Colombo: Rural areas in Sri Lanka can also benefit from shariah-compliant products as the country’s only full-fledged Islamic lender, Amana Bank, is planning to double its branches by expanding in rural areas that hints at six-fold growth in demand of Islamic finance in Asian country.
The CEO at Amana Bank, Faizal Salieh, said that the bank will add five outlets this year to its existing 14 and nine in 2013. The bank started its operations in August 2011.
He said that Sri Lankan Islamic banking assets could reach $1.5 billion from $250 million now without specifying a timeframe. Amana posted a net profit of 178 million Sri Lankan rupees ($1.4mn) in the nine months through September and had assets of SLR18 billion.
Amana is targeting unbanked individuals and the small-to-medium sized enterprises that are driving the nation’s growth, he added.
The $59 billion economy expanded 8.3 percent last year, the fastest pace since records began in 1959, as the government boosted spending on roads, ports and power plants following the end of a 26-year civil war in 2009.
“Islamic finance is at an infant stage in Sri Lanka but it’s developing,” Suresh Perera, a tax and regulatory principal with KPMG Sri Lanka in Colombo, said in an interview recently.
“There’s demand from the Muslim population involved in trade and business and there’s also interest from non-Muslims,” he added.
Of the country’s 21.5 million people, about 8 percent are Muslim, compared with a majority of 69 percent who are Buddhist, according to the CIA World Factbook. In neighboring India, which has no Islamic finance policies, Muslims account for 13 percent of the 1.2 billion population, the world’s third largest.
Five non-Islamic lenders are also offering Shariah-compliant services through booths, according to an e-mailed statement from the department of bank supervision at the central bank.
Amana’s website shows it has branches concentrated across central Sri Lanka from the west to east coasts, including the capital Colombo and the cities of Kandy, Kattankudy and Mawanella.
Hatton National Bank started its Shariah windows in February to tap the market as about 25 percent of all businesses in Sri Lanka are owned by Muslims, L A M Hisham, who heads the Islamic finance unit, said.
“This is an alternative and lucrative way of banking,” Colombo-based Hisham said, adding that the bank’s network of 250 branches helps reach out to Muslim customers.
“We are looking for more innovative products to offer,” he added.
There’s been no progress since the government announced in 2010 it would grant Shariah-compliant financial transactions the same tax treatment as non-Islamic products, Amana’s Salieh said.
Amana, whose shareholders include Bank Islam Malaysia and Jeddah-based Islamic Development Bank, plans to expand to overseas markets such as India, the Maldives and Mauritius once its domestic business strengthens, Salieh said.
“What would drive the growth of Islamic banking in Sri Lanka is its ability to attract investment from outside such as Middle Eastern and Far Eastern funds,” he added.
Islamic banking assets in Sri Lanka are small relative to those in neighboring Pakistan and Bangladesh, who have the world’s second- and fourth-largest Muslim populations.
Holdings that comply with religious tenets in Pakistan total $6.8 billion and $10 billion in Bangladesh, according to central bank data. Indonesia, home to the world’s largest Muslim population, has assets of $16.8 billion.