Shariah-based financial services allure banks

Robust demand for Shariah-based financial services is prompting a section of the conventional banks to convert their business model into wholly Shariah-based ones in Bangladesh, according to the sector insiders.
Some of the interested conventional banks have already applied to the Bangladesh Bank (BB) for its approval to convert their banks into full-fledged Shariah-based banks, they noted.
"We are thinking about the conversion considering the rising demand for Shariah-based banking here and its methodological capability to provide services to all the clients, interested in both the Shariah-based and conventional banking services," the managing director of such a bank told the FE earlier.
"If our bank went into the Shariah-based banking, I think, it would be able to serve the larger community of the people," Shah A Sarwar, IFIC Bank managing director, said.
"However, it is a big challenge to do methodological refinement of the (Shariah-based) system in implementing it in the mass level," Mr Sarwar added.
Confirming the submission of such applications by some conventional banks, BB officials concerned said that any decision on their conversion is yet to be taken. As such, the central bank refrained from officially disclosing the names of the conventional banks that sought the approval.
"Decision on the applications on conversion of the conventional banks into the Islami banks is yet to be taken," the BB said recently in a reply to an application, submitted for such information under the Right to Information Act (RTI)-2009.
As of end December 2012, compared with the overall banking industry, the combined share of Shariah-based banks (excluding Islamic banking branches/ windows of conventional banks) is 16.85 percent in assets, 19.85 percent in investments (loans), 18.33 percent in deposits, 14.3 percent in equity and 17.1 percent in liabilities, according to the latest financial stability report (issue 3, July 2013).
Shariah-based banking started in Bangladesh in 1983 with just one commercial bank-Islami Bank Bangladesh Ltd (IBBL). Since then, Shariah-based banking has been growing progressively together with the conventional banks, the financial stability report said.
As of December, 2012, eight banks including the newly launched Union Bank Ltd are operating as full-fledged Shariah-based banks with 750 branches, as per the BB's reply under the RTI.
While eight conventional banks are offering banking services based on Shariah principles through setting up of 20 Islamic banking branches and eight more conventional banks including four state-owned commercial banks are doing so with 30 Islamic banking windows.
BB Governor Dr Atiur Rahman at a seminar earlier said, "Approval requests of a number of conventional banks for their conversion into wholly Shariah based Islamic banks indicate robust customer demand in Bangladesh for Islamic financial services."
"Successes of the Shariah-based bank are encouraging the conventional banks to convert their banking model into Shariah principles-based ones," said IBBL executive committee chairman Engineer Md Eskandar Ali Khan at a recent conference.
In its financial stability report, the BB said that embrace of Islamic banking is increasing at a faster rate in Bangladesh due to the faith of the country's large population of Muslim people.
The Governor further said that the Islamic banking, in our financial market, is outpacing conventional banking in growth.