Potential of Sukuk in Bangladesh

The Bangladesh Bank (BB) has taken initiative to make Islamic bonds popular in the country. Accordingly, a working committee is now examining the possibility of introducing the central bank's repo facility against Islamic bonds to meet short-term liquidity requirement of the Shariah-based banks and non-bank financial institutions (NBFIs) as an alternative to call money. However, the Academy of Business Professionals (ABP) and the International Centre for Education in Islamic Finance (INCEIF), Malaysia, at a conference on 'Islamic Capital Market and Sukuk' in Dhaka, recently emphasised that the Bangladesh needs to formulate a comprehensive legal framework for Islamic finance, particularly Sukuk.

A Sukuk is an Islamic financial instrument, similar to a bond, which, however, complies with Islamic religious law called Shariah. Sukuk is linked to returns and cash flows of debt financing to a specific asset to be purchased. Sukuk investors receive profit generated by underlying asset on a periodic basis while bond investors draw periodic interest. Sukuk became popular when it was issued in 2000, by Malaysia, now the global leader issuing $17.74 billion worth of Islamic bond in 2014, over 66.7 per cent of the global volume of $26.6 billion.

In Bangladesh, two Islamic bonds - three-month Bangladesh Government Islami Investment Bond (BGIIB) and six-month BGIIB - are currently in operation and their outstanding balance has stood at more than Tk 104 billion as on May 25, 2019. Islamic banking holds about one-fourth share of the entire banking industry as of March, 2019. Eight private commercial banks, out of 40, follow Islamic banking, apart from Islamic banking branches opened by some conventional banks. But there is no tool for managing short-term liquidity of the Islamic banks and NBFIs in Bangladesh. It is necessary to introduce Sukuk to expand Islamic banking activities. So, the authorities concerned should develop proper mechanism to ensure liquidity support to the Islamic banks and NBFIs through potential Islamic bonds.

Md. Zillur Rahaman

Gandaria, Dhaka