Private sector giant Commercial forays into Sharia compliant banking

The Commercial Bank of Ceylon is launching ‘Sharia compliant banking’ to better serve an important segment of its customer base that requires Sharia-compliant financial products based on Islamic principles.

The bank has announced the appointment of three eminent scholars in Islamic jurisprudence to its Sharia Board, to guide the operations of its new Islamic Banking Unit and to conduct periodic audits to ensure that all transactions conform to the parameters of the Sharia.

The three members of the All Ceylon Jamiyyathul Ulama who will serve on Commercial Bank’s first Sharia Board are Sheikh M.M.A. Mubarak, Sheikh Fazil Farook and Sheikh M.M. Murshid.

“We are honoured that these respected scholars have consented to advise us on the launch of Islamic banking and to supervise the unit’s operations,” Commercial Bank’s Managing Director Amitha Gooneratne said.

 “As one of Sri Lanka’s largest private banks it is our obligation to ensure that the services the unit provides are fully compliant with the tenets of the Sharia.”

Commercial Bank’s Islamic Banking Unit would initially be located on the fourth floor of its headquarters building at Bristol Street, Colombo, but the products would be later be made accessible to customers visiting branches via the bank’s sophisticated IT system, B.A.H.S. Preena, Chief Manager – Corporate Banking said.

At its commencement, the unit will offer deposit products such as ‘Mudaraba’ Savings Accounts and ‘Mudaraba Investment Accounts’ and asset products such as ‘Murabaha,’ ‘Musharaka,’ ‘Diminishing Musharaka,’ ‘Ijara’ Leasing and Import Financing.

All of these products operate on the Islamic principle of both the bank and the customer sharing returns as well as risks. 

Mudaraba, which is a form of profit sharing investment, is a partnership where one partner provides full capital while the other manages the business. Any profit made using the funds is divisible between the customer and the bank at a predetermined ratio agreed to by both parties. 

Murabaha is the sale of goods by the bank to customers at a cost plus profit where the selling price is decided at the time of the sale.  Murabaha can be used for local purchases or import of trading commodities and the customer is given a fixed tenor to settle the sales proceeds.

Musharaka is a method of financing based on partnership, used for asset financing and export financing. Partners are entitled to a share in the profits that result from the project at a predetermined ratio which is mutually agreed upon at the time of entering into the contract.

Diminishing Musharaka is a partnership in which one partner (the customer) will purchase the bank’s share in a fixed asset over a predetermined period and become the owner of the asset. The ownership of it will be passed to the client upon successful completion of the agreed terms. This can be used for property purchase, housing purposes and project finance. 

Available for unregistered vehicles and equipment and machinery, Ijara is a contract where the lessor (bank) who owns the asset transfers its usufruct to another person for an agreed period at an agreed rental. The asset will be gifted to the customer when all lease rentals are met on time. 

Import financing involves providing letters of credit with financing on Islamic terms. This includes import Murabahas. 

Commercial Bank’s Senior Manager – Islamic Banking S.F. Ameen stated that these products could be structured to individual needs of customers while ensuring their Sharia compliance. 

Established in 1969, Commercial Bank owns a network of 198 computer-linked branches and supermarket banking counters in Sri Lanka. The bank also owns the single largest network of ATMs in the country, currently numbering 417 terminals.

The bank has been adjudged ‘Best Bank in Sri Lanka’ for 13 consecutive years by ‘Global Finance’ Magazine, ‘Bank of the Year’ seven times by ‘The Banker’ magazine, and the Best Bank in Sri Lanka twice by FinanceAsia. It has also been rated ‘Best Local Trade Bank’ in Sri Lanka by the UK based ‘Trade Finance’ magazine.