Banks keen on adopting Islami banking

Tightened shariah regulations for the banks suggested

Anisul Islam Noor

30 March, 2020 12:00 AM printer

Most commercial banks in the country are in rush to open their Islami Shariah-based wings or convert into a Sharia banking system as the new operation commands public confidence and helps make profits easily.

In recent times, the market share of Islamic banking gradually increased due to the growing customers’ confidence in the banking system when the traditional banks are facing setback to retain public trust, experts said.

Jamuna Bank, one of the third-generation conventional banks, has turned into a full-fledged Shariah-based bank recently. The central bank on Thursday last approved it in its board meeting.

Earlier on February 9, the central bank allowed two conventional banks namely Standard Bank and NRB Global Bank to convert into Islamic banks.

Meanwhile, IFIC, NCC and South-Bangla Agriculture and Commerce Bank are awaiting the central banks’ approval to transform into full-fledged Islamic banks.

Against this backdrop, currently eight banks including Islami Bank Bangladesh Limited, Al-Arafah Islami Bank, Shahjalal Islami Bank, Social Islami Bank, First Security Islami Bank, EXIM Bank, Union Bank and ICB Islamic Bank are operating as full-fledged shariah banks in the country.

Moreover, some 17 conventional banks have Islamic banking windows.

Experts said the Sariah-based banking concept is gaining public trust gradually, and for this, the conventional banks are showing their interest to change their operations into a full-fledged Islamic bank to gain easy achievements.

They added that Bangladesh needs to enact Islamic banking law for providing a legal framework for the banking system. Proper law and regulations would ensure dynamic leadership in the sector as Islamic banking accounts for one-fourth of the entire banking business and is growing day by day.

According to Bangladesh Bank data, the deposits in the country’s Islamic banks grew by 18.06 percent or Tk42,860.9 crore in 2019, with the banks attaining an increased market share among all banks in the period.

The growth in deposits in Islamic banks was the highest after 15.08 percent growth in 2016.

The growth rate was 10.78 percent in 2018 and 14.15 percent in 2017 respectively. Customers’ deposits in the Islamic banks increased to Tk2,80,227.8 crore in December last year from Tk2,37,366.9 crore a year ago.

Due to the increased deposit growth, the Islamic banks’ market share increased to 24.65 percent in 2019 from 23.50 percent a year ago, according to a BB report.

Considering the growing popularity on Islamic banks, the government should formulate a separate law to recognize Islamic banking a strong legal coverage. At the same time, Islamic banks should introduce more Shariah-compliant bonds for better liquidity management, they opined.

They claimed that most of the Islamic category banks are not following the appropriate policy, even the IBBL, the pioneer of Islamic category banks.

Global Economist Forum (GEF) sources said, “Islamic money market is the pre-condition to further flourish of shariah banking in Bangladesh.” The Islamic money market can utilize excess liquidity of Islamic banks, GEF source added.

Associate Professor of BIBM Md Alamgir said it is high time more comprehensive guidelines needed to be introduced to bring greater transparency and accountability in this sector.

Without a strong legal framework, it is not possible to make the mode popular, he said, adding that Islamic banks in the country lack liquidity instruments such as treasury bills and other marketable securities.

Prof Alamgir underscored the need for introducing Islamic money market to ensure hassle-free operation of the Islamic banks.

A senior Bangladesh Bank official said the Islamic banks are allowed to maintain lower ADR ratio than private and state-owned commercial banks to disburse credit.

The Islamic banks can disburse Tk90 against the deposit of Tk100 while it is Tk85 for the conventional banks.

On the other hand, the Islamic banks are authorized to maintain lower SLR ratio against deposit. The conventional banks have to maintain 18.5 percent statutory liquidity ratio (SLR) and cash reserve requirement (CRR) of their total deposits. They must also maintain a maximum 85 percent loan-deposit ratio.

Experts said Bangladesh is the third largest Muslim country in the world with around 180 million people, of which 92 percent are Muslims. The remarkable shift or conversion of the conventional banks and their branches into Islamic lines gives the signal of high acceptance of the interest-free banking by the public, they added.

Islamic banks are operating under the principles of Islamic law (Shariah) and its practical application through the development of Islamic economics.

Actually, the Shariah prohibits payment or acceptance of interest against lending money.


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