The archipelago is seeking to become an Islamic finance hub for South Asia, but needs more legislation and the country’s half-million Muslims to embrace Islamic banking.
The Maldives archipelago in the Indian Ocean is developing an Islamic finance sector, although it may need to strengthen legislation and local turnover to attract enough international players to develop an offshore hub .
In 2016, the government established the state-owned Maldives Center for Islamic Finance Ltd (MCIF) to develop the country’s capacity to become an “Islamic finance hub”, mainly in South Asia. The center conducts research on Islamic finance, provides product structuring and advisory services, and helps float Islamic capital market instruments on the Maldives Stock Exchange.
The MCIF recently announced that it wants to “link the Islamic finance industry in the Maldives to international markets” by operating as a regional center for Islamic finance with representatives in the region from the South Asian Association for Regional Cooperation (SAARC), the Middle East and China.
The company has already contributed to the issuance of cross-border Islamic financial instruments for infrastructure projects and development projects, by pooling funds from different countries. In a statement made public, he said: “The Maldives, with a more flexible legal and financial infrastructure, makes it one of the ideal destinations to have a regional financial center.”
The director of the Maldives Institute of Islamic Finance, Abdullah Shiham Hassan, said the archipelago’s Islamic financial sector needs to innovate better to realize its significant potential and persuade the country’s predominantly Muslim population of 540,000 to “fully embrace” the industry.
Hassan, a former adviser to the country’s central bank, the Maldives Monetary Authority, on the regulation and supervision of Islamic finance and a key figure in drafting the Islamic banking regulations (2011), told Salaam Gateway that to be successful in the Maldives, “savings and lending rates in Islamic banks must be better than conventional banks”.
However, he said, “people now think it’s almost the same thing with different packaging”, although on the positive side it indicates that people are “consciously accepting” Islamic finance and that if services were more plentiful, they might succeed.
Most importantly, the growth of Islamic finance is happening in the tropical island state, confirmed by the success of the Islamic Bank of Maldives – a collaboration between the Saudi Arabia-based Islamic Development Bank Group and the Government of the Maldives. .
Launched in 2011, the bank was the country’s first fully Shariah-compliant bank. The bank’s first quarter 2021 report said its revenue was 66.9 million Maldivian rufiyaa (MVR) ($4.34 million) compared to 51.6 million MVR ($3.35 million) in the last quarter of 2020. Net profit was MVR26.6 million ($1.72 million) compared to MVR15. 0.01 million ($975,000) over the same period.
The results also reflect the bank’s growth during the COVID-19 pandemic; Display posted a net profit of MVR 31.5 million ($2 million) in net income for the first quarter of 2020 compared to MVR 1.8 million ($116,504) in the prior quarter.
Nonetheless, the report notes that despite the “unprecedented setback in the global economy” caused by COVID-19, the bank has maintained its head office and six branches in five atolls across the island nation. These offer personal, business and investment Islamic deposit accounts and financing for personal and business needs.
Sharia and takaful compliant products
Commercial Bank of the Maldives (BML) established BML Islamic in January 2015 and offers a range of Sharia-compliant products, including investment services and children’s savings accounts. In 2020, the division introduced green financing for environmentally friendly projects and student loans for customers paying higher education fees.
The Maldives also offers Islamic insurance (takaful) with Ayady Takaful, established in 2014, being the Islamic window of Allied Insurance Maldives. Its Sharia-compliant products include Cargo Takaful, Contractors Takaful, Fire Takaful, Home Takaful, Hull Takaful, Money Takaful, Motor Takaful and Travel Takaful.
The country’s former vice president, former minister of legal affairs and lawyer Mohamed Jameel Ahmed said the growth of Islamic businesses was benefiting from the growing number of Maldivian students who had studied Islamic finance abroad and were returning home with essential skills.
“I am sure the country will have the number of trained finance professionals to meet the demand for Islamic banking skills,” he told Salaam Gateway.
Local higher education also helps. The Islamic University of the Maldives offers a master’s course in Islamic Finance Practice and a postgraduate course aimed at “producing industry practitioners with a global outlook”. The course has been accredited by the Malaysian Qualifications Agency (MQA), meaning it is recognized as the global center for Islamic finance in that country, and covers a wide range of critical topics ranging from wealth management , from banking and investment to financial services, ethics and governance.
Can this kind of growth see the Maldives become an offshore and international center for Islamic finance?
Hassan said it was “possible in the future”, but the government must first consolidate its regulation of Islamic finance. Ahmed said he hoped the Maldives would adopt a separate banking law for Islamic finance – which he said would make a “big difference” in boosting the confidence of foreign Islamic financial players to invest in the country.
Backed by such a law, he predicted that “an overwhelming majority” of Maldivian consumers would save and buy Islamic investment vehicles. He hopes the current government will not be deterred by a failed attempt to introduce an Islamic banking law during former President Abdulla Yameen’s tenure (2013-2018).
He says this failed attempt evolved due to a “lack of political will” to push this complex legislation through parliament. Therefore, Maldives Banking Law 24/2010 still regulates the sector – the basis of a secondary Islamic banking system. regulation (2011).
Although it is a legitimate law, Islamic finance scholars who requested anonymity said stand-alone primary legislation for Islamic finance in the Maldives would boost the sector’s international reputation. One of the issues that effective regulation may face in the future is the supply of Islamic finance for tourism-related investments to serve a sector that accounted for 28% of the country’s $7.26 billion. GDP in 2020.
Ahmed said that certain goods and services offered by this sector, such as drinking alcohol and serving pork, could be considered haram. Hassan said tourism businesses that rely on Islamic finance investments should “eliminate the haram elements”, but said the real challenge in building a significant Islamic finance industry was a “lack of political will to meaningfully adopt” Islamic finance.
He said the country’s leaders “really don’t want Sharia law to reign in our country, otherwise government bodies will not be able to charge compound interest.”
However, the government is keen to promote halal tourism. In addition to the Maldives Marketing & Public Relations Corporation’s “Have Halal, Will Travel” promotion as a growing halal tourism hubthe Asian Development Bank (AfDB) has also played its part in boosting the sector.
An AfDB spokesperson said its Inclusive Micro, Small and Medium Enterprises (MSME) Development Project which ended in 2019 had provided business advice and mentoring to more than 500 entrepreneurs and 55 new MSMEs. .
The AfDB worked with the Islamic Bank of the Maldives to roll out this project, combining its $10.02 million with $10.3 million from the Islamic Development Bank and $700,000 from the Government of the Maldives.
Ahmed hopes the Maldives will have a sustainable Islamic financial sector in the future, saying it is “a progressive democracy but with a resilient economy”.
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