Tremendous potential for Islamic banking and finance – experts

By Shezna Shums

Experts in Islamic Finance or Sharia met yesterday (28 March) to discuss the various aspects of Islamic banking and its tremendous potential in the Sri Lankan business environment.

The forum was organised by the Chartered Institute of Management Accountants (CIMA) Sri Lanka Division and the Bar Association of Sri Lanka (BASL).

Discussions included the acceptances of Islamic Finance among western countries and its increasing popularity among the non Muslims who favour the age old Islamic Financial system.

Sri Lanka is in the growing stages of providing Islamic Finance is it was only recently that Amana Investments Limited received approval from the Central Bank to carry out full fledged Islamic Banking services. Nevertheless the demand for Islamic Banking is in demand in Sri Lanka and there is a lot of potential for such a banking system

‘Islamic finance, despite its name, is not a religious product. It is however a growing series of financial products developed to meet the requirements of a specific group of people.’

Islamic finance has become one of the world’s fastest growing financial sectors as investors show an increasing appetite for a variety of Islamic financial instruments.

The growth in Islamic finance in recent years has been driven by renewed awareness of faith based concepts and the internationalisation of the financial markets.

Forbes.com in its website on 24 January 2011 quotes ‘At least $500 billion in assets around the world are managed in accordance with Sharia, or Islamic law, and the sector is growing at more than 10% per year.

In spirit, Islamic finance seeks to promote social justice by banning exploitative practices. In reality, this boils down to a set of prohibitions — on paying interest, on gambling with derivatives and options, and on investing in firms that make pornography or pork. No one can say for sure how many of the world’s 1.3 billion Muslims will demand Sharia-compliant financial products, but even if a fraction does, the world’s largest banks will be happy to oblige.’

This one day programme consisted of modules on — What is the Sharia; Introduction to Islamic finance; Stock market investments from a Sharia perspective; Accounting for Islamic finance; Tax issues; Regulatory framework for Islamic financial institutions (IFI); Legal issues and corporate governance for IFI.

Faculty for the programme consists of speakers in the field included Dr. M. A. M. Shukri, Director, Naleemiah Institute of Islamic Studies; Faizal Salieh, Managing Director, Amana Investments Limited; Ishrat Rauff, Managing Director/CEO, Adl Capital Limited; Reyaz Mihular, Partner – Head of Advisory Services, KPMG Ford RhodesThornton & Co.; Suresh R. I. Perera, Principal -Tax and Regulatory, KPMG Ford Rhodes Thornton & Co; Yvette Fernando, Director Bank Supervision, Central Bank; Javed Mansoor, Attorney at Law    

Shibly Aziz, PC, President, BASL noted that the BASL is the biggest non governmental association as a lobby group in Sri Lanka, and it was earlier this month that the BASL helped organised a conference where over 50 foreign delegates participated to speak on Islamic Finance.

“The BASL will look at partnering with CIMA and other organisations for a greater good and work together, the country is ripe for business,” highlighted Aziz.

Further stating that the priority for business is for a vibrant and strong economy, having identified BPO or Business Processing Units as a prospective and potential part of the future for Sri Lanka that should be looked at as a growing business.

Regarding Islamic Finance Aziz noted that there is a tremendous potential in Sri Lanka for Sharia compliant products.

Dr. M. A. M. Shukri speaking next explained the basis of Sharia or Islamic Law saying it was based on the Quran and the Sunna which are explanations and elaboration of the teachings of Prophet Muhammad.

He said Trust plays a big role in Sharia and it is in relation to the world view, of man and man’s creator.

Explaining further Shukri said “Sharia which also means ‘path’ regulates a Muslim in work, social life, business and that Sharia was a complete scheme of life.”

The objective of Sharia is towards the protection of a man’s religion, human life, family unit, property and human intellect.

“The areas of prohibition are narrow whereas the things that are allowed are wide,” he stated, where Sharia regulates human behaviour in a larger aspect for human society.

Some of the prohibited things were charging interest and gambling stressed Shukri.

Faizal Salieh, Managing Director, Amana Investments Limited spoke on the Introduction to Islamic Finance and said that it was important to understand the ‘Why’ behind Islamic Finance or Sharia to know what Sharia is and to appreciate its qualities and the way.

The core principles Sharia are bound by Islamic law and where ethics, justice and equality bind all transactions.

Speaking further he explained that money is used as a medium for exchange; but that money had no value on its own, and that the supply of money must represent the real supply of goods and services.

Under Sharia Interest is non existent while dealing with uncertainty and speculation too is disallowed.

“In Islamic Finance deals are in real value, the supply is also in direct relation to the goods and services in circulation in the economy,” he added.

Transactions then become much more honourable and truthful.

Ishrat Rauff, Managing Director/CEO, Adl Capital Limited spoke on Regulatory framework from a Sharia perspective and said that Islamic Finance was important given the rising interest from the Middle East where more M/E countries were looking towards this part of the world for investment opportunities, for Sharia compliant funds, green funds, Sharia conscious investors across the global spectrum and Sharia conscious investors.

He also noted that in Europe in some instances non Muslims make up over 80 percent of the clientele for Sharia compliance funds.

The sectors excluded under Sharia are gambling, non halal meats, conventional banking, arms and ammunitions, entertainment, alcohol and tobacco.

“These excluded sectors not only affect Muslims but many others as there are some people who do not want to deal with these sectors as well, “it transcends religion on Sharia compliance funds,” he explained.

Furthermore he explained that cash alone was not an asset, and that it had to be invested in assets and therefore had to be treated on par,” he explained.

Touching on the stock exchange Rauff noted that Sharia did not permit dealing in speculative trading (can destroy investors as seen in UAE), short selling (you cannot sell what you do not own) and financial derivatives.

The basic fact being equality based transactions and profit sharing and the loss is as per the investment made,” he concluded.