Islamic banking and finance lags behind, says expert

From left: Adl Capita Group Managing Director and CEO Ishrat Rauff, Krishan Thilekaratne, D /CEO Commercial Leasing and Finance and General Manager, LOLC Al-Falaah, Moderator Adl Capital Associate Director Sabri Abdul Cader, KPMG Managing Partner Reyaz Mihular, A. I. Marikar, Member, Advisory Board of AAFI, Sri Lanka, Former MD, Amana Investment and Former Chairman, Adl Capital and Hisham Ally, Head of IBU, HNB Al Najah Islamic Banking Unit

 – Pix by Lasantha Kumara

By Charumini de Siva

Reflecting on an eventful 20 years of Islamic finance in Sri Lanka, an industry expert yesterday called on market players to be innovative with their products and approach to make them accessible to all, cautioning that otherwise they would not make much of an impact in today’s world.

Delivering the keynote address at the 9th Sri Lanka Islamic Banking and Finance Industry Conference in Colombo yesterday, Association of Alternate Finance Institutions (AAFI) Advisory Board Member A.I. Marikar insisted that the industry needed to reflect on the opportunities and challenges of the past two decades and use those experiences to re-strategise its focus to leapfrog future obstacles.

He claimed that the banks had forgotten their social and developmental responsibility as they had continued to focus on maximising profits at the expense of public deposits.

“Customer deposits account for a huge segment of the money that the banks use to generate their income. Look at a balance sheet of a bank’s loans and advances which are the main income generating assets of a bank. You think that it was the capital of the bank? No, it is all customer deposits. Isn’t there then a social contract between the banks and the people? Isn’t there a payback at some point?” he questioned.

According to the Central Bank Annual Report 2016, out of total loans and advances of Rs. 4.7 trillion, only Rs. 400 million or 9% was given to the agriculture and fisheries industries. Of that Rs. 400 million, less than 1%, was allocated for paddy cultivation.

“I think as banks we have failed. As per the annual report, 60% of rural labour is employed in food production, especially in paddy cultivation in Sri Lanka. Aren’t we morally responsible financial institutions helping the Government to achieve two of its most important responsibilities, food security and employment creation? I don’t think we are. This is why I am insisting that banks need to reset their moral compass,” he stressed.

Marikar emphasised that they should also be mindful of their social responsibility for the wellbeing of the people and said it was high time to reset their moral compass.

He said that there are 100,000 hectares of irrigated paddy lands owned by 98% of Muslims in the Ampara District in the Eastern Province, which cultivates paddy during both seasons. However, they all go to conventional banks to borrow money, especially in the form of pawn brokering, where interest is there from start to finish in their borrowing activities.

“Ampara and Polonnaruwa are the food baskets of Sri Lanka. These two districts produce the most amount of rice to feed our nation. But what has Islamic banking and finance done to support that Muslim farmer to obtain finance to produce food? Nothing! Let profit not be the sole driving force in your endeavour,” he stated.

Marikar also claimed that Islamic banks and financial institutions were suffering from a serious ghetto mentality. “We have built a rock wall around Muslims saying it is only for Muslims, this is only Islamic. This is a system of banking. Focus on the banking aspect of the whole initiative. Let’s not build walls around ourselves. Let’s say we are part of the nation and this service is available for every human being.”

Elaborating on the product range challenges, he said institutions had trapped themselves in the shadow of a colonial past, which has resulted in no capital market instruments. 

“We do not have a single capital market instrument using the commodity markets we have. Why can’t we have big ticket Sukuk’s with stock market quotation so banks and individuals have a chance of investing money in short- to long-term capital market instruments? Why not Salam, the most Sharia compliant product?” he added.

He said it was disappointing not to have a single capital market innovated by the industry despite having qualified Muslims in the past 20 years of the industry in Sri Lanka.