Islamic money market begins journey today

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Siddique Islam The Islamic money market begins its journey from today (Thursday) aiming to facilitate liquidity management of the Shariah-based Islamic banks and financial institutions, officials said Wednesday. "We've already completed all preparations to start the operation of Islamic Inter-bank Fund Market (IIFM) for the first time in Bangladesh from Thursday, the last working day of this month," a senior official of the Bangladesh Bank (BB) told the FE. On December 21, the central bank took decision at a meeting with the chief executive officers and the managing directors of seven Islamic banks to introduce the Islamic money market by the end of this month. As part of the preparations, two accounts were opened with Motijheel office of the central bank Wednesday to make the IIFM operational. One account will be used by the interested Islamic banks and non-banking financial institutions (NBFIs) to deposit their excess liquidity with Islami Bond Fund (IBF) for participation in the market. Another account will be operated to adjust profit among the participating banks and NBFIs, the central bank official added. "The IBF will act as a custodian of the excess fund of the Islamic banks and NBFIs under the arrangement," another BB official said, adding that all transactions would be based on profit instead of interest. "If a bank has excess liquidity, it may deposit the amount with IBF for a day, allowing another cash-starved Islamic bank to borrow for the same period," the central banker said while explaining the rules and regulations of the new market. "The central bank expects that the market will open a new window on investment of the Islamic banks' and financial institutions' surplus fund," he noted. Until now there is no tool for managing liquidity of the Islamic banks and NBFIs in Bangladesh. Some Islamic banks use their surplus funds among them through an informal or unofficial money market, market operators said. 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. Two NBFIs are also operating their business based on Islamic Shariah. Besides, 16 conventional banks are doing Islamic banking through setting up 20 Islamic branches and 21 Islamic banking windows, according to the BB's latest Financial Stability Report. Islamic banks in the banking sector showed a remarkable growth in the last calendar year, the report said, adding that the ongoing expansion of the Islamic banking network is also impressive. As a proportion of the overall banking industry, the combined share of Islamic banks (excluding Islamic banking branches and windows of the conventional banks) was 15.11 per cent in assets, 17.95 per cent in investments (loans), 16.32 per cent in deposits, 13.05 per cent in equity and 15.30 per cent in liabilities as of end of December 2010, according to the BB report.