IFN, in association with Sri Lanka’s Islamic banking pioneer Amãna Bank, in October successfully hosted the third in its IFN Sri Lanka series. The event was held under the patronage of the governor of the Central Bank of Sri Lanka, Ajith Nivaard Cabraal, and was attended by many senior officials from both the conventional and Islamic banking sectors, as well as regulatory officials, scholars, practitioners and customers. The governor of the Maldives Monetary Authority, Dr Azeema Adam, also attended the forum as a special guest. M A MOHAMED IMRAN reports on the event.
Over the years, the IFN Forum has become an ideal platform in order to bring the country’s Islamic finance industry and its key regulatory stakeholders together to discuss the challenges and opportunities of the industry. Opening the forum Mohamed Azmeer, CEO of Amãna Bank, also mentioned that the event was taking place at a time when the overall Sri Lankan economy and banking industry is going through a phase of positive and significant change. Notably the finance industry is moving into a clear direction of consolidation and economic management, resulting in an unprecedented drop in market rates.
Azmeer expressed his views on the Islamic banking and finance industry and the way forward through four statements. Firstly he stressed that “the onus is on us”. He elaborated that regulators have made significant strides in creating a conducive environment for the industry to flourish. While there are several further challenges currently being addressed, he noted that the greater responsibility of driving the growth of the industry will lie on the industry players. Secondly he touched on the importance of products, highlighting the fact that product matching with conventional banking products is important but the future focus should be to achieve product differentiation, thereby unlocking the true potential of the Islamic banking concept. Thirdly he stressed on the need to “focus on the market beyond” by breaking the traditional market perception that Islamic banking is only for Muslims. He noted that the best way to achieve this is by actively engaging in highlighting the values and benefits of the model which is more human friendly. Finally he highlighted the importance of “aligning to the real economy”. He commented that Islamic banking by design is compelled to center all its activities around real transactions, real transfer of assets and thereby the real economy. He noted that interestingly, Sri Lanka is also at a stage where the focus is on fuelling real economic activity. This, he said, enables room for a perfect marriage between the country’s economic focus and what the Islamic banking model has to offer.
Following the opening remarks of Azmeer, central bank governor Ajith Nivaard Cabraal in his key note address commented that interest in Islamic finance seems to be growing and there is a clear movement which he believes is gaining popularity rapidly. Elaborating on the regulatory aspect he mentioned that the central bank always welcomes the diversification of instruments as well as systems of finance and he does believe that the country should have access to finance through different instruments which can be used in a way that people could benefit personally and as a country. He also mentioned that the country has provided this space through the Banking Act for all these different types of instruments to be accommodated and to go forward within the overall structure of the monetary law act and banking act.
Giving an insight into the Maldives Islamic finance Industry, Dr Azeema Adam, governor and chairperson of the Maldives Monetary Authority, in her address said that the country was happy to learn from the best practices of Islamic banking and finance institutions in Sri Lanka.
This was followed by a CEO session on addressing challenges through innovation, looking at emerging trends and opportunities. The session was moderated by the managing partner of KPMG Sri Lanka, Reyaz Mihular, and attended by senior deputy governor of the central bank, Ananda Silva; CEO of Amãna Takaful, Fazal Ghaffoor; CEO of Al Falah Lanka Orix Finance, Krishan Thilakaratne; and CEO of Amãna Bank, Mohamed Azmeer.
Representing the regulatory authorities, Silva mentioned that there has been an overall improvement in the country’s economy during the past few years with falling interest rates and steady exchange rates and they are looking forward for further expansion in the economy. They are confident that the Islamic financial sector can play a big role in supporting this growth momentum.
Thilakarathne stated that many new players were coming in to the market and stressed the importance of them being committed to the model to cater and deliver to the requirement of the grass root level or at the bottom of the pyramid. According to him there is a lot more work to be done on product innovation as well as taking the message to the grassroots level.
Ghafoor pointed out that the Sri Lankan insurance sector is going through an exciting time where the banking sector is consolidating and the insurance industry is expanding. They are innovative enough to have a modest 2% market share today, and interestingly the country is currently seeing a few more Takaful players in the market with the introduction of Takaful by a few conventional insurers. He also quoted an interesting fact from the speech of Dr Adam that Maldives is also now introducing Takaful, while Sri Lanka is celebrating 15 years of the sector.
Talking about innovation he stated that in a competitive market, new players use price cutting as an entry strategy in the name of innovation, which he feels defeats the whole purpose of what they are trying to do. Real innovation, he believes, needs to be their unique selling proposition and differentiation in the market.
Sharing his views Azmeer said that the industry needs to look at the Sri Lankan context and what its current economy requires. He was of the opinion that the industry can do a lot within the current legislative framework and does not need to wait until the perfect environmental condition sets in to do these changes. He once again stressed on the importance of fueling the real economic growth and catering to the varied requirements of the social pyramid. As to the performance of the industry during the last two years, he noted that while market share against the total banking industry was around 1% there has been substantial growth in recent years. He noted that out of a US$350 billion potential the industry has captured approximately 10% within a very short period.
The CEO session was followed by two more panel discussions.
The session on ‘Advancing Sri Lanka’s Islamic finance industry: What needs to get done?’ was moderated by CEO of Amãna Takaful Life Reyaz Jeffrey, with panelists including CEO of Maldives Islamic Bank, Harith Harun; the head of Islamic finance at Richard Peiris Finance, Imruz Kamil; the director of Research Intelligence Unit, Roshan Madawela; the vice-president of consumer banking and strategic marketing at Amãna Bank, Siddeeque Akbar; the principal of tax & regulatory at KPMG, Suresh R I Perera; and the head of global transaction banking at Deutsche Bank, Tyrone Hannan.
The event was well attended with over 200 delegates and was acclaimed by many for the valuable insights and discussion it enabled. Sri Lanka’s Islamic banking and finance landscape consists of one fully fledged Islamic bank (Amãna Bank); six conventional banks with Islamic banking windows (Bank of Ceylon — An Noor, Commercial Bank — Al Adhala, Hatton National Bank — An Najah, MCB Bank, NDB Bank and Habib Bank); and five finance companies (Lanka Orix Finance — Al Falah, People’s Leasing & Finance — Al Safa, LB Finance-Al Salamah, Citizen Development Bank — Meezan and Richard Pieris Finance — Arij) which in total accounts to twelve financial institutions that offer Islamic banking and finance service as of now. The industry also has one fully fledged Takaful operator, Amãna Takaful; and two Takaful window operators, HNB Assurance and LOLC Insurance.