Bangladesh Bank introduces a short-term funding instrument styled 'Islami Banks Liquidity Facility (IBLF) for funneling funds into shariah- based banking system here to replenish their cash vaults.
It's meant for supporting liquidity management and deepening financial system, says the central bank-incidentally, in the wake of reports of some big cash-outs through shady lending.
Shariah-based banks maintaining current accounts with Bangladesh Bank are eligible for availing the 14-day liquidity support, according to a circular issued Monday by the BB.
Talking to the FE, BB spokesperson Md. Mezbaul Hoque said the conventional banking system having government securities can use it to draw funds from the central bank through REPO mechanism keeping the securities as mortgage.
But unconventional Islamic banks having Sukuk, which was introduced recently, do not have such facility, he says to substantiate the introduction of the latest financial instrument.
"With this liquidity facility, the BB launched a 14-day financing-policy instrument against the Sukuk."
According to the circular, the IBLF is a framework of providing liquidity facility by BB to shariah banks under the Mudarabah contract where Bangladesh Bank acts as investor (Rab al Mal) and banks act as investment manager (Mudarib) under an agreed Profit Sharing Ratio (PSR).
It says the institution may apply for IBLF every workday on a prescribed form to Securities Section of Motijheel Office within stipulated time set by the BB while the applied amount of IBLF should be for a minimum amount of Tk 10 million (one crore) or multiples thereof.
It says the IBLF will be provided according to the decision of Auction Committee of BB and the decision will be disclosed within stipulated timeframe set by the central bank.
The BB notice says the applicable haircut of the collateral security for IBLF shall be 5.0 per cent of its face value. While providing IBLF, the entire security will be treated as a collateralized security even if a hair-cut is imposed on the face value of the eligible security at a prescribed rate.
"The institutions will receive interim profit (if any) from BGIS (Bangladesh Government Investment Sukuk) used as collateral for IBLF," it reads.
And BGIS against which respective institutions intend to avail IBLF shall be marked as lien in favour of BB during the IBLF period by its Motijheel Office. The lien-marked securities cannot be used or traded during the IBLF period.
The liquidity to be provided by the BB shall be credited to the current account of the respective institution at the close of same business day and BB reserves full discretion to accept or reject the application or provide partial investment.
The liquidity-supportive instrument comes at a time when the country's Islami banking system comes under the spotlight following recent media reports over loan-related deviations.
Seeking anonymity, a senior banker says the central bank comes up with the policy support as unconventional Islami banks are facing liquidity crisis in recent times as the pressure of local-currency obligation keeps mounting.
"That's probably the reason behind BB's this move to introduce the new liquidity instrument. I think the decision will give some sort of relief to the Shari'ah-based banking system," he adds.
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