“Perfect timing” for sovereign sukuk, say alternative banking experts in Sri Lanka

• Say with new administration and fresh thinking, industry believes it is right climate to take steps forward
• Assert Sri Lanka is well-positioned for such alternative banking methods to thrive, as groundwork already established
• Note, from a regulatory perspective, successive governments have failed to fully grasp significant potential of alternative financial services

By Nuzla Rizkiya

Sri Lanka’s alternative banking sector experts yesterday expressed they are highly optimistic about the country issuing its first-ever sovereign sukuk, under the new government.

As Sri Lanka prepares to roll out corporate sukuk products into the capital market, Amana Bank Managing Director and Chief Operating Officer Mohamed Azmeer shared that the industry believes the “timing is perfect” to push for alternative forms of state-backed sovereign securities.

A sovereign sukuk is an Islamic financial bond issued by a government to raise capital, similar to a traditional sovereign bond but in compliance with the Islamic law (Sharia). These bonds allow investors to have a share in underlying assets or projects, with returns coming from the profits generated by those assets, rather than from the interest payments owed by the government.

“A dot remaining in Sri Lanka is the issuance of the sovereign sukuk. We are working on it. With the new administration and fresh thinking, we believe this is the right climate to take these steps forward,” Azmeer said addressing a panel at the ninth International Forum on Islamic Finance and Sustainability (IFFSA) Conference held in Colombo yesterday.

Reflecting similar sentiments, KPMG Principal Tax and Regulatory Suresh Perera stated that Sri Lanka is well-positioned for such alternative banking methods to thrive, as the groundwork for the system was laid in the country decades ago.

However, from a regulatory perspective, he noted that successive governments have failed to fully grasp the significant potential of alternative financial services, especially concepts such as sukuks, which could significantly help alleviate the country’s staggering debt burdens.

“Sri Lanka is a multi-ethnic country and therefore, alternative banking concepts should not be focused solely on the Muslim community. The benefits of the system extend to the other sector as well. For example, sukuks will attract a lot of foreign currency investments from the Middle East, to help Sri Lanka’s development, without having to rely on sovereign debts and loans,” Perera told Mirror Business.

He went on to stress the importance of raising awareness about sukuks among the policymakers and public, noting that these non-conventional financial solutions often offer more effective quasi-equity approaches compared to the traditional debt instruments.

“I think this is an area Sri Lanka should really focus on. With the right regulatory framework, sukuks can help Sri Lanka access the Middle Eastern petrodollar investments and fund infrastructure development effectively. 

“If the government can understand this concept and convey the message to the public, it can drive significant development in the country, with the participation of global institutions,” Perera said.