By Shabiya Ali Ahlam
As Sri Lanka is looking at new avenues to fast-track growth, a top cabinet minister recently suggested industries to look in the direction of alternative finance, an option that is becoming increasingly popular throughout the world.
“Sri Lanka is on to a new growth surge and to us it is a key moment to use alternative finance in our country to spur investment. This is relevant for our country and we, as the government, are here to encourage you and give the necessary support,” Public Enterprise Development Minister Kabir Hashim told the second Islamic Finance Forum in South Asia held in Colombo this week.
It was pointed out that with an increasing number of countries adopting alternative finance, institutions such as the Asian Development Bank (ADB) and World Bank (WB), have acknowledged the alternative finance as a “key instrument” in the financial structure of the world.
The minister opined that the endorsement establishes the fact that Islamic finance is a key financing source for investment both in advanced and developing countries and is an “ideal platform” to diversify funding and curb the risk exposure at both institutional and macroeconomic levels.
However, he asserted that how fast the industry grows and how best it can be used for the development of the country should be left in the hands of the industry stakeholders.
Islamic finance offers sophisticated instruments but its uptake in the local context remains slow, largely due to it being seen as a product for Muslims. Nevertheless, in the world over, especially in the West, the ‘partaking of risk’ element has allowed it to grow at steady rates in the recent years.
While Islamic finance statistics are not given due emphasis in Sri Lanka, to the extent that its breakdown is not captured in the Central Bank annual report, global statistics show the Islamic finance services industry (IFSI) has not changed much over the last year.
The data released by the Islamic Financial Services Board (IFSB) in its annual Islamic financial services industry stability report for 2016 showed that the size of the IFSI has not changed much from last year.
Total Islamic banking assets increased from US $ 1.4 trillion to US $ 1.5 trillion and the volume of ṣukūk outstanding increased to US $ 318.5 billion. However, Islamic funds’ assets decreased to US $ 56 billion, while the takāful contributions increased slightly to US $ 25 billion.
Overall, the report highlighted a slowdown in the global IFSI, but despite this, the industry has been able to sustain its total assets value at approximately US $ 1.9 trillion in 2016.