» Challenges Facing the Development of Bangladesh Islamic Finance Industry

The report of the Council of Islamic Financial Services shows that Bangladesh has developed a large-scale Islamic finance industry, but the absence of Shar’ia compliant instruments such as sukuk limits the growth opportunities in this sector.
The size of Islamic finance sector grew in Bangladesh whose most of population of 160 million people is Muslims in the last 4 years although the regulating amendments that have been implemented were marginal.
The Central Bank has issued sukuk in small amounts for short terms not more than 6 months to help the Islamic banks manage the liquidity, but the companies do not issue sukuk there. The report stated that the sukuk will contribute to the diversification of finance resources and compensation for the small size of the Islamic finance, but its issuance requires clearer rules. It stated ‘the biggest problem concerning the policies in Bangladesh is related to the adequacy of the legal and regulatory framework and its scope to offer an appropriate environment.’
It added that the Islamic banks represent 18.9% of the total banking deposits in Bangladesh. The Central Bank said that the bank deposits except for the intrabank deposits reached 6.33 trillion taka (82 billion dollars) in March.
One of these banks is Islami Bank Bangladesh which was founded in 1983 as the first Islamic bank in the country and the largest commercial private bank.
The Islamic banks suffered from a lack of liquidity in 2010 when the borrowing ratio to deposits exceeded the limit fixed by the Central Bank which makes the regulatory body examine the levels of liquidity to monitor any contrast with the terms of payment.
The Central Bank has fixed the mandatory reserve ratio of Islamic banks at half the ratio of traditional banks to enhance profitability, but it does not address the key issue of the in- depth cash market. The report stated that ‘the other side of this advantage is dangerous as it often reduces the instruments available for the Islamic banks to control the liquidity risks. Moreover, Islamic banks will face a lack in liquidity in case of sudden withdrawal of large amounts of deposits.’

Dr. Rabee Saad