BB to introduce Islamic money mkt this month

FE Team | Published: March 22, 2011 00:00:00 | Updated: February 01, 2018 00:00:00

Siddique Islam Bangladesh Bank is going to introduce the Islamic money market by this month to facilitate liquidity management of the Shariah-based Islamic banks, a top official at the central bank said. The decision was taken at a meeting with chief executive officers and managing directors of seven Islamic banks held at the central bank Wednesday with Bangladesh Bank (BB) Executive Director SK Sur Chowdhury in the chair. Besides, a member of Shariah boards from each bank was also present at the meeting. "We've decided to introduce the Islamic Inter-bank Fund Market for the first time in Bangladesh by the end of this month," Mr. Sur told the FE, adding that it would be a milestone in the Islamic banking's history of the country. Under the arrangement, Islami Bond Fund (IBF) will act as a custodian of the excess fund of the Islamic banks and financial institutions, another BB official said. The IBF will facilitate the fund transfer from banks having excess liquidity to the ones having deficit under Islamic Shariah. "It will not charge any amount from the participating banks and non-banking financial institutions (NBFIs) for providing the services," the central bank official said, adding that the deal would be based on Mudaraba principle of Islamic banking law. Market operators have welcomed the BB's latest move saying that it's a historic decision concerning Islamic banking in Bangladesh. "The Islamic banks will be able to manage their liquidity, particularly excess funds properly after introduction of the money market," Managing Director of the Islami Bank Bangladesh Ltd. (IBBL) Md. Abdul Mannan told the FE. Md. Mannan, also chairman of the Task Committee of the Islamic Banks Consultative Forum (IBCF), said the country's Islamic banks are grateful to the BB for taking the decision to introduce such a market. "We expect that the market will open a new window on investment of the Islamic banks' surplus liquidity," he noted. Currently, there is no tool for managing liquidity of the Islamic banks in Bangladesh. Some Islamic banks are using their surplus funds among them through an informal or unofficial money market. Under the existing rules, Islamic banks maintain 11.50 per cent statutory liquidity ratio (SLR) instead of 19 per cent for conventional banks as they cannot participate in the treasury bills' auction and cannot buy any interest-bearing government bonds that involve receipt of interest. The Shariah rules cannot permit payment or receipt of interest by any individual or institution. Currently, seven private commercial banks out of 30 are operating under the Shariah. The banks have their own Shariah Councils to dictate terms of banking under Islamic rules and regulations. The banks are Islami Bank Bangladesh Limited (IBBL), Al-Arafah Islami Bank Ltd., Export Import Bank of Bangladesh Ltd., Social Islami Bank Ltd., Shahjalal Islami Bank Ltd., First Security Islami Bank Ltd. and ICB Islamic Bank Ltd. Besides, a good number of local and foreign banks have introduced Islamic banking branches and windows, the central bank official added.