Problems and prospects of Islamic banking: a case analysis of Sri Lanka

Abstract

This paper seeks to contribute to the Islamic finance industry by examining the Islamic banking practice, its legal framework and the problems and prospect of the Islamic banking industry in Sri Lanka. Since 1997, the industry has been growing while facing many challenges in adopting the environment of non- Shariah jurisdiction. Sri Lanka is a Muslim minority country where all major religions are recognized by the Constitution of the country. One fully-fledged Islamic bank and several Islamic windows involve currently in Islamic banking business. However, due to its nature there are challenges as well as good opportunities to market the Islamic banking products. The study undertaken here presents a discursive analysis through examining the literature available in the area of the study. The methodology adopted for this study is qualitative based on primary and secondary data. The main conclusion is that Sri Lanka being a country with a highly diversified and multicultural society, there is huge demand among 2 million Muslims and 18 million non-Muslims living in this country for Islamic banking services. This trend would not only help to strengthen the economy of Sri Lanka through creating commercial opportunities to bring in significant foreign investments in to this country but also build up its existing trade economic ties with Muslim countries particularly Middle Eastern countries.