Maldives is a hundred percent Muslim country with a population of less than four hundred thousand. The country has a unique geography as it consists of 1,190 islands scattered in the Indian ocean. According to Article 2 of the Constitution of Maldives, Maldives is a sovereign, independent, democratic Republic based on the principles of Islam, and is a unitary State, to be known as the Republic of Maldives. According to Article 9 (d) of the Constitution of Maldives, a non-Muslim will not become a citizen of Maldives even if the person fulfills all the conditions to become a citizen of Maldives as prescribed in the Constitution. Article 10 of the Constitution states that the religion of the state is Islam and Islam shall be the one of the basis of all the laws of Maldives. Furthermore, it also states that no law contrary to any tenet of Islam shall be enacted in Maldives. These provisions of the Constitution of the country proves the position of Islam in the country and why Maldives could be an ideal country to lead Islamic finance and halal industry in South Asia.
The regulatory authority regulating Islamic banking and takaful is the Central Bank, Maldives Monetary Authority (MMA) and the Islamic capital market is regulated by Capital Market Development Authority (CMDA). It is imperative to note that both MMA and CMDA have made law and regulations to govern the Islamic finance industry in the country.
Maldives Banking Act (Law No. 24/10) has a special chapter on Islamic banking. Chapter 3 of the Maldives Banking Act deals with Islamic banking related matters such as licensing, banking activities on a non-interest basis and permissible activities. Section 9 of the Act states that subject to the licensing provisions of the Act, the MMA may grant licences to establish domestic banks functioning in accordance with Islamic principles or licences to open branches and representative offices of foreign Islamic banks in the Maldives. It also states that domestic banks not organized as Islamic banks, and branches of foreign banks not organized as Islamic banks, may, with the prior approval of the MMA, offer banking services on an Islamic banking basis through a department of the bank or otherwise. Such banks and departments of banks shall be subject to supervision, control, and examination by the MMA in the same manner as other banks, except as otherwise provided in the Act. Section 10 of the Act states that Islamic banks shall aim to provide banking services and engage in financing and investment operations on a non-interest basis in all forms and cases. Section 11 of the Act states that Islamic banks, and banks not organized as Islamic banks but providing banking services on an Islamic banking basis,may engage in consumer, commercial, financial, and investment operations and participate in consumer,commercial, economic development, and construction projects, in connection with the provision of Islamic banking services to customers, to the extent that participation in such activities constitutes the functional equivalent of traditional banking activities. The MMA shall be authorized to provide guidance by regulation or otherwise with regard to the conduct of Islamic banking activities by licensees. These provisions found in the Maldives Banking Act are more than adequate to initiate and sustain Islamic banking in the country.Furthermore, pursuant to sections 11 and 65 of the Banking Act, an Islamic Banking Regulation has been enacted by MMA in 2011 to facilitate the licensing a regulating of Islamic banks. Section 13 of this Regulation requires each Islamic bank or bank engaging in Islamic banking business to establish a Shariah Committee of not less than 3 (three) members from among Islamic doctrinal specialists, who have previous experience in the area of Islamic financing.
Though the position of Islam in the country is enacted in the Constitution, the application of Islamic in muamalat or commercial matters are limited in the country. This maybe due to ignorance of the population about the developments in this area. The first practical form of Islamic finance that the country witnesses was the establishment of Amana Takaful Maldives in 2003, the first and the only full-fledge takaful provider of the country. It took a long eight years gap to establish the first full-fledge Islamic bank in the country. In 2011, Maldives Islamic Bank Pvt Ltd was established. At that time, the country was in dire need of an Islamic Bank. It was reported in the first Annual Report of the Maldives Islamic Bank that within ten months since the operationalization of the bank, the bank was able to mobilize deposits amounting to MVR 316 million from all sectors of the economy and closed the year with total assets of MVR 487 million. The bank at that time gradually deployed the funds towards providing Shariah-compliant financing to its customers under the concept of Istisna, Murabahah and Ijarah. However, the most critical challenge the bank faced at that time was that it has to deposit a significant portion in a non-earning account with MMA due to the absence of Shariah-compliant money market and capital market instruments locally to invest in.
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