Sri Lanka gets first Tawarruq personal finance solution

• LOLC plugs long-standing Islamic finance gap 

• Newest addition addresses what industry practitioners describe as one of the biggest gaps in Sri Lanka’s Islamic finance ecosystem
• LOLC Finance says solution is developed in response to growing demand for financial products that combine flexibility, transparency and ethical financial practices while providing customers with practical access to funding 

Krishan Thilakaratne

Shiraz Refai

Mufti Shafeeque Jakhura PIX BY NISAL BADUGE

By Shabiya Ali Ahlam

Sri Lanka yesterday gained its first structured Tawarruq-based personal finance solution, plugging a long-standing gap in the country’s Islamic finance sector and opening a new source of Shariah-compliant funding for individuals and micro-enterprises.

The product, launched by LOLC Al-Falaah, under the name ‘Al-Falaah Tawarruq for Personal Finance’, enables the customers to access liquidity for education, healthcare, business expansion and other personal financial needs, through an asset-backed financing structure aligned with the Islamic finance principles.

The launch addressed what the industry practitioners describe as one of the biggest gaps in Sri Lanka’s Islamic finance ecosystem, where the customers seeking Shariah-compliant personal finance and microfinance solutions have traditionally had limited options, despite the sector’s growth over the past two decades.

“We were always asking for a solution for microfinance and personal finance and today we have introduced that. 

Tawarruq will give us an opportunity to enhance our financial inclusion. It’s a fantastic product for personal finance and microfinance, which is one of the biggest vacuums that we have always had,” LOLC Finance PLC Director and Chief Executive Officer Krishan Thilakaratne said at the launch in Colombo yesterday.

Tawarruq is a globally recognised Islamic finance structure that enables the customers to obtain liquidity through a series of commodity-based transactions, instead of a conventional interest-bearing loan.

Under the arrangement, a commodity is purchased on deferred payment terms, through a Murabaha or cost-plus-profit agreement and subsequently sold to a third party on a spot cash basis, generating liquidity for the customer in a manner consistent with the Islamic finance principles.

LOLC Al-Falaah acts as the appointed agent throughout the transaction process, facilitating the purchase, sale and resale of commodities on behalf of the customers.

LOLC Finance said the solution was developed in response to the growing demand for financial products that combine flexibility, transparency and ethical financial practices, while providing the customers with practical access to funding.

Commenting on the launch, LOLC Al-Falaah Head of Alternate Financial Services Shiraz Refai said the facility represented another step in broadening access to ethical finance and expanding financial inclusion.

“The introduction of Sri Lanka’s first structured Tawarruq liquidity solution represents an important step in expanding access to ethical finance while reinforcing trust in alternate financial services,” Refai said.

“Designed with transparency, convenience and compliance at its core, this solution offers the customers a practical pathway to meet their evolving financial needs.”

Refai noted that LOLC Al-Falaah, established in 2006, has spent nearly two decades developing a broad range of Islamic financial products and services, including education finance, profit-sharing business finance, Wakala investments, leasing facilities, Musharakah project financing and import finance, many of which were industry firsts in Sri Lanka.

The unit currently serves nearly 100,000 active customers and has provided financial services to close to 500,000 customers over the past two decades, with an Islamic finance portfolio of approximately Rs.7 billion.

The launch was also endorsed by the product’s Shariah scholars, who said the structure demonstrates the ability of Islamic finance to address the modern financing requirements while remaining rooted in its core principles.

“Developed with a strong emphasis on transparency, fairness and authenticity, the solution provides a contractual framework that responds effectively to the real-world liquidity needs,” said Ash Shaikh Shafique A. Jakhura, representing the Scholar Supervisory Board.

“It also demonstrates the adaptability of Islamic finance in delivering the relevant and impactful solutions within today’s dynamic financial environment.”