continued... - Islamic Finance News

Islamic Finance news Guide 2008
Page 96
Interest Picking Up in Sri Lanka’s Islamic Market (continued...)
In 2007, Amana set in motion the Dow Jones Amana Sri
Lanka Index, the fi rst Shariah-compliant and co-branded stock
market index on the Colombo Stock Exchange in collaboration
with Dow Jones Market Indexes. It also launched the fi rst
Shariah compliant equity fund in Sri Lanka called the NAMAL
Amana Equity Fund in collaboration with National Asset
Management Limited, a subsidiary of DFCC Bank, which is a
large development bank in the country.
“Some quarters are lobbying the
government on the need for Sri
Lanka to have at least one fullfl
edged Islamic bank, not only to
meet the religious requirements
of the 1.8 million Muslims in
the country but also to enhance
awareness of the potential benefi ts
that can be reaped from the vast
fl ight of Islamic funds into the
Asian region since 9/11”
Other players in the Islamic market segment are all new
entrants over the past three years, namely Ceylinco Profi t
Sharing, Ceylinco Takaful, the two Islamic windows of
Standard Chartered Bank (Pakistan) and MCB, the Islamic
window of People’s Leasing Company and the Barakah
Financial Services unit of ABC Investments Ltd and First
Global Investments.
There is considerable interest now among the conventional
players to enter this market segment, primarily driven by the
need to retain their own Muslim customers. The state-owned
Bank of Ceylon and Lanka Orient Leasing Company are also
on the threshold of entering the market through windowtype
operations. Some of the foreign banks operating in the
fi nancial sector also plan to open Islamic windows.
The size of the Islamic market segment is estimated at
US$750 million, growing at about 15% per annum.
Outlook for 2008
The challenges before the government in 2008 would be a
speedy resolution to the Tamil confl ict, achieving a more than
7% GDP growth, developing the economic infrastructure, and
lowering the infl ation and high cost of living while maintaining
its pro-poor policy stance.
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The government has declared its intention to bring the confl ict
to an end in 2008. The GDP growth target is 7.5% against a
budget defi cit of 7%.
The economy is poised for rapid take-off when the confl ict is
resolved. In this regard, the existing Free Trade Agreement
(FTA) and the proposed Comprehensive Economic Partnership
Agreement (CEPA) with India would be of particular
signifi cance as these would create the gateway into India’s
economic and fi nancial sectors and vice-versa. From that perspective,
new vistas could open for enterprising Islamic fi nancial
services providers to leverage off the local platform and
access the huge Indian Islamic market which is thirsting for
Shariah-based fi nancial products and services.
Some quarters are lobbying the government on the need for
Sri Lanka to have at least one full-fl edged Islamic bank, not
only to meet the religious requirements of the 1.8 million
Muslims in the country but also to enhance awareness of the
potential benefi ts that can be reaped from the vast fl ight of
Islamic funds into the Asian region since 9/11. It is hoped
that the regulators will be receptive to this and build the
necessary internal capabilities to facilitate and supervise
Islamic fi nancial institutions.
With the growth in the number of Islamic fi nancial operators,
there is a critical dearth of Shariah scholars in the country
with the required levels of competence in Islamic law,
commerce, fi nance and banking to rightly guide the existing
local institutions and prospective new entrants. There is also
increasing concern that some of the Islamic fi nancial services
providers are not paying due attention to Shariah compliance
at the transaction level and that there are serious lapses in
their internal supervision process.
Being a non-Islamic country, it is unlikely that the regulators
will play a dominant role in safeguarding Shariah compliance
in the market. The onus squarely rests on the shoulders of the
market participants and that is where the true sincerity of the
institutions providing Islamic fi nancial services will be tested.
Market discipline with regard to Shariah compliance and good
corporate governance is now a critical factor to the success of
Islamic fi nance in the country.
Faizal Salieh is managing director of Amana
Investments Limited, which is the pioneer
of and the largest Islamic fi nancial services
provider in Sri Lanka. He can be contacted
via email at fsalieh@amana.lk