Shariah-based banking entails double-digit deposit growth

Bangladesh's Islamic banking bagged a buoyant year-on-year deposit growth, at a double-digit rate, as of last September.
Many insiders attribute such surge to "trust" of the clients on the banking system whose share in the country's all banking deposits now comes to nearly 23 per cent.
The deposit growth in the special segment of the country's banking sector grew by 14.54 per cent to Tk 2040.07 billion in September last. But it grew by nearly 20 per cent in September 2014. In the past three years its growth remained around 15 per cent on average.
On the other hand, the deposit growth in overall conventional banking is nearly 11 per cent.
Among different types of deposits with the Islamic banking, mudaraba term deposits secured its highest position at nearly 48 per cent followed by mudaraba savings deposits at 18.55 per cent, according to Bangladesh Bank quarterly report.
The profits that the Islamic banking system shared through term deposits remained comparatively higher than the rates of interest offered by the conventional banking system.
The sector-insiders said the 'provisional profit rates' they share with the clients in time deposit remained still high, around 7.0 per cent, which is at least 1.0- percentage-point higher than that of the conventional banking term deposit interest.
A senior researcher at the Islami Bank research institute told the FE that clients trust such type of banking and they will continue to deposit their money no matter whatever is its rate of profits.
Dr Mizanur Rahman, senior researcher at the Islami Bank Training and Research Academy, told the FE that the clients prefer to deposit mostly with the time deposit of the shariah-based banking than the conventional banking term deposit.
"We share 65 per cent of profits with the clients and which we offer to the clients is provisional, and after final calculations, they get much higher rates," said Dr Rahman, a renowned Islamic banking researcher.
SM Aminur Rahman, an adviser at shariah-based Union Bank, told the FE there had been gradual development in the banking system as both elderly people and new generation are stepping towards the system.
"We find a large number of elderly pious clients who deposit their money with the Islamic banking system and we also find new-generation clients who do not prefer interest," Mr Rahman said.
The system is now available in over a dozen countries with more than 15 per cent market share globally.
The Islamic banking system's total amount of investments also increased to Tk 1932.44 billion at the end of the July-September quarter of 2017.
"During the quarter under review, investments increased by 4.32 per cent and 21.65 per cent respectively as compared to the previous quarter and the corresponding quarter of the preceding year," the BB quarterly review of economy and finances reads.
It also says the share of total investment by Islamic banks accounted for 24.22 per cent among all banks.
The system mostly invested in the MSME (Micro, Small and Medium Enterprises) equivalent to over 28 per cent as of end of the quarter (July-September 2017).
The next position was occupied by trade and business sector at over 27 per cent followed by industrial sector at nearly 25 per cent.
The central bank statistics show that at the end of the July-September 2017 quarter, surplus liquidity in the Islamic banking system stood at Tk 64.62 billion which was lower by Tk 14.23 billion.
As of end of September 2017, eight full-fledged Islamic banks were operating with 1082 branches out of total 9774 branches of the banking industry. In addition, 19 Islamic-banking branches of nine conventional commercial banks and 25 Islamic- banking windows of eight conventional commercial banks are also providing Islamic financial services in Bangladesh.
The interest-free, equity-based Islamic-banking system was introduced in 1983.

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