Sri Lanka has been urged to use Sukuk, (Islamic financial certificates), to channel millions of dollars of Muslim community funds into post-war development projects.
According to market estimates, funds worth US$ 150 million are in circulation, in the form of informal arrangements, among the Muslim community inside Sri Lanka alone. These funds cannot be drawn-in and channelled into development projects because Sri Lanka does not provide a formal investment tool that complies with religious precepts of the Muslim community. “We don’t have to look very far to raise development financing.
illions of dollars are available inside Sri Lanka itself, untapped, with the local Muslim community. We estimate that around US$ 150 million is currently in circulation among the local Muslim community. They use various arrangements, like partnerships, to invest this money because a formal debt-market instrument is not available for them,” the CEO of RAM Ratings Lanka, Adrian Perera, told the Sunday Times FT after a conference on Sukuk, organised by RAM Rating and Deutsche Bank this week.
Even Sri Lanka’s Islamic financial institutions, also holding large amounts of funds, are starved for investment avenues due to the same reason.
“Islamic financial institutions that cater to the local Muslim community also have the same problem. They don’t have an investment instrument. The available investment opportunities that conform to Islamic religious principles are limited, and can only absorb a portion of their funds. So these financial institutions don’t make an effort to increase their deposits because they have no way of re-investing a large portion of their funds,” said Mr Perera.
RAM Ratings says the local Muslim community can raise large amounts of funds very fast, if an acceptable investment tool is provided. “Our local Muslim community can raise millions of dollars worth of funds within a few days. They also have extensive foreign connections. They can leverage these connections also, if they are given a mechanism that is acceptable to Islamic beliefs,” said Mr Perera.
Sukuk (plural of Sakk) are securities that conform to Islamic law. Therefore, Sukuk are seen as a suitable vehicle to attract and direct Muslim community funds into urgently needed development projects.
At this point however, Sri Lanka’s legal and regulatory system cannot accommodate Sukuk..
For instance, Sri Lanka’s tax laws will have to be changed to accommodate profit sharing without interest pay-outs.
“We do not have the required legal, regulatory, supervisory and accounting structures for Sukuk in Sri Lanka at the moment. We also don’t have a Sharia Council here. The Sukuk has to be approved by a Sharia Council before being used. So at this point we are looking into the possibilities,” said the Director General of the Securities and Exchange Commission (SEC) of Sri Lanka, Channa de Silva.
The SEC agrees that Sukuk will be a good
way to attract foreign investments from Islamic nations.
“Sukuk will be very good, especially to
attract investments from Middle Eastern countries that are cash rich, and from Muslim investors all over the world,” said Mr de Silva. |
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