A start-up Sri Lankan bank that has just raised 3.2 billion rupees in capital through a private placement wants to lure Middle Eastern funds and lend for infrastructure projects, an official said.
A company spokesman said the Amana group has a deposit base of seven billion rupees and a lending portfolio of three billion.
The bank, which will start operations after getting a formal banking license from the central bank, will use the Amana group’s network of 14 branches.
“Amana Bank will be the first fully-fledged (Islamic finance) commercial bank to operate on the Sharia principal,” said Riyaz Mihular, partner and head of advisory services at KPMG Ford, Rhodes, Thornton & Co, financial advisors and placement agents for the private placement.
“All other Islamic finance operations are windows of normal commercial banks or financial institutions.”
Sri Lanka’s 30-year ethnic war ended in May 2009 resulting in an immediate economic revival with growth forecast at seven percent this year.
“Amana Bank intends going heavily into infrastructure financing,” Mihular said. “In the next few years we’ll have to rebuild and modernise our infrastructure.
“Amana Bank hopes to tap Middle East investment flows whose avenues of investment are limited; for examples hotels without liquor, no gambling, and they are not allowed to buy stock derivatives. So infrastructure lending is preferable,” he said.
“There’s lots of money sitting in the Gulf with which Sri Lanka has very good ties.”
Mihular said Islamic financing is ideally suited for infrastructure financing which generally involves a long-term gestation period with around five years before a project starts generating cash flows.
“In conventional finance you might be given a moratorium on the repayment of capital but you pay interest from day one.
“In Islamic finance, all lending is asset-backed, so you won’t find bubbles like in the West. And you don’t begin repaying until you start generating cash flows. Lending is based on profit and loss which can sometimes be more expensive than conventional lending, and linked to cash flows and profitability.”
Mihular said that in Islamic finance borrowers don’t have to pay overdue interest or penal interest on late payments.
source : lbo.lk