Islamic finance has gained confidence in the Maldives with increased awareness among the public of its role in eliminatingRiba (interest), according to Deputy Islamic Minister Dr Aishath Muneeza.
Writing in the Islamic Finance News website, Dr Muneeza stated that Islamic finance has been “spreading like wildfire” since the introduction of Islamic banking and capital market services in 2011.
“Demand for Islamic finance is evident and has proved that there is inherent demand for Islamic finance as the Maldives is a country with a 100% Muslim population. It is hoped that in the upcoming years the Maldives can be used as a global case study to prove the success of Islamic finance,” she wrote.
Under Islamic Shariah, any risk-free or guaranteed rate of return on a loan or investment is considered riba, which is prohibited in Islam.
In her article, Dr Muneeza explained that the first form of Islamic finance introduced in the country was Takaful in 2003, which involves mutual protection of assets and property and joint risk-sharing.
Conventional insurance is also prohibited in Islam because of forbidden elements such as Riba.
Following the wider introduction of Islamic finance in 2011, Dr Muneeza observed that it is now “considered as an integral part in the development of nation”.
The previous year meanwhile saw the introduction of “new innovative Islamic finance instruments” by both the government and private corporations, she noted.
In 2013, the government signed the first sovereign private Sukuk – an asset-backed bond which is structured in accordance with Shariah for trade in the market – deal in addition to the central bank issuing the first Islamic treasury bill.
Moreover, she added, four pieces of regulation governing Sukuk, Islamic securities, Shariah advisors, and the capital market Shariah advisory council were introduced last year.
The government-owned Housing Development Corporation also issued the first corporate Sukuk while the first Islamic hire-purchase product was unveiled by a private company, she noted.
In addition, the government formed the Maldives Hajj Corporation – of which Dr Muneeza is the chairwoman – as a pilgrimage fund and issued Halal certificates for fish products.
The Maldives Transport and Contracting Company (MTCC) hired a Sukuk advisor for real estate projects commencing this year, she added.
“Furthermore, regulatory consents have been given to the Islamic banking window of Bank of Maldives and the Takaful window of Allied Insurance Maldives to start their operations. Some products of these companies have been given consent by the Maldives Monetary Authority,” she wrote.
The government also planned to form “a national-level technical committee to monitor and supervise sovereign Islamic finance issues,” she revealed.
“Definitely, 2013 is a super duper hit year for the growth of Islamic finance industry,” Dr Muneeza suggested.
Developments expected in 2014 meanwhile included the inauguration of “Islamic windows” by the Bank of Maldives and Allied Insurance. The government anticipated that “a large number of customers will switch from conventional banking to Islamic banking when this takes place.”
Islamic fund management would also be introduced this year while the government had plans to “introduce an Islamic finance centre that will not only provide offshore Islamic financial services, but this centre will act as the Islamic finance hub for the whole South Asia region.”