This letter is in reference to news item "Bangladesh Bank (BB) moves to popularise Islamic bonds" published in page 8 of the Financial Express on June 19, 2019. The report states that the central bank has taken a move to make Islamic bonds popular by enhancing the volume of Islamic Bond Fund and creating scopes of the bonds' multiple uses. In this connection, a 10-member working committee has already been formed to examine the possibility of introducing repo facility from the central bank against the Islamic bonds to meet short-term liquidity requirement of the Shariah-based Islamic banks and non-banking financial institutions (NBFIs) as an alternative to Call Money.
Currently two Islamic bonds -- three-month Bangladesh Government Islami Investment Bond (BGIIB) and six-month BGIIB -- are available in operation and outstanding balance of these two bonds stood at more than Tk 104 billion as on May 25, 2019 that is being used as a pool of fund only for the Islamic banks and NBFIs.
A sukuk is an Islamic financial instrument, similar to a bond, that complies with Islamic religious law commonly known as Shariah principle. The issuer must make a contractual promise to buy back the bond at a future date at par value.
Sukuk has become extremely popular. It was first issued by Malaysia in 2000. Bahrain followed the same in 2001. Later, Malaysia introduced green sukuk just like green banking of our Bangladesh Bank.
Sukuk was created in order to link the returns and cash flows of debt financing to a specific asset being purchased, effectively distributing the benefits of that asset. Sukuk investors receive profit generated by the underlying asset on a periodic basis while bond investors receive periodic interest payments. Both bonds and sukuk are considered to be safer investments than equities.
Islamic banking industry holds almost one-fourth share of the entire banking industry in our country in terms of deposit and investment as was estimated at the end of March, 2019.
In countries where sukuk was introduced, Islamic banks and financial institutions are using it to operate their liquidity management. Many Islamic countries have introduced the tool to mobilise long-term funds from the global market.
According to Islamic Financial Service Industry Stability Report 218, Saudi Arabia has issued the largest share of sukuk (38.81 per cent) whereas Malaysia possesses 32.88 per cent.
Sukuk has been playing a vital role in the global Islamic financial market and its introduction has become the need of the time to expand Islamic banking activities in Bangladesh.
The authorities concerned should develop proper mechanism to provide short-term liquidity support to the Islamic banks and NBFIs through potential Islamic bond like the conventional ones.
Md Zillur Rahaman
Satish Sarker Road
Gandaria, Dhaka
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