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CHAT WITH MM

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Suresh Perera SURESH RAJENDRA IVAN PERERA, is the Principal of KPMG Sri Lanka. He is a multidisciplinary professional qualified in both law and accountancy. He obtained a Degree in Bachelor of Laws (LLB) from the Faculty of Law and is a Attorney-at-Law of the Supreme Court of Sri Lanka.

Suresh is an Associate Member of the Chartered Institute of Management Accountants, UK (ACMA, CGMA). He is also an Executive Member of the Sri Lankan Branch of the International Fiscal Association. He served as the Chairman of the Tax Committee of the Bar Association of Sri Lanka in 2008 and 2009.

Islamic Banker Asia Muath Mubarak

MM: As a Principal of KPMG Sri

Suresh: Well I would like to see more participants entering the field this year as well as new products being introduced in to the market. But the focus of the most of the financial institutions this year is complying with the scheme of consolidation introduced by the Central Bank. In addition most of the financial institutions are also trying to get a grip on FATCA. In this back drop I hope the growth of the industry and the focus to address the barriers for development would not take a back stage. I would like to see the Tax Office taking effective steps to issue detailed guidelines for Islamic financial

instruments pursuant to the legislative amendments few years back. It would be a bonus if the budget proposals this year would also contain proposals to address the growth of the industry.

MM: Could you brief us on the

important and relevant findings of first ever country report of KPMG research report issued in 2011?

Suresh: The survey pointed out

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FOTO: GOOGLE.COM

Islamic Finance education & research is one of the pillars on which the industry would rest upon and would depend upon for growth.

Lanka, what are your aspirations and expectations for Islamic Finance local industry in 2014 as it is the amalgamation year for the banking & financial institutions?

CHAT WITH MM I SURESH PERERA

Demystifying Islamic finance concepts among regulators still remains a challenge. But it is essential that this hurdle be overcome to ensure regulatory amendments.

to the degree of usage of some of the Islamic Financial Instruments (IFI) such as Murabaha & Ijarah . It also provided information pertaining industry players.

MM: In your view, what are the

challenges of Islamic Finance research & education sector and what are the initiatives require in meeting the market requirements locally?

Suresh: Islamic Finance education & research is one of the pillars on which the industry would rest upon and would depend upon for growth. Human capital with requisite knowledge on Islamic finance is need of the hour in Sri Lanka. The education should address two categories.

Inculcating knowledge in established professionals who are driving financial services sector in the private sector and the Regulators. This is a challenging task. Structured educational courses should be conducted at times that are convenient for these professionals to follow whilst engaged in their professional roles. The content of the courses should weigh heavily on practical and application aspects of Islamic finance. The second category is the young students. The course design for this category should be extended to In-depth academic aspects whilst keeping a tab on the course fee. It’s high time in Sri Lanka that institutions such as law college, faculty of law and other universities include Islamic finance in their curriculum.

Scholar Board as in Malaysia’s Bank Nagara equivalent. Each institution has its own board of Shari’a Scholars.

Sri Lanka has a Fascinating web of laws. Roman Dutch common law is the residuary law of the land there are many personal laws such as Kandyan law, Muslim law and territorial Thesawalami law in operation in addition to statutes passed by parliament and provincial councils. English common law governs commercial transactions in the country.

It is in this backdrop that Islamic financial instruments function in the country. Banking Act and finance business Act were amended to permit banks to engage in Murabaha and Mudaraba and finance companies to engage in Islamic financial transactions respectively. Institution of Chartered Accountants of Sri Lanka (ICASL) is yet to issue Islamic Financial Instruments specific accounting standard. Hence all instruments are accounted using local accounting standards. Sri Lanka has adopted IFRS in the local standards.

Few years back 4 tax statutes were amended to empower commissioner general of Inland Revenue to publish detailed guidelines to ensure there would be a level playing field between conventional instruments and Islamic financial instruments. That is same tax treatment applicable to conventional instruments would also be applicable to Islamic financial instruments notwithstanding the form of the transaction. But unfortunately to date these guidelines have not been issued. But at the same time I must mention that the local tax office has not challenged the institutions extending the tax treatment applicable to conventional instruments to Islamic counter parts.

Islamic Banker Asia

MM: As a prominent personality

of the Islamic finance conferences and government lobbying, could you explain to us the Sharia, Legal, Accounting & Taxation framework for the local players?

Suresh: Sri Lanka does not have a government appointed central Shari’a 34 / Islamic Banker ASIA / Issue 08 2014

MM: How do you see the progress

of Islamic banking & finance in Sri Lanka? What are the pressing issues and challenges faced by the industry and how can they be resolved?

Suresh: From the time Amana Investments was established as the first Islamic finance establishment in Sri Lanka, the industry has witnessed many changes taking place and many other financial giants entering the field.

Whilst Amana progressed to obtain the first banking license to operate as the first fully fledged bank , the industry has witnessed the State owned Bank of Ceylon , the biggest bank in Sri Lanka, many other institutions including the two largest private sector banks, finance companies and funds entering the industry. With frequent seminars, conferences, awards ceremonies, the industry is quite live. There is enthusiasm among professionals and students to acquire knowledge and there are few institutions imparting Islamic finance knowledge. So one could observe the industry is progressing well. But having said that I must say that there is lot of room for further development. Amendments to the Banking Act to permit banks to engage in other types of Islamic financial instruments in addition to Murabahah and Mudarabah , modification of exchange control regulations to facilitate foreign investments in IFIs, addressing dual stamp duty issues applicable on IFIs including Ijarah Sukuk, creation of a secondary market for Sukuk by facilitating listing in Colombo Stock Exchange (CSE) are few issues that should be addressed from the regulatory front. Demystifying Islamic finance concepts among regulators still remains a challenge. But it is essential that this hurdle be overcome to ensure regulatory amendments. Development of Islamic finance professionals and Islamic

finance scholars is another aspect vital for progression of the industry.

MM: You have authored many

articles, presented research papers and offering budget proposals regarding the Islamic finance industry.

How do you see the receptiveness of the regulatory bodies and the relationship with its stakeholders?

Suresh: I must say all the regulators that I have dealt with after understanding the value of Islamic finance to the Sri Lankan economy have always been receptive to further the development of the industry in the country. It is the bureaucracy and the speed at which things happen that is creating the barrier.

Sukuks could play a major role in funding the major infrastructure development drives. Roads, railways, creation or expansion of ports and airports, hospitals, power projects etc however unfortunately the policy makers who are the drivers of these infrastructure projects are not familiar with the ability to fund these projects with Islamic financial instruments.

finance as an alternative finance system for the governments to fulfill their national objectives especially for the poverty reduction, bridging the budget deficit, doing mega economic infrastructure projects and attracting funds to do government projects via Sukuk?

Suresh: To date the relevant policy makers in Sri Lanka have not comprehended the role Islamic finance could play in developing Sri Lanka.

The government is for development and is for creating major infrastructure project for the betterment of the populace. Islamic financial instruments such as Sukuks could play a major role in funding the major infrastructure development drives. Roads, railways, waterways, creation or expansion of ports and airports, hospitals, power projects etc however unfortunately the policy makers who are the drivers of these infrastructure projects are not familiar with the ability to fund these projects with Islamic financial instruments. This knowledge gap

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PHOTO COURTESY OF AL-BARAKAH

Islamic Banker Asia MM: How do you see the Islamic

CHAT WITH MM I SURESH PERERA

should be bridged for the betterment of the country. The government is focusing on SME sector and many tax incentives have been granted to the sector . Islamic micro finance could play a vital role in this arena.

MM: In your view, what are the major

differences between conventional and Islamic banking system?

Suresh: Islamic finance is based on risk sharing, partnerships & earning fees for labour whilst avoiding RIBA or interest which makes money on money.

IFI also avoids aspects that could be harmful to the society or relationships such as uncertainty gambling and investment in harmful products. Islamic banking based on this products would

have a different risk portfolio compared to conventional banks. Conventional banks engage in interest based products such as loans deposits derivatives etc which creates a debtor creditor relationship as opposed to partnership and risk sharing model.

MM: As an Islamic finance advisor

FACT BOX

and prominent personality of the industry, could you share the most memorable experience of your journey? What are your valuable advices for the stakeholders of this industry?

Suresh: There are many incidences that come into my mind but I would like to mention two of them. The first is the presentation I made to all the CEOs and CFOs of the banks & financial institutions to explain the Islamic finance & the associated tax issues. It is at this presentation that we formed “Islamic Finance Focus Groups� the platform for the industry players to meet & discuss the issues & barriers faced by the industry for the development of IFB in Sri Lanka. The second incidence is the presentation I made to the Presidential Taxation Commission, pointing out the value IFB could add to Sri Lankan economy and the need to create level playing field for Islamic financial instruments by amending the tax legislation in the country. Pursuant to this a budget proposal pertaining to IFB was included in the annual budget of the government leading to amendment of four tax statutes in Sri Lanka. My advice to the stake holders is to use every opportunity to enlighten the authorities as to the benefits Islamic Finance could add to our economy and what is happening in other countries such as UK, France Singapore, Hong Kong, South Africa, Thailand etc IBA

Islamic Banker Asia I must say all the regulators that I have dealt with after understanding the value of Islamic finance to the Sri Lankan economy have always been receptive to further the development of the industry in the country.

36 / Islamic Banker ASIA / Issue 08 2014

Full Name: Suresh Rajindra Ivan Perera Nationality: Sri Lankan Qualifications: LLB , Attorney at Law, ACMA UK, ACMA , Notary Public, Company Secretary, Commissioner for Oaths.

Professional Goal: To serve country with the professional knowledge Favorite Shariah Scholar: Mufti Ismail Menk Inspiring Islamic Finance Book: An introduction to Islamic finance by Shaykh Mufti Taqi Usmani One line advice: Be positive ; Clinching victory from jaws of defeat is an art.

What one would describe you?

Intellectual working towards justice for all.

What are you most passionate about you? Sports, wild life, numerology & astrology.

What is your greatest achievement in your life? Establishing myself as a tax consultant .

What is your favourite journey?

Journey to Lisbon & Fatima What is your motto in life? Do your best & let God do the rest.