The Maldives’ biggest bank is opening a Shari’ah-compliant unit, a move the government sees aiding its goal of becoming South Asia’s offshore Islamic finance hub. Bank of Maldives Plc began offering retail deposits that comply with the religion’s ban on interest on 22 January to be followed by finance for individuals and companies within two years, the state-owned lender said in an e-mailed response to questions on 27 January. That will help drive an increase in Shariah-compliant financial assets to five per cent of holdings this year from three per cent, said Deputy Minister for Islamic Affairs Aishath Muneeza.
“The growth of Islamic finance will be at a very fast pace,” she said in a 26 January interview from the capital Male. “I hope that we will be able to create an Islamic finance centre, which will act as the leader for Islamic finance and the halal industry in the South Asia region.”
The government has set up a Shari’ah advisory council and released a Sukuk investment guide in its bid to tap an industry that Ernst & Young LLP sees doubling to $3.4 trillion in assets by 2018. The island nation is reliant on tourism and wants to diversify its economy by luring Islamic debt sales and deposits from India, where there is a Muslim population of 166 million but no Sukuk or Shari’ah lenders because of opposition from Hindu politicians.
The Maldives Monetary Authority has been selling Islamic treasury bills since 2013, the same year the government set up a national Hajj fund and Housing Development Finance Corporation Plc sold the country’s first Shari’ah-compliant bonds. The central bank plans to offer a greater variety of Islamic instruments and rules are being drafted to allow local authorities to sell Sukuk, Muneeza said.
Islamic banking growth is slowing in Pakistan, the industry has yet to get off the ground in India and there has been no progress in Sri Lanka since authorities in Colombo announced in 2010 that they would grant Shari’ah-compliant financial transactions equal tax treatment.
“What the Maldives has going for them is the fact that they’re not as regulated as Sri Lanka or Pakistan,” said Baiza Bain, a director at Amanie Advisors Pty Ltd. (Australia), an Islamic finance consultancy in Melbourne. “They are more nimble in that sense compared to their bigger rivals in South Asia,” he said in a 27 January phone interview.
Spanning some 1,000 islands with a population of 394,000, the predominantly Muslim nation is mainly known a luxury holiday destination. Tourism accounts for 28 per cent of gross domestic product, although growth in arrivals eased to 11.5 per cent last year from 17.4 per cent in 2013, according to figures from the Asian Development Bank.
The Maldives began certifying some of its fishery exports as Halal, or Shari’ah-compliant, in 2013 and Adaaran Select Hudhuranfushi hotel in Male also follows Koranic principles, according to research company CrescentRating.
The country still has only one full-fledged Islamic lender, one Shari’ah mortgage provider, Housing Development Finance, and a single insurer that complies with Quranic principles. Pakistan has 22 Shari’ah-compliant banks, while Islamic financial assets in Bangladesh make up 24 per cent of the total, according to central bank data.
The archipelago becoming an South Asian Islamic finance hub “is an ambitious target,” Raj Mohamad, managing director at Five Pillars Pte, a consulting firm in Singapore, said in a 27 January e-mail interview. Although it can become a Shari’ah-compliant financial centre that complements the bigger economies in the region, he said.
Last year saw debut sukuk from the UK, Hong Kong and Luxembourg as Islamic finance expanded beyond its traditional strongholds in the Middle East and Southeast Asia. Worldwide sales of the debt totalled $46.3 billion in 2014, just shy of a record $46.8 billion in 2012.
“Maldives has taken the positive step in terms of issuing the initial regulations but what they need to do is attract one of the major players,” Amanie’s Baiza said. “If you have one of the big banks set up operations there, that alone will be a very positive reinforcement for other banks to consider setting up a presence.”