Alternative Finance

Mar 29, 2011 (LBO) - Sri Lanka expects to devise Islamic finance specific regulations this year following ongoing consultations with the industry, though the first commercial bank on alternative finance has been licensed on existing rules, an official said. At the moment a commercial bank operating on Islamic finance principles has no income earning asset in which to invest money set aside for liquidity requirements. The money must be kept in cash, while competing commercial banks can invest in interest earning Treasuries.

Countries like Malaysia have issued government bonds tied to specific projects called 'Sukuk' which are yet to appear in Sri Lanka.

Practitioners have suggested the possibility of holding gold as a liquid asset.
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Fernando said her department and her officers were studying Islamic finance instruments closely and said that regulators would have to clearly understand such products.

She also warned that the public must also be fully aware of the nature of some deposit product where there may not be a yield.

"If not they will complain to the regulator," Fernando said. "Already there are complaints."

She said as the regulator Central Bank will have to act.

"We are open for discussion and change, going forward,