Sri Lanka.

According to offi cials, infrastructure development in the country can be financed via Sukuk, with Middle East and other foreign investors possibly interested in participating.

Today’s Challenges to regulators:

• Regulatory/law: Existing banking regulations in most countries (including Sri Lanka) are based on the conventional banking model, meaning the need for separate consideration for Islamic banks and financial institutions.
• Accounting, transparency and surveillance.
• An Islamic financial system needs sound accounting procedures and standards.
• Western accounting procedures are inadequate because of the differing nature and treatment of financial instruments.
• Well-defined procedures and standards are crucial for information disclosure, building investors’ confidence, and surveillance.
• Shariah compliance.
• Emerging fi nancial markets are trending towards Islamic banking.

Conclusion

The increasing acceptance of Islamic banking and fi nance in Sri Lanka is apparent. There are now eight institutions in the market and fi ve educational institutions offering Islamic fi nance courses as well as workshops to generate awareness among Sri Lankans. So, in order to nurture this industry in Sri Lanka, it is critical for us to fi rst understand the principles and advantages of Islamic finance.

Muath Mubarak works for First Global Group, a Sri Lanka-based conglomerate of companies involved in the Islamic fi nancial industry. He can be contacted at muath2015@gmail.com

This was published by Red Money Group in IFN on 27-Nov-2009

NURTURING ISLAMIC FINANCE IN SRI LANKA by Muath Mubarak

– A post war view of the Sri Lankan economy and the role of Islamic Finance in it-

Efforts to build local expertise in Islamic Finance

Amana Global, a fully owned subsidiary of Amana Takaful PLC has signed an MOU with a Malaysian Finance institute to build capacity in the local Islamic Finance Industry.

The Malaysian partner is the Islamic Banking and Finance Institute of Malaysia.

The Company says the move will help build industry specific knowledge in the field of Islamic Finance in Sri Lanka.

“At present there is a dearth of professional services available to satisfy the demand” added a statement issued by the Company.

Initially the aim of the program would be to offer short term courses for public audiences and corporate entities on the subject of Islamic Finance.

Fawas Farook, General Manager of Amana Global Limited speaking about the initiative said  “We have also sought a facilitator to make this partnership work and thus brought in First International Consultancy (Malaysia), which possesses a wealth of experience in propagating Islamic Finance learning”.

Amana Global is a BOI approved venture, established to provide advisory services in the field of Islamic finance both locally and internationally.

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