Amana Investments: The torchbearer of Islamic banking in Sri Lanka
By Rizwan Khatik - Thu Mar 03, 11:09 am
Last month, President and Finance Minister Mahinda Rajapakse and the Central Bank of Sri Lanka granted a full commercial banking license to Amana Investments Ltd. to set up Amana Bank, which is scheduled to start full operations later this year. The bank is headquartered in Colombo and has 13 branches in the west and east of the country as well as one in the south, in Galle, that are being converted into fully fledged branches of Amana Bank.
Salieh discusses with Arab News the core objectives of the bank; the potential and opportunities for Islamic finance in Sri Lanka’s development and economy; and the challenges and issues that remain.
What is the license status of Amana Bank?
Faizal Salieh: We have been granted a full commercial-banking license to establish Amana Bank. It was granted on Jan. 24, 2011. The authority is the Monetary Board of the Central Bank of Sri Lanka with the concurrence of the Minister of Finance Mahinda Rajapakse. The license was granted pursuant to Banking Act No. 30 of 1988.
What is the paid-up capital of the bank and who are the main shareholders?
The stated capital is 3.4 billion Sri Lankan rupees ($1 = Rs.110.87) which is what the bank has raised. The minimum required regulatory capital is Rs.2.5 billion. The main shareholders are Bank Islam Malaysia Berhad (with a 20 percent equity stake), Albaraka Bank of Bangladesh (with a 15 percent equity stake), the Jeddah-based Islamic Development Bank (with a 10 percent equity stake) and the local Akbar Bros. (with a 10 percent equity stake).
Which activities are you allowed to conduct under the provisions of the bank license and the law?
Amana Bank is allowed to conduct all commercial banking activities both domestic and offshore banking and Islamic banking products. Amana Bank will engage only in Shariah-compliant banking products and services. The license specifically requires us to assist the government of Sri Lanka to raise long-term funds through Islamic finance products.
What are your core business objectives and which products will you concentrate on?
Our core business objectives are to offer our customers a principled and attractive alternative to interest-based banking; infuse a new and innovative dimension to the country’s banking industry through our business model; and add value to the economy. In this process we aim to be among the top ten banks in the country in terms of brand equity in five years. We wish to touch the hearts and lives of many people as possible through our consumer-banking product offerings and also enable the corporations and small- and medium-sized businesses to access and benefit from our ethical financing products.
What is the potential for Islamic banking in Sri Lanka? Apart from Amana are their any other institutions that provide Islamic financial products, including through windows or ad hoc stand-alone products?
The potential market size for Islamic banking is estimated at $1.5 billion. There is growing awareness even among the non Islamic market segments. The other operators include two conventional banking Islamic windows, one of which is a wholly state-owned bank; two Islamic-leasing windows by a state-owned leasing company and a private sector leasing company; two Islamic windows by private finance companies; and a few small-time fund management entities.
What has been the support from the Sri Lankan government and its central bank in facilitating the introduction of Islamic financial products in Sri Lanka? Is it part of a financial inclusion policy?
The support from the government and the central bank has been essentially in response to Amana’s consistent lobbying efforts and continued dialogue with the regulators, which resulted in some significant amendments being made to the banking law in 2005; the articulation by the Ministry of Finance in the government’s budget proposals about the need to recognize Islamic finance for the purpose of tax neutrality in the country’s tax statutes in November 2010; and the issuance of the country’s first banking license to Amana Bank for the purpose of carrying on Islamic banking in January of this year. The government has recognized the global growth and value of Islamic finance and has expressed its desire to see the economy benefit from it. Yes, Islamic finance is now part of a financial-inclusion policy.
How can Islamic finance contribute to economic growth, infrastructure development and financial stability in Sri Lanka?
Islamic finance is ideally suited to participate in the long-term financing of the country’s infrastructure requirements as it has the right product structures for that purpose. The asset-based financing emphasis will be a positive factor in enabling real economic growth and promoting financial stability. Islamic financial institutions have been successful in tapping the informal sector and integrating it with the formal economy as demonstrated by Amana’s own business experience over the past 12 years. Islamic financial institutions that subscribe to good governance standards, best practices and compliance would by definition become formidable assets in ensuring true stability in the financial system.