Collective approach a must to push slow growing Islamic finance industry

„„By Shabiya Ali Ahlam Reflecting on the lackluster growth in Sri Lanka’s Islamic Banking and Finance (IBF) industry, a top official in that field yesterday stressed the need for a more collective approach amongst players if healthy progress is to be achieved in the near future. “The IBF industry has made tangible and measureable progress despite various challenges,

yet much more is to be done as the industry continues to grapple with issues even as it strives to deliver value to its stakeholders,” said Adl Capital Associate Director Azad Zaheed, speaking at the Sri Lanka Islamic Banking and Finance Industry conference in Colombo. While Islamic finance institutions have recorded steady progress as individual institutions, it was stressed that industry players are expected to show the willingness to “converge towards common goals”.

Attributing the slow paced growth of the industry to notable concerns such as IBF being subjected to another set of laws or little or no clarity as to how the industry is governed, it was stressed that a common goal the entire industry must work towards was to focus on creating greater public awareness about IBF. The IBF industry currently represents approximately one percent of the local banking and finance sector. The IBF concept, which is essentially an alternative way of finance that functions on the basis of ethical financing, is largely misunderstood in Sri Lanka with it being considered an option only for Muslims.

“It is imperative for public awareness efforts to be sustained. The risk of public sentiments and views being negative towards lBF shall remain, so long as we, the practitioners refuse to invest in initiatives that would shed clarity on some of the major concerns,” opined Zaheed. It was noted that the sector is also in need of enhancing its Sharia supervisory skills and expertise if it is serious in delivering solutions to a diverse and growing market. While commending the efforts of scholars in shaping the industry since its establishment 20 years ago, the need for industry practitioners to develop a sound working relationship between local and foreign scholars was asserted. Furthermore, implying the need for the development of capital market products, Zaheed pointed out that instruments such as REITS, Sukuks and Shariah-based debentures are yet to see the light of the day and much work is to be carried out for such to be introduced to the local IBF industry. In a bid to move towards a positive growth trajectory, the industry has established the Association of Alternate Financial Institution (AAFI), which comprises of entities that offer Islamic banking products. In addition to its efforts in promoting the alternate finance industry, AAFI aims to make collective representation to the relevant policy makers and regulatory authorities to facilitate accounting, tax, and legal changes.