DEVELOPMENT OF ISLAMIC BANKING IN SRI LANKA: A LEGAL PERSPECTIVE

The modern Islamic banking industry has been growing since 1963 as an alternative banking sector for its interest-based counterpart. The foundation of this industry was laid down during the early period of Islam during the time of the Prophet Muhammed (pbuh). As the political forces came to power after the Prophet did not take proper care and due to lack of political stability, it could not expand further in an organised form. However, the industry that began to evolve following the Islamic revivalism has currently expanded its broad wings across the world and it has not failed to reach the shore of Sri Lanka where the industry is growing fast since 1997. Objective of this paper is to examine overall developments, legal hiccups and issues of Islamic banking industry in the country and proposes constructive suggestions for enhancing it. Here, a legal view is mostly intended and the study was conducted in Sri Lanka during the period of 2009-2012 and has been updated for the purpose of publication. For this purpose, a qualitative method of research is adopted for which primary and secondary sources were consulted. Personal interviews from people involved in Islamic banking were also conducted. Eventually, the study found that there were various issues and legal impediments such as double tax and double stamp duty etc. These impediments may slowdown the pace growth of the industry in the country If it is not provided with due legal and other necessary supports.