By TMR / Pic By BLOOMBERG

Maldives is keen on Islamic finance. With a strong commitment from the government to position the country as a South Asian hub for Islamicfinance and the halal sector, the country has recently built its Islamic finance industry, observed an article which appeared in the Pakistan Islamic Banking Bulletin.

“Since the last few years, Maldives is also making a name for itself in the Islamic finance industry,” noted the report, which appeared under the bulletin’s “Country Model” section. Below are extracts from the report:

Regulatory Environment

The basic regulatory infrastructure for Islamic finance has been provided by the government of Maldives. The sector is being regulated by the Maldives Monetary Authority (MMA) and the Capital Market Development Authority (CMDA).

Shariah banking falls under Islamic Banking Regulations 2011, overseen by MMA, while CMDA has enacted several regulations for the Islamic capital markets, including for sukuk issuance and Islamic securities screening.

In 2015, a zakat bill and a regulation for waqaf were also drafted with the assistance of the Islamic Development Bank and the Islamic Research and Training Institute. Due to a few legal gaps, the regulators are currently working on developing a more comprehensive and effective regulatory framework.

Banking and Finance

Islamic finance was first introduced in Maldives in 2005 through a Sri Lankan company, which began offering general insurance products based on Shariah principles.

The Maldives Banking Act was passed in 2010, authorising MMA to issue regulations relating to the con- duct of Islamic banking activities. Pursuant to this mandate, Maldives

Islamic Banking Regulations were issued in 2011, which govern the “licencing, financial, prudential and supervisory matters relating to Islamic banking business in the Maldives”.

In the same year, the Maldives Islamic Bank was established, the first full-fledged Islamic bank to operate in the country. In 2012, the first-ever Islamic window of a non-banking financial institution, HDFC Amna, a unit of the Maldivian Housing Development Finance Corp plc (HDFC), was introduced to offer musharakah-based home financing instruments. Currently, there are about 13 financial institutions offering Islamic financial services and products in the country.

To drive up the market share of Islamic finance, the government in January 2016 set up a dedicated firm, Khazana Maldives Ltd, tasked with developing Shariah finance, as well as establish the Maldives Centre for Islamic Finance, with the objective of making the nation as a hub for Islamic finance and the halal industry for South Asia. The centre is a 100% government-owned entity, which performs a wide range of functions relating to Islamic finance, including conducting research, providing product structuring and consultancy services and floating Islamic capital market instruments on the Maldives Stock Exchange, among many others.

Takaful

The history of Maldives’ Islamic finance began in 2005 in the form of Amana Takaful Maldives which offered general insurance products. In 2011, the operator became the first Shariah-compliant equity stock to be listed on the Maldives Stock Exchange.

The takaful sector is showing promising signs of growth as in 2014 — Allied Insurance Maldives, the largest local insurer, launched an Islamic window, Ayady Takaful, which partnered the National Disaster Management Centre in 2017, to roll out a new takaful scheme for natural disasters.

Sukuk

Although Maldives is relatively a new entrant in the area of Islamic finance, it has successfully issued sukuk. The government has established a Shariah advisory board and laid the regulatory groundwork for sukuk investment.

In 2013, the first corporate sukuk in Maldives was issued by HDFC which was a 10-year corporate real estate Sukuk raising US$3.9 million (RM15.8 million) in proceeds for the issuer. This followed a private sovereign sukuk, wakalah/mudarabah facility using oil trading as an underlying asset.

Future Outlook

Recent years have seen important initial steps towards the development of Islamic finance in Maldives. The country is focusing on developing its Islamic finance talent pool; especially, it has been making collaborative efforts to attract more women into the Islamic finance industry by means of training and research among others.

According to Bloomberg, the tourism-dependent island nation is looking to diversify its economy by luring Islamic debt sales and deposits from India, where there is a large Muslim population, but no sukuk or Shariah lenders.

With the promotion of Islamic economy in Maldives, not only Islamic banking and finance will grow, but the halal industry, halal tourism and individual power are also expected to expand. The government can get financial resources in the form of sukuk for its various developmental plans, and through halal tourism millions of tourists can be attracted towards Maldives. The country, however, would need to make more efforts for creating awareness about Islamic finance in masses. — TMR