The LOLC (Lanka ORIX Leasing Company PLC) was incorporated with the objective of bringing a new facet to the financial services industry of Sri Lanka. With this in mind the company has focused its attention towards the area of Shari'ah Compliant Financing, with the objective of playing a more active role in developing this area of the country's financial services sector.
LOLC through its subsidiary Lanka ORIX Finance Company Ltd. has established a dedicated Islamic Business Unit in an effort to ensure this area of financing is handled in accordance with Shari'ah laws, thereby guaranteeing consistency with Islamic principles and concepts at all times.
Lanka ORIX Finance Company Ltd., is the first finance company to be registered under the Central Bank of Sri Lank to be granted approval to extend Shari'ah Compliant Financing. The company has a Shari'ah Supervisory Board comprising of, eminent scholars and industry leading practitioners of Islamic Finance, who provide advice and guidance on all aspects of Islamic Financing and operations and who constantly monitor the operations.
The guiding principle of the Islamic Business Unit include the clear separation of in-flow and out-flow of funds, ensuring that no element of uncertainty exist in transactions, equality in all business relationships, Corporate Social Responsibility in addition to cooperation, trust, honesty and openness being maintained at all times with regards to all transacting parties. the Sunday Times spoke to Mr. Shiraz Refai, Assistant Manager - Islamic Business Unit of LOLC group, in order to find out more about the services of their unit.
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| Mr. Shiraz Refai, Assistant Manager - Islamic Business Unit of LOLC group |
"We established the Islamic Business Unit of LOLC group with the intention of helping the Muslim community in our country who are restricted access to interest based financing, as it is against the Islamic jurisprudence.
With our focus on better catering to the needs and requirements of the community, we have so far developed 4 main products under our portfolio which include an Islamic alternate product for conventional fixed deposits named 'Mudharabah' as well as three lending products which include 'Ijarah' which is an alternate for Leasing, 'Murabaha' which involves trade financing and 'Diminishing Musharakah' for property and project financing", says Mr. Refai.
'Mudharabah' is an agreement between two parties which is the investor and the entrepreneur. This product enables the entrepreneur to carry out business projects and the profits derived from these business projects are shared between the investor and the entrepreneur on a pre-determined ratio agreed by both parties.
'Ijarah' refers to an agreement under which the lessor leases an asset to a lessee at an agreed rental for the usufruct of the asset by the lessee. This is usually on a fixed term and rent as agreed by both parties.
'Murabaha' refers to the sale of goods as a price which includes a profit margin in addition to the cost. Such a contract is valid on condition that the price, other costs and the profit margin of the seller are stated at the time of the agreement on the sale.
'Diminishing Musharakah' is a partnership, which ultimately provides complete ownership to a partner who purchases the shares of another partner by a redeeming mechanism agreed upon by both partners.
"Our most recent launch is an extension of the 'Mudharabah' which is a unique savings account called the 'Mudharabah Savings Account'. The salient features of this savings account includes an electronically updated pass book which can be accessed through any one of the company's branches, an industry first ATM card which is linked up to the "Maestro" network thereby enabling access internationally.
Although the Islamic Business Unit functions under Lanka ORIX Finance Company Ltd., the unit's transactions are recorded separately therefore the inflow and outflow of its funds are not mixed with that of the conventional business operations. When asked how a conventional business operation can enter into Islamic financing Mr. Refai said, that a business can always enter into this area provided the fact that there is a clear separation mechanism in place which effectively and accurately separates the inflow and outflow of funds from its Islamic financing activities and its normal business transactions.
In the future the unit is also considering moving into other areas of business such as Pawning and Micro financing. LOLC is also looking into the possibilities of taking this concept to that of the liberated areas in the North and East for which there is good potential to develop this concept. All Islamic financing facilities are available through anyone of the company's 35 branches and service centres located island wide.
Islamic financing is not only restricted to the Muslim community but is a mode of financing that is governed under the Shari'ah law. Therefore this mode of financing is open to all communities of the country who are interested in obtaining these types of facilities. The fundamentals of Islamic financing include the sharing of profits and losses, between the investor and the entrepreneur, therefore providing a win-win situation for both parties. In addition to this another key feature of Islamic financing is the fact that it involves asset based lending, therefore ruling out the possibilities of uncertain investments.
"Currently Islamic financing is fast gaining popularity throughout the world especially in South East Asia, the Middle East as well as in the European Countries where laws have even been amended in order to facilitate the concept of Islamic Financing. In Sri Lanka too the Central Bank is taking up this concept very positively.
Although Islamic Financing has been practiced in our country for the past 10 years a majority of Sri Lankans are still new to this concept. Therefore we are campaigning to create a better awareness of Islamic Financing for the benefit of the public. In this regard we will be conducting awareness programmes in selected towns throughout the country for the benefit of our customers as well as other interested parties", said Mr. Refai in conclusion. |
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