Islamic finance in Bangladesh

IFN Roadshow Bangladesh emphasises new frontier of Sukuk

Kawsar Ahamad

In a recent online platform discussion “IFN Roadshow Bangladesh-2021”, scholars laid stress on development of human capital, technology up-gradation and adopting comprehensive approach under all social finance to take care of Islamic Banking industry of Bangladesh having around 25 percent of market share.

What does the Bangladeshi Islamic finance landscape look like in 2021 and what does the domestic Islamic finance ecosystem still require from regulators and market participants for it to flourish across multiple product areas and asset classes? With such measures in place, what would constitute success for Islamic finance in Bangladesh? How can regulatory, Shari’ah governance and legal frameworks be developed and implemented to support Islamic finance? Are current liquidity management tools for Islamic banks sufficient? Can Islamic finance, including Sukuk and syndication, be deployed to fund the Bangladeshi corporate and government-linked sector, as well as infrastructure development? What does the development of the Halal economy offer Bangladesh and what opportunities are on offer in this exciting sector? Is Islamic finance being effectively deployed to promote financial inclusion, sustainability and social impact in Bangladesh, and will we see the deployment of products such as green Sukuk? The views on the above issues has been expressed by a scholar panel during discussion in the event with a theme of “Brave New World: Islamic Finance in Bangladesh” organized by REDmoney group titled ‘IFN Roadshow Bangladesh-2021’, 2nd in its kind for the country under guidance of Andrew Tebbut, Managing Director REDmoney held on April 05, 2021 through virtual platform.

REDmoney, based in Kuala Lumpur, Malaysia, a financial based media service company with a specific focus on the global Islamic finance industry, provides services in three core divisions of events, publishing and training. IFN Islamic Finance news, the world’s leading Islamic finance news provider, is flagship of REDmoney group, represented by its managing director Andrew Tebbutt. 

Md. TouhidulAlam Khan, FCMA, Additional Managing Director of Standard Bank Limited, also the international correspondent of Islamic Finance News (IFN), the member of the advisory board of international "IFN Roadshow Bangladesh-2021", moderated the event having a scholar panel comprising of IkbalDaredia, Advisor to CEO, Acting Director – Global Markets and Fixed Income (GMFI) and Acting Director - Treasury, The Islamic Corporation for the Development of the Private Sector, Professor Dr. M. Kabir Hassan, Professor of Finance, Department of Economics and Finance, University of New Orleans, USA, Dr. Natalie Schoon, Consultant, Formabb, Dr. SalibaSassine, Managing Director, Bluemount Capital, Dr. Scott Levy, CEO, Bedford Row Capital.

Md. Nazrul Islam, Deputy General Manager, Bangladesh Bank, in his keynote address mentioned that the Islamic Banking industry in Bangladesh has achieved robust growth due to huge public demand, continuous success of Islamic banking and policy support from Bangladesh Bank. 

The distinguished panelist discussed in many areas especially on the development of Islamic banking around the globe. It found sufficient evidence that the South Asian Islamic banking industry have adequate capital for sustainable growth in both short term and long-term perspective. The case is same also for Bangladesh despite economic shock due to covid-19 pandemic. 

Bangladesh has recently entered the Sukuk era on December 28, 2020 when the central bank held its first-ever auction. The government raised Tk 8,000 crore (Apprx. $941 m) through the issuance of the Sukuk to implement a safe water supply project, with a total of 39 finance institutions participating in the auction. 

 On the other hand, 1st Bangladesh’s corporate Sukuk in international market, US$250m for the Bangladeshi Corporate House namely Deshbandhu Group Limited, is set to be listed on the Frankfurt Stock Exchange under international lead manager Blue Mount Capital (WA) Pty Ltd (“BlueMount”) and structuring agent Bedford Row Capital PLC (“BRC”). 

Bangladesh is in unique position having composition of its economy lead by trade & commerce which constitute around 65%, export and import and remittance earnings. As pointed by DGM of Bangladesh Bank, around 41% remittances are channeled through by Islamic Banking market players. As Shari’ah prohibits usury, an Islamic financial institution cannot invest in interest-bearing Government treasury bills and investment bonds existing in the market. The excess liquidity of the Islamic banking industry of Bangladesh increased by 95.51% in the quarter end of September 2020. To address the excess liquidity and trade-based economy, short term Sukuk can play the big role to absorb it in parallel to long term Sukuk. Scholars also empathizes on the governance issue of Sukuk as it has the potential attraction of international market. 

Globally, the need for humanitarian assistance is growing. Five times more humanitarian assistance is required today than in the previous decade, projected as US$50 billion per year by 2030 according to the World Economic Forum. To address this emerging issue, Sukuk can play a big role in promoting health and pointing to shortcomings of existing of bond market, they urges a sound capital market framework for taking care of potential Sukuk market in a global perspective. Recently, the country has entered into Green bond market. Therefore, Green Sukuk can also be a huge potential towards sustainability and achieving SDGs. 

Kawsar Ahamad is Senior Assistant Vice President of Investment Risk Management of Standard Bank Limited. He is also an associate fellow of Institute of Islamic Banking and Insurance (IIBI), London, U.K.