'Sukuk' an alternative financial instrument

Charumini de Silva

An Islamic financial instrument Sukuk- an Islamic bond could be introduced to the Sri Lankan financial market as an alternative financial instrument.

Sukuk comes under the Islamic Sharia law of profit sharing and charges no interest rates. Since Sri Lanka has a Muslim community it could be initially introduced to them, but the other communities too could benefit from Sukuk, Superintendent and Registar, Central Bank of Sri Lanka, C.J.P. Siriwardana told Daily News Business.

He said Malaysia is a leader in Sukuk issuance as it accounts for more than 60 percent of global Sukuk. In European countries and the United States of America it has become popular and well accepted among the public.

An awareness program among corporate bodies should we carried out so that they will be brought into the bond market to deal with Sukuk as it is an important alternative to the local financial sector. Intermediaries to sell and popularize Sukuk bonds is necessary to make it accepted among the public who are not aware of its benefits like profit sharing and dividends.

However, it is important to prepare the legal background for it to be made one of the national financial instruments, he said.

It is important for the corporate sector to issue their own bonds as at present they deal only with banks in transactions of bonds.

Private sector financial instruments mainly bonds are important for the development of independent financial sector business. By issuing bonds of their own private sector bodies could raise capital to invest in new projects, Siriwardana said.

"Our corporate bond market has not matured and we need to focus on improving the corporate bonds.

Though it was better to rely on our own existing financial instruments, Sukuk is a better alternative since it is well accepted around the world", he said.