NAZNEEN HALIM speaks to Sri Lanka’s Islamic insurance trailblazer, Mohamed Haniffa Mohamed Rafiq, director and founder of Amana Takaful Insurance, and discovers that tribulation does breed innovation.

After a fortuitous meet with Mohd Fadzli Yusof, the then managing director of Syarikat Takaful Malaysia, Rafiq decided to leave conventional insurance for good after 35 years and provide his countrymen with an Islamic alternative. Eleven years on, Amana Takaful Insurance is enjoying a healthy slice of Sri Lanka’s and the Maldives’ insurance base, and is fast expanding its reach. However, with some major roadblocks along the way, the future of Sri Lanka’s Islamic finance industry hangs literally in the ballots.

Amana Takaful Insurance, Rafiq’s brainchild, was launched as a subsidiary of Amana Investments; Sri Lanka’s first Islamic investment company which provided an investment avenue to Sri Lanka’s 1.6 million Muslims, approximately 8% of the nation’s 23 million-strong population. According to Rafiq, when the investment company was launched, investors fled from riba-based systems into the Shariah-based alternative.

“Investors were keen on Mudarabah, Ijarah, trade financing and Islamic housing facilities. However, much persuasion needed to be done on the government and regulatory side to receive an Islamic banking license due to the lack of expertise on a government level to regulate Islamic banking organizations,” he said. Despite the demand for and awareness of banking and insurance alternatives in Sri Lanka, Islamic organizations may have hit a brickwall due to an absence of investment avenues.

Not content with just being a major mover and shaker in the Islamic insurance realm, Rafiq had also started the first international school in Sri Lanka to cater to the growing demand for an English-based curriculum, and has also acted as a management consultant to hospitals, and had his hand in the stock market and in property development.

Here are excerpts of the interview with Rafiq, and insight into what Sri Lanka needs to realize its full potential as an Islamic finance mecca.

Current state of Islamic finance in Sri Lanka
The first Takaful license was issued to Amana Takaful after much lobbying to the government. Back then we were one of the 10 to 12 Takaful companies, and thankfully we have managed to climb to the 8th spot out of 16 Takaful companies in the country. In the meantime, Amana Investments had been lobbying for an Islamic banking license and was recently (six months ago) awarded a provisional banking license.

There are certain rules which come with a provisional banking license, mainly in terms of equity. The bank’s founders had to raise LKR2.5 billion (US$21.96 million) and find strategic investors; which include Bank Islam and several Bangladeshi and Middle Eastern banks. Hopefully by June this year, Amana Investments will become Sri Lanka’s first full-fledged Islamic bank.

Sri Lanka’s 8% Muslim population is generally business-minded, and there is a fair amount of activity and involvement from their side in the market. This inadvertently translates into a rich market for Takaful and Islamic investments. In fact, even the non-Muslims are fast picking up on Takaful, making up a healthy 25% share.

This is mainly because we do not market Takaful as an Islamic product per se. Technically, a conventional insurance policy and Takaful are similar, but the funds we invest in are in accordance with Shariah.

Herein lies the problem…
The main hurdle we face as Islamic financial institutions in Sri Lanka is finding Shariah-based funds to invest in. Although we have been licensed as a Takaful company, we have to abide by the general regulations as there is currently no separate Takaful Act for Islamic insurers.

Basically, this means that under the statutory regulations, Islamic institutions and conventional institutions have the same investment pool to play with, that is, the treasury bonds. It is compulsory for all investment institutions to deposit 50% of their finances into treasury bonds which are unfortunately not Shariah compliant.

This poses a problem because in case of an emergency, we must be able to liquidate our assets to pay policy holders, but the money is currently just sitting in treasury bills, which we are not allowed to extract interest from. Therefore, we are now looking at avenues to invest this money. Some suggestions such as bullion have cropped up, but the problem is that bullion is not liquid, due to the lack of a market for gold in Sri Lanka. It is there, but extremely small.

No way around?
I am currently involved in starting up a new company, Saif Capital, to handle Islamic trade financing. It is not licensed by the government, and therefore our role is to act more as a go-between for investors and borrowers. We hope to eventually gain a finance company license for this endeavor.

We are also trying to create unit trust or Sukuk, under the banner of Adl Capital, to create investment avenues for Amana Investments and Amana Takaful.

This is not to say that the government has not been supportive, but it is clearly lacking in qualified personnel. Normal regulators cannot regulate Islamic banks or Takaful companies, and this will take time (to rectify). Hopefully, the newly-elected government will support our cause, and I am certain that once demand is apparent, there will be nowhere to go but up.

A lot of development is now taking place, with Sri Lanka having emerged from a decade of war. With this, I am certain that Shariah-based financing will continue to grow.

Other areas of interest
Wealth management is another area which we are excited about, as we know that the Islamic financial institutions in Sri Lanka are flushed with cash and need investment avenues. Local Sri Lankan banks have also started their own Islamic windows, and this is definitely a growing sector.

As industry pioneers, we are prepared to give advice to these up and coming players, and our team of Shariah scholars are well-equipped to set up their Shariah capabilities.

Growing top-down
There is no doubt that the Sri Lankan government is keen on Islamic finance as it is growing globally. It has also begun to train its officials in this area. Although it is currently not working with other governments, the Malaysian ambassador has been very helpful in coordinating advice to the government.

And although we may not see a government Sukuk anytime soon, we expect to see one issued by a local Islamic organization, and the outlook for this is very positive. The government also needs money for development bonds, and Amana Investment has suggested the creation of a development bond structured under Islamic principles. If we successfully structure the bonds, I am certain the government will be happy to issue. We are also starting to see an increase in listings among Islamic funds.