Malaysia based RedMoney Group in association with Sri Lanka’s Islamic banking pioneer Amãna Bank, hosted the third edition of the Islamic Finance News (IFN) Forum in Sri Lanka recently. The event was held under the patronage of the Governor of the Central Bank of Sri Lanka, Mr Ajith Nivaard Cabraal and was attended by many senior officials from both conventional & Islamic banking sectors, regulatory officials, scholars, practitioners and customers. The Governor of the Maldives Monetary Authority, Dr Azeema Adam also attended the forum as a special guest. Over the years, the IFN Forum has become an ideal platform in order to bring the countries Islamic finance industry and its key regulatory stakeholders to one forum to discuss the challenges and opportunities of the industry.
Making the opening remarks at the forum, Chief Executive Officer of Amãna Bank, Mr Mohamed Azmeer mentioned that IFN forum is taking place at a time when the overall Sri Lankan economy and banking industry is going through a phase of positive and significant change. Notably the finance industry is moving into a clear direction of consolidation and economic management resulting in an unprecedented drop in market rates.
Mr Azmeer expressed his views on the Islamic Banking and Finance industry and the way forward through 4 statements. Firstly he stressed that ‘The onus is on us’. He elaborated on this stating that regulators have made significant strides in creating a conducive environment for the industry to flourish. While there are few more such challenges currently being addressed, he stated that the greater responsibility of driving the growth of the industry will lie on the industry players. Secondly he touched on the importance of products, highlighting the fact that product matching with conventional banking product is important but the future focus should be to achieve product differentiation, thereby unlocking the true potential of the Islamic banking concept. Thirdly he stressed on the importance to ‘Focus on the market beyond’ by breaking the traditional market perception that Islamic banking is only for Muslims. He noted that the best way to achieve this is by actively engaging in highlighting the values and benefits of the model which is more human friendly.
Finally he highlighted the importance of ‘Aligning to the real economy’. He elaborated on this stating that Islamic banking by design is compelled to limit all its activities around real transactions, real transfer of assets and thereby the real economy. He noted that interestingly enough, the Country is also in a stage where the focus is on fuelling real economic activity. This, he said, enables room for a perfect marriage between the country’s economic focus and what the Islamic banking model has to offer.
Following Mr Azmeer opening remarks, Central Bank Governor, Mr Ajith Nivaard Cabraal in his key note address said that interest on Islamic finance seems to be growing and there is a very clear movement in the subject of Islamic finance which he believes is gaining popularity rapidly. Elaborating on the regulatory aspect he mentioned that the Central Bank always welcomes the diversification of instruments as well as systems of finance and he does believe that the country should have access to finance through different instruments which can be used in a way that people could benefit personally and as a country. He also mentioned that the country has provided this space through the Banking Act for all these different types of instruments to be accommodated and to go forward within the overall structure of the monetary law act and banking act.
Giving an insight on the Maldives Islamic Finance Industry, Governor and Chairperson of the Maldives Monetary Authority, Dr Azeema Adam in her address said that they are happy to learn from the best practices of Islamic banking and finance institutions in Sri Lanka.
This was followed by the CEO session on addressing challenges through innovation: emerging trends and opportunities. The session was moderated by Managing Partner of KPMG Sri Lanka Mr Reyaz Mihular - and attended by Senior Deputy Governor of CBSL Mr Ananda Silva, CEO of Amãna Takaful Mr Fazal Ghaffoor, CEO of Al Falah Lanka Orix Finance Mr Krishan Thilakaratne and CEO of Amãna Bank Mr Mohamed Azmeer.
Representing the regulatory authorities, Senior Deputy Governor of CBSL Mr Silva mentioned that there is an overall improvement in the country’s economy during the past few years with falling interest rates and steady exchange rates and they are looking forward for further expansion in the economy. They are confident that the Islamic financial sector can play a big role in supporting this growth momentum.
General Manager, Lanka Orix Finance Islamic Business Unit Mr Krishan Thilakarathne stated that many new players were coming in to the market and stressed the importance of them being committed to the model to cater and deliver to the requirement of the grass root level or at the bottom of the pyramid. According to him there is a lot more work to be done on product innovation as well as taking the message to the grass root level.
Chief Executive Officer of Amãna Takaful PLC Mr Fazal Ghafoor pointed out that Sri Lankan insurance sector is going through an exciting time where the banking sector is consolidating and the insurance industry is expanding. They are innovative enough to have a modest 2% market share today, and interestingly the country is currently having a few more Takaful players in the market with the introduction of Takaful by a few conventional insurers. He also quoted an interesting fact from the speech of Dr Azeema that Maladives being a country with a majority of the Muslim population is now introducing Takaful, while SL is celebrating 15 years of Takaful.
Talking about innovation he stated that in a competitive market new players use price cutting as an entry strategy in the name of innovation, which he feels defeats the whole purpose of what they are trying to do. Real innovation in his sentiments is their unique selling proposition and differentiation in the market.
Sharing his views Mr Azmeer said that the industry needs to look at the Sri Lankan context and what its current economy requires. He was of the opinion that the industry can do a lot within the current legislative framework and does not need to wait until the perfect environmental condition sets in to do these changes. He once again stressed on fueling the real economic growth and catering to the varied requirements on the social pyramid. As to the performance of the industry during the last two years, Mr Azmeer was content, stating that while market share against the total banking industry was around 1% there has been substantial growth during the past few years. He noted that out of 350 billion potential the industry has captured approximately 10% within a very short period.
The CEO session was followed by two more panel discussions. The session on ‘Advancing Sri Lanka’s Islamic finance industry: what needs to get done’ was moderated by CEO of Amãna Takaful Life Mr Reyaz Jeffrey while MD & CEO of Maldives Islamic Bank Mr Harith Harun , Head of Islamic Finance Richard Peiris Finance Mr Imruz Kamil, Director of Research Intelligence Unit Mr Roshan Madawela, VP Consumer Banking and Strategic Marketing of Amãna Bank Mr Siddeeque Akbar, Principal Tax & Regulatory at KPMG Mr Suresh R I Perera and Head Global Transaction Banking Deutsche Bank Mr Tyrone Hannan took part as panelists.
Some key areas covered during the sessions were the outlook for Sukuk; How Islamic finance windows should be committed to the model and not be chasing short term profits in order to add value to the industry; How the target market should not be looked as a niche and the importance of marketing products without involving too much Islamic jargon; Latest developments of Sri Lanka’s Takaful industry and updates on legal, tax and accounting changes which the industry must be aware of.
The final session of the day titled ‘Investor roundtable: the Islamic investment landscape: Market trends and strategies for 2015’ was moderated by Regional Director (Asia) IdealRatings Mr Ariff Sultan, Singapore with Head of New Product initiatives Amãna Bank Mr Fazly Marikar, Managing Director/CEO of ADL Capital Mr Ishrat Rauff, Managing Director of Amãna Capital Dr Naveen Gunawardane and Director & CEO Candor Group Mr Ravi Abeysuriya taking part as panelists. Some of the key areas covered during the session were on growth prospects for Islamic Finance Real Estate Investment Trusts (REIT); how Islamic finance can capitalize on the advantages in real estate and property sector; outlook on sharia compliant mutual funds; and the prospects in 2015 for Islamic investors and fund managers.
The event was well attended with a participation of over 200 delegates and was acclaimed by many for the valuable insights and discussion it enabled. Sri Lanka’s Islamic Banking and Finance landscape consists of one fully fledge Islamic bank which is Amãna Bank; six conventional banks with Islamic banking windows namely Bank of Ceylon – An Noor, Commercial Bank - Al Adhala, Hatton National Bank – An Najah, MCB Bank, NDB Bank and Habib Bank; and five finance companies in Lanka Orix Finance — Al Falah, People’s Leasing & Finance — Al Safa, LB Finance-Al Salamah, Citizen Development Bank - Meezan and Richard Pieris Finance - Arij, which in total accounts to twelve financial institutions that offers Islamic banking and finance service as of Now. The industry also has one fully fledge Takaful operator - Amãna Takaful, and two Takaful window operators i.e. HNB Assurance and LOLC Insurance.