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Monday Nov 25, 2024
Thursday, 5 September 2013 00:00 - - {{hitsCtrl.values.hits}}
Q: Share your thoughts how Islamic banks manage liquidity as they are unable to go into the conventional market instruments?
Hisham: For liquidity in HNB, I would say that we do not have a proper instrument to invest that excess liquidity. At the moment we are having discussions with the Central Bank to give us a vehicle such as a Sukuk to park the excess liquidity. At this juncture we are trying to lend as much as possible. This again leads to another problem. As per the requirement of the Central Bank we also need to have our own liquidity. The cost of the fund is also much higher than the conventional banking system. So there are two sides to the story. We need to have a fund return that could be shared by the customer and the bank as well.
Q: So how can this excess liquidity issue be addressed?
Azmeer: I think managing excess liquidity is a hot topic not only in Sri Lanka, but all over the world. The reason is that it has its own implications and impact on the balance sheet. Conventional banks have the opportunity to manage their excess liquidity on treasury bills and others to get a return. Unfortunately our excess liquidity is almost in zero return. It has two implications. The first is on the Profit & Loss (P&L) account where we will lose on a particular part and the other is that to the customer certain products are priced on the return that we may get from our deposits. If we are unable to get the required returns, then we will obviously have to have a higher price to our products and bear the loss. So from both sides we are losing. The answer to address this issue is to develop the right instrument.
Q: From a Takaful point of view, how is this managed?
Ghaffoor: I think it is fair to say that as an insurance company all of us know that the income schemes will provide an excess of additional income. So we will be laying down the instruments for investments. There are few sets of instruments that have been allowed, which are real estate, treasury bills, bullion and equity. Now we depend on people to give us a sufficient amount on return by investing within the Sharia. There are caps in the industry such as the 30% on treasure bills. At the end of the day, in our concept of Takaful it is on the primary principle of sharing. The other issue is that we can go into Sukuks but that is the matter for the banking people. So we have a lot of limitations. The sad story in Sri Lanka is that 60% of the Islamic finance is motor and this bleeds every insurance company. We are caught between the devil and the deep blue sea.
Q: Lacking are instruments in the market that have the backing of the Central Bank which can be used for liquidity purposes. What impediments are there to make these instruments available for Islamic institutions?
Muthugala: There are many developments in this area. The Government has to find money for this purpose and we are on the lookout for new sources of funds. We welcome the Islamic fund and for that we have a committee appointed to look into this matter. So far what we have come across is the impediment to the legislation. There is the talk about interest and without this is how we need to take the instruments to the market. That is where we are at the moment.
Q: From a progression point of view, how fast is the correction of legislation going to happen?
Muthugala: Changes to the law take years and cannot be done overnight. That is where we stand today in terms of the timeline.
