Burdened with debt, Sri Lanka turns to the Islamic world for help
Sri Lanka, burdened by debt and a growing payments schedule, is appealing to the Islamic banking world for financial help, applying for membership of the Saudi-based Islamic Development Bank (IDB) and drafting the necessary Sharia-compliance regulations required for this purpose, official sources revealed. During a recent visit by a high level Sri Lankan delegation of bankers headed by Central Bank (CB) Governor Arjuna Mahendran to Saudi Arabia, the IDB President had invited Sri Lanka to become a member of the bank.
Such membership will enable Sri Lanka to benefit from its financial assistance programme including equity capital participation loans for production projects and enterprises and other forms of financial assistance for economic and social development, the sources said. This was conveyed to a government Sub-Committee on Economic Affairs by the CB in a memorandum recently recommending that the cabinet directs the Legal Draftsmen’s department to prepare Sharia-compliance regulations necessary to obtain the membership of the IDB. The Sunday Times on January 10 reported about the CB plan to obtain an infusion of US$1 billion in the next few months from
Saudi banks to prop up sagging foreign reserves. The offer came during discussions a delegation of Sri Lankan bankers led by Mr. Mahendran held with the Saudi Arabian Monetary Agency (Central Bank) and other banks in assisting Colombo in various ways. Seeking IDB membership by Sri Lanka was the result of these discussions, a senior government official told the Business Times adding that “the time for Islamic bonds is coming and it’s a matter of time before we see it as a normal issue in our market”.He said, “In its debut, Sri Lanka would first go for a traditional bond and as the Central Bank accesses international capital markets, by learning about its (sukuk’s) structure”.
“We shall consider how structuring of Sukuk will work especially in asset-financing in future access (of the international capital markets),” he said adding that Sukuk basically differs from conventional bonds because they are an asset-based securities not debt instruments. The Islamic finance industry in Sri Lanka is waiting for a government policy statement on new initiatives in 2016. He said that there may be a positive policy statement toward encouraging capital market operations for Sukuk and other new Islamic banking products. Sukuk are seen as well-suited for infrastructure financing for a developing economy.