Sri Lanka can be Islamic finance hub for South Asia: official
Zulfath Saheed: Sri Lanka’s Islamic finance sector, ideally positioned between capital flows of the Middle East and East Asia, has the potential to become an Islamic finance hub, particularly for the South Asian region, said an industry official.“What Hong Kong is to China, Sri Lanka can be to India, Pakistan and Bangladesh in terms of the (Islamic) banking hub,” said Reyaz Mihular, partner at KPMG Ford, Rhodes, Thornton & Co.
Mihular spoke to LBR on the sidelines of the official launch of an Islamic finance country report jointly commissioned by KPMG and the Research Intelligence Unit (RIU).
The 1.4 billion strong South Asian region provides an attractive market for Sri Lanka’s Islamic finance sector said Mihular, citing a high literacy rate and agile economy as key positives for the island.
“They have fairly strong banks in conventional banking, but none of them (India, Pakistan, Bangladesh) have established strong Islamic bank structures,” he said.
Sri Lanka boasts a total of 37 players in the Islamic finance market, the bulk of which or 64 percent being players operating as windows of conventional financial organizations according to a survey conducted by RIU.
The island’s banking and finance sector accounts for 12 players, a further 10 in the consultancy and advisory sector, six in the education sector, and nine providing miscellaneous services related to Islamic finance.
Islamic finance based on financial transactions within the realm of shariah or Islamic law focuses on real assets while shunning speculative transactions, helping the sector escape much of the turmoil faced by the conventional banking and finance sector during the recent financial crisis.
While interest in Islamic finance has grown in Sri Lanka, the country still lacks adequate qualified professionals.
Only 13 percent of the industry’s total workforce holds a diploma or above in Islamic finance, indicating an overall shortage of qualified professionals in the industry.
Mihular says that institutions offering courses tailored for the industry is on the rise.
“There are qualifications available like the IFQ Islamic finance qualification and a lot of people in that sector are taking the exam,” he said.
“Similarly there are other courses of study which are at a degree level, postgraduate level.
If we produce the right level of skilled manpower we can be suppliers not only for our country but for the whole world.”
There are seven education service providers offering courses for the sector, while three Islamic finance software developers also operate in the island.
A total of 860 workers are employed directly in the Islamic finance, while the number could go up to 1500 workers including those with overlapping roles who contribute to the sector indirectly.
Another factor holding the industry back is lack of legal and tax reforms creating a level playing field for Islamic finance institutions when competing with conventional banks and financial services providers.
“We need to have a little more clarity into the tax laws etc because it is important to have clearly the law so that it is not subject to anybody’s interpretation,” said Mihular.
He said that for example additional taxes currently imposed due to issues relating to definitions of Islamic finance contracts were rendering it non competitive and urged there be reforms in this regard.
“This is the route that UK went through as well, gradually changing the tax laws, property laws etc to take care of Islamic finance.
Today UK is a very strong hub for Islamic banking.”-