In spite of Sri Lanka’s Islamic population accounting for 10 percent of the total population and their economic contribution is as high as 15 percent to the gross domestic product (GDP), the country’s Islamic finance sector has been growing at a unsustainable pace and thus, has failed to see its full potential, according to the country’s top Islamic finance professional.

According to Lanka Orix Finance Islamic Business Unit General Manager Krishan Thilakaratne, even though the sector’s assets have been growing at an average 25 percent every year, the sector will not reach anywhere as this growth is taking place form a very low base.“I am a bit disappointed about the growth that we have seen so far,” he said, speaking at the third Islamic Finance News (IFN) forum this week, organised in association with Amana Bank PLC.

Islamic finance has been in operation in Sri Lanka for the last 15 years but the total Islamic finance assets at present stands at paltry Rs.35 billion, whereas the total conventional banking and finance sector assets stood at Rs.7 trillion as of end1H’14.Islamic finance therefore accounts for 0.5 percent of the total banking and finance sector assets in Sri Lanka.“With this amount of growth, we are not reaching anywhere. The industry needs to grow two times, three times. We should not be misled by the percentages because we are growing from a very low base,” said Thilakaratne, highlighting the vast amount of industry potential.

However, Sri Lanka’s potential market for the Islamic finance sector at present is Rs.300 billion but according to Imruz Kamil, Head of Islamic Finance at Richard Peiris Finance, at least Rs.250 billion is still served by the conventional financial sector.Currently, there are 13 Islamic finance institutions in Sri Lanka, of which seven are banking institutions. Lately, even the conventional banks and finance companies opened windows to provide Islamic finance products.However, Thilakaratne cast his doubts as to whether these windows have the same amount of commitment in service delivery, particularly into the needy segments.
 

“What we see now is most of the conventional players opening windows but we should question if they are really committed to taking Islamic finance in to grass root level – the bottom of the pyramid,” he remarked.While acknowledging that Islamic finance is very much at the heart of creating inclusive banking, he also said the industry is still demand driven and there is a lot to be done in terms of product innovation and taking the products to the grass root levels. “In Sri Lanka, with all the advancement in banking, there are two communities which are still outside the mainstream banking. One is the Muslim community and the other the women entrepreneurs. Both these segments can be tremendously benefitted through Islamic finance as they mainly focus on microfinancing and the SME sector,” he finally said.