CBA chief visits Sri Lanka

Cross Border Associates (CBA) Associate Director, Faisel Rehman from Bahrain highlighted the inherent strengths of the Islamic finance industry with reference to its ability to withstand the global recession. He pointed out that the key difference between the conventional sector and Islamic finance is that the latter is essentially a contract between two parties, like a buyer and a seller, based on a clear view of the profit and loss possibilities.

The contract also needs to be Sharia compliant which means that it must be free of any interest and in areas of business that are not associated with social ills such as gambling, alcohol, pornography, etc.

Sharia compliance also requires a great degree of transparency in all dealings given that both parties are in it for the loss or profit share. Being backed by real assets has also enabled this industry to withstand the recession much better than the conventional finance sector.

Due to these characteristics of Islamic finance, the industry has witnessed phenomenal growth in recent years as both Islamic entities as well as conventional institutions with Sharia banking windows have increased in number and asset values. Cases in point include global giants like City Bank who started moving in the Islamic finance sector as way back as 1994 and Standard Chartered who opened Sharia windows in 2006.

Faisal Rehman’s own city, Bahrain, has been at the fore of this growth, spearheading the global growth and functioning as a regional hub for the Middle East. The recently held World Islamic Banking Conference was also a massive hit.

Turning to developments in Sri Lanka, he said that the Prime Minister of Bahrain was the first world leader to visit the island following the defeat of terrorism earlier this year.

Moreover, Bahrain is leading G.C.C states to look at Sri Lanka as an investment destination given that the fundamental indicators like a stable exchange rate, single digit inflation and sound growth are improving. In this context, he concludes that the island is a good bet for investors noting that is was the risk-taking early movers who made money by investing in emerging economies of China, India and Eastern Europe during times when most punters considered these markets as non-starters.

In this regard, the Central Bank of Sri Lanka can play a major role in encouraging G.C.C. investors to channel large volumes of funds by proving a regulatory framework for players to offer Sharia banking windows.

As there is already a significant inflow of G.C.C. tourists to Sri Lanka, doubling in number over the past few years, as well as an outflow of migrant labour, connectivity between the two regions is very good in terms of flights and telecommunications. Language too is not a barrier.

With the backing of Bahrain and other G.C.C. states, Sri Lanka has the potential to develop into a South Asian regional hub for Islamic banking services. Areas to look out for will include Sharia compliant microfinance that can bridge talent with capital, commodities trading under Sharia compliance as well as the development of money markets.

Regarding the formation of CBA, Rehman said that the association was formed when the right team equipped with the skills to meet the needs of the market joined hands at the right time. CBA focuses on providing guidance to those looking to invest in Sharia compliant projects and funds.