Friday Sep 20, 2024
Friday Sep 20, 2024
Thursday, 9 October 2014 00:00 - - {{hitsCtrl.values.hits}}
Speaking on the panel on the topic of ‘Assessing established and emerging Islamic investment destinations’, Abeysuriya stated that with an aggressive national economic development plan in place, Sri Lanka is rapidly changing into an attractive Islamic investment destination presenting an array of opportunities in a fast-growing economy. Sri Lanka is projected to record an average annual 8% GDP growth during the medium term, moving ahead from the average annual 7.8% GDP growth maintained during the past five years.
He also mentioned that Sri Lanka is one of the few countries that has economic, political and social stability, has a clear strategic development direction, low single digit inflation and a stable currency. There is an infrastructure development drive underway, having already completed some key strategic projects. The productivity levels and literacy levels of the workforce have witnessed steady growth with rising household incomes driving retail consumption. Fuelled by these developments, Sri Lanka is strongly in pursuit of its quest to develop and position itself as an aviation, tourism, commercial, energy and knowledge hub within the South Asian Region, he added.
Abeysuriya encouraged investors to exploit the opportunity of the Rs. 1.5bn Islamic finance industry of Sri Lanka which has a modest history of 15 years. Having set firm foundations during the past decade and half, the industry is positioning itself as an emerging Islamic finance hub of South Asia.
The Islamic finance industry has witnessed remarkable growth in 2013 in contrast to more traditional products offered within the domestic marketplace. The Islamic bank loan growth was recorded at 110% when compared to 8% on traditional loans and Takaful insurance recorded a growth of 16% in comparison to the 12% growth in traditional insurance. However, the AUM of Shariah Funds witnessed a stable 46% growth in relation to 75% recorded for traditional funds.
Islamic Finance growth
The Islamic products of Sri Lanka have tended to offer high returns when compared with key global markets at relatively low risk. The co-relations of the Sri Lankan equity market is low in contrast to global markets and foreign investors could gain diversification benefits by allocating a proportion of their portfolio to Sri Lanka. In retrospect, Sri Lankan markets are negatively correlated with US markets and also pose very low correlation with Middle Eastern markets.
According to Bloomberg return analysis as at 25 September 2014, Sri Lanka’s DOW JONES Islamic Market Index is within the top three amongst the comparable global Shariah indices, with nearly 30% year-on-year return.
Abeysuriya elaborated that Sri Lanka has a multitude of institutions offering Islamic Finance on a variety of platforms. The demand for the services has forced more and more players to enter the industry and expand their offerings to furnish the growing needs of the marketplace. There are many institutions including a fully-fledged Islamic bank, a Takaful operator, few Islamic funds and number of conventional banks offering Islamic windows. The most popular products in terms of market prevalence are Mudharabah followed by Ijarah, Musharaka and Diminishing Musharaka. The Islamic asset management services in Sri Lanka comprises of Mudaraba and Musharaka funds and open-ended Shariah compliant Unit Trust Funds that offer an entry position to foreign investors. Any foreigner could invest in Sri Lanka through a single Securities Investment Account (SIA) or directly in Unit Trusts in which all capital gains, dividends and sale proceeds can be freely repatriated while not being subjected to taxation.
With the advent of new and prominent investors, Islamic Finance could play a pivotal role in the development of infrastructure projects and the capital markets of the post conflict era of Sri Lanka. Shariah Finance and Investments generally excel in sectors which are sustainable and which do not morally or socially harm the society. Based on these principles, the growing sectors in Sri Lanka are in line with future growth of the Shariah sector that include the land and property sector (REITS, Hospitals/Healthcare), renewable energy (Hydro, Solar, Biomass and Wind Power). Islamic micro finance has a strong potential to grow with the rise in disposable incomes. Given the overall favourable economic prospects that Sri Lanka is currently enjoying and the tremendous untapped potential of its Islamic finance products Islamic financial products are expected to enjoy double-digit growth rates over the short- to medium-term.
