islamic banking in bangladesh progress and potentials

8/19/2019 Islamic Banking in Bangladesh Progress and Potentials

1/25

Islamic Banking in Bangladesh: Progress

and Potentials

Mohammad Abdul MannanManaging Director

Islami Bank Bangladesh Limited


2/25


3/25

o9 and gaining momentum in the larger range and conte&t! +heIslamic banking system was more consolidated during the eightiesand the nineties of the last century! In the twenty-rst century, it isrecogni4ed as a sustainable and welfare-oriented banking system of the modern world!

In recent decades, Islamic nancing methods have been able todisplay its usefulness and s and capabilities in the competitive globalnancial sphere! +he system showed its special abilities to survive inrecent global economic recession and strains! +his competency of Islamic nancial approach has attracted attention of nancial analystsand thinkers all over the world!

:or the overall conte&t of Islamic banking activities in the twenty-rst

century, the credit rating agency Standard ; oor3s remarked<=Islamic banking has already emerged as an alternative to theconventional banking system! >ssentially, Islamic nancial industryhas emerged as an alternative approach to the conventionalnancing, upset by recent global nancial crisis!?

III. Basic philosophy o! the Islamic banking

Islamic banking is set about implementing a balanced and

consistent economic policy based on fair or euitable distribution of resources and for ensuring 2ustice in sync with the Islamic idealsand principles! In transaction process, this particular nancialintermediary system prohibits interest, practices familiar and naturalprocedures seeks to achieve the ob2ectives of the Islamic economicsystem based on euity and 2ustice! anks In this system, founded onprinciples of non-discrimination, establishing 2ustice and creating thesocio-economic infrastructure and generating employmentopportunities!

Islamic system follows trading of products, lease or rent and sharing-based business process in lieu of synthetic transaction of money! Inaddition to this uniue interest-free system, it makes it incumbentupon itself to follow welfare and sharing-based features to achieveits mission, mandate, and principles of the Islamic banking! +husIslamic ank is committed to establishing a socio-economic 2usticesystem where the public interest and social welfare give precedenceover parochial individual interests! Islamic banks do not work to meetthe illegitimate demands of insignicant number greedy people! +hese entities do not give priority only to nancial gain

and ignore other socio-economic problems! +o meet the basic needs of the down-trodden people, to fulll theiremergency and aesthetic needs, etc!, to respond to their


4/25

entrepreneurship proposals, the ank designs its investmentportfolio! +his is the special feature of the strategic plan of thissystem! +hus, to ensure Islamic moral discipline in nancial activitiesIslamic banks have made it possible to synergi4e economicdevelopment with social development!

It is an important moral obligation of Islamic banks to serve thedeprived and disadvantaged people, who, because of poverty,remain outside the purview of the conventional banking system@

the banks make nancial transactions based on human necessitiesand embark upon productivity-oriented pro2ects or activities toreduce poverty!

Islamic banking focuses on the production of wealth and welfare! :orwhom and what kind of resources will be generated and what will bethe distribution policy of those products, are considered with primacy!Islamic banks work for preventing the potential causes of inAationand unemployment and is bent upon creating employmentopportunities for the 2obless! It follows and fosters the principle of partnership with customers rather than pursuing a debtor-creditorrelationship! "s a result, a positive and ualitative impact of genuine public welfare becomes visible in the overall activities of thisbank!

I". #$olution o! the Islamic banking in Bangladesh

a% People initiati$e

In the early twentieth century, after the formation of >ast engal and"ssam province, centering Bhaka as its capital, the socio-economicdevelopment of >ast engal was in a new spur! "t that time aninitiative was taken to set up and manage interest-free banks indi9erent areas of angladesh including Cessore and 6o&3s a4ar! utthose initiatives could not get solid foundation on the backdrop of

then socio-economic and political circumstances! "lthough individuale9orts and organi4ational initiatives continued, however, introductionof Shari’ah-based banking remained a dream for a long time!

b% &tate'le$el initiati$es or inter$entions

"fter independence, a number of initiatives were taken up fromdi9erent stages to establish an Islamic bank from the state level! +he angladesh government signed the IB 6harter in 1DEF!

*ember countries, through the signing of the charter, werecommitted to reconstructing their banking system in consonancewith the Islamic principles!


5/25

+he denition of Islamic banks was approved in the Bakar conferenceof )I6 member countries in Senegal in 1DE8! *ember 6ountries of the )I6 also approved a set of recommendations for gradualtransformation of their banking system into Islamic! angladeshactively participated in the conference and ualied to become apartner in implementing the recommendations!

c% Bangladesh Bank(s supporti$e role

:rom the very inception, the angladesh ank has been playing ahighly active and positive role in implementing the principles andprocedures of Islamic banks in the country!

)n F "pril 1D81, *inistry of :inance issued a letter to angladesh

ank, directing all state-owned banks of the country, on thee&perimental basis, to open separate Islamic banking counter in all of their branches in towns and villages and to keep separate ledgers forthem!

In 'ovember 1D8$, "! S! *! :akhrul "hsan, the research director of angladesh ank, was deputed to the *iddle >astern countries to seefor himself the activities of Islamic banks and Islamic nancialinstitutions operating there! In Canuary 1D81, he submitted acomprehensive report with a set of recommendations to initiate theprocess of setting up Islamic banks in angladesh!

Gater, on 18-1D *arch 1D81, on the initiative of I* a two-dayseminar on Islamic banking was organi4ed in Bhaka! +he then rstdeputy Hovernor of angladesh ank *! halid han inaugurated theseminar as chief guest, where recommendations were taken up to setup Islamic banks in both public and private sectors!

)n Cune D-11, 1D81, a senior ocial of the angladesh ank took partin an international seminar held in Heneva, Swit4erland on Islamicanking and Insurance!

)n 1J )ctober, 1D85, at the Fth ankers’ meeting of the angladeshank, chaired by the then-governor 'urul Islam, decision was takento introduce Islamic banking in all branches of si& state-ownedcommercial and two speciali4ed banks at metropolitan and districtheaduarters level as soon as possible!

In the light of the decision of angladesh ank and for creation of suitable manpower for Islamic anking, a one-month long full-timeresidential course was held on J )ctober 1D81 at Sonali ank Sta9 6ollege! " total of (E ocers from angladesh ank, all state-ownedbanks, I* and then-proposed 3Bhaka International Islamic ankGimited .now, the Islami ank angladesh Gimited0 took part in thecourse!


6/25

+he then rincipal of Sonali ank Sta9 6ollege *! "4i4ul /a played avital role in the successful implementation of the course! +he openingceremony was presided over by *! haled, the then 6hairman and*anaging Birector of ubali ank!

hile the training course was underway, *! haled was appointedsecond deputy governor of angladesh ank! /e was the specialguest at the closing ceremony of the training program as the BeputyHovernor of angladesh ank!

d% )ther Initiati$es

:rom 1DED to 1D85, a number of public and private institutions in thecountry took part in the preparatory work for the establishment of

Islamic banks! "t the time, a 7orking Hroup for the Islamic bankingin angladesh’ was constituted under the leadership of *! haled! /ealso led the reorgani4ing process of the group and subseuently itcame to be known as Kangladesh Islamic ankers "ssociation .I"0!

"t that time, several national and international seminars and trainingcourses on Islamic banking were organi4ed by angladesh Institute of ank *anagement .I*0, Islamic >conomics Lesearch ureau,ai’tus Sar’f Islamic Lesearch Institute, 6hittagong where, seniorbankers, economists and professionals of the country took part! In themean time, more than ($$ bank ocials were trained on Islamicbanking!

e% #mergence o! a real entity

" number of local individuals as well as Islamic Bevelopment ank.IB0 and various nancial institutions began to e&tend theircooperation to establish Islamic banks in the country! ith the

commendable initiative of Islamic Bevelopment ank .IB0 uwait:inance /ouse, Bubai Islamic ank, ahrain Islamic ank, IslamicInvestment and >&change 6orporation of Gu&emburg, "l-La4i6ompany for 6urrency >&change and 6ommerce of Saudi "rabia andthree *inistry of uwait provided E$M capital for the establishment of an Islamic bank for the rst time in angladesh!

+he remaining capital came from local entrepreneurs, whereangladesh Hovernment’s share was ve percent! )n 1( *arch 1D8(,Islami ank angladesh Gimited was registered as the rst shari’ah-based ank in South->ast "sia and began operation on ($ *arch of the year!

"long the path of success of the country’s rst Islamic bank, severalIslamic banks were established in later years! In 1D8E "l araka


7/25

ank, in 1DD# "l-"rafah Islami ank and Social Investment ank andin 5$$1 Shah2alal Islami ank were established!

)n 1 Culy 5$$F, >&im ank and 1 Canuary 5$$D :irst Security ankhave transformed their activities to Islamic banking style! Shari’ah-

based 3%nion ank3 was established in 5$1(!

". *he operational success o! Islamic banking inBangladesh

)n "ugust 1, 1D8(, on the occasion of launching of the rst Islamicbank in angladesh, special supplements were brought out indi9erent national dailies! Br! *' /uda, a senior professor of

economics, Bhaka %niversity noted in his writing, NIslamic bankinghas won theoretical level! 'ow, this method will have to be won inoperational areas ! ! ! !’!

"fter three decades of Islamic banking operations in angladesh sinceits inception, one can see how successful this system is in fulllingthe e&pectations of the common people!

a% )b+ecti$e Achie$ement

Islamic banks assign precedence to universal welfare, inclusivegrowth and euitable distribution of resources in their entireactivities! )ne should therefore gauge the success of thissystem applying ob2ective criteria instead of traditional nancialindicators! +o assess the contribution of Islamic banking and itsposition, asset or prot considerations that are used conventionallywill provide us only a partial picture!

In this regard, it can be mentioned here a signicant comment bynoted Islamic banking personality Br! Saleh amel! In the (#th annualconference of the Islamic Bevelopment ank in aku, the capital of "4erbai2an in 5$15, Br! Saleh amel, the then 6hairman of 7Heneral6ouncil for Islamic anks and :inancial institutions’ .6I":I0, aninternational organi4ation comprising Islamic banks and nancialinstitutions, drawing attention of concerned all and said<

N!!! )ver the past decades, academic researchers andprofessional Islamic banking practitioners and Shari’ah

specialists have emphasi4ed more on the procedural side of Islamic anking! e have gained some success in followingInterest-free transactions and legal procedures! ut theunderlying strength of the Islamic anking and the 3*aka’sida3


8/25

or the purposes of this system like 2ustice in wealth distribution,public welfare and emancipation from economic slavery, werenot received due importance and priority in the works of ankers and Shari’ah e&perts’ as much as it was needed!?

Islamic banking is based on the principles of serving as the masses inthe light of Islamic economy or its 3*aa’sid3 or purpose! +he savingspolicy in Islamic anks is to bring depositsObig or small--- within theanking framework and to utili4e those in national growth anddevelopment!

+he rst Islamic bank of the country has been opening depositaccounts only for +k! 1$$ since its inception and farmer accounts for +k! 1$ since 1DDF, even long before when the central bank have

passed a directive in this regard!In the mid of the last century, development was considered as7strength of the national economy’ to the economists! "verage percapita income of the rich and the poor was the basis of this conceptof development! 'ow, in view of modern economists, 7how wealth isproduced is not the main uestion! Instead, to ensure fair distributionof the wealth is the prereuisite for development!’

>&plaining reasons for poverty and famine, 'obel laureate economist"martya Sen stated< NIt is not the limitation of resources@ rather lack

of rights of people on resources is the causes of famine!?Becentrali4ation and the social distribution of resources is one of thecore principles of Islamic economy! +hus, determining the shape andnature of the investment and diversication of economic activitiesand geographical location is a moral obligation and an essentialstrategy for Islamic banks!

Shari’ah-based banks have obligations to devote their accumulatedresources to people-oriented welfare works, complying with Islamiclegal principles of 7halal-haram’! Islamic banks can not invest in any

inauspicious sector even it is nancially advantageous! +o complywith the policy of nancing to those sectors benecial for the societyand the state, the IG has not invested a single penny in tobaccosector during last three decades!

In terms of nancial cost, micro-credit programs may seem acumbersome and non-protable venture to many people!'evertheless, considering the social return, Islamic banks are playingan important role in this sector! Islami ank angladesh Gimited has

deployed F percent of its total investment to the micro-credit sectorand appro&imately 5$ M of its workforce is engaged in managing thisarea! It mirrors a clear institutional mindset of Islamic banking!


9/25

Islamic banks nance activities that gear towards poverty alleviation!In addition to nancing they generate resources todistribute them among the people through various mandatory andoptional transfer payments including Pakat, )sarah, Sada’ah,"tonement and a’f! 3alyanamukhi .welfare-oriented0 anking3!3uilding a 6ompassionate Society3, 3etter Service3 --- these slogansof the Islamic anks manifest its broader outlook!

b% Achie$ement based on nancial indicators

'ow, a total of 5( public and private commercial banks are operatingfull-Aedged or partially Islamic banking operations in angladesh!"mong them, 8 full-Aedged Islamic banks are operating with 8F(

branches, 8 conventional commercial banks with 1D Islamic bankingbranches and Ecommercial banks with 5# Islamic banking windows inthe country! " total of 5J,1(# employees are working in 88E Islamicbanking branches and windows!

+he average growth of deposit in the banking sector in last ve years.5$$D-5$1(0 was 1DM which was 5$M for Islamic banks!

Buring this period the average investment growth of country’sbanking sector was 18M, which was 5$M for Islamic banks! :or thesame period, the total assets in banking sector increased by 1DM! In

contrast, Islamic banks haveachieved 51M growth!

In the last ve years, mentionedabove, the average growth of euities in Islamic banks was5FM, which was 5EM for thetotal banking sector of thecountry! " number of publicbanks have increased theircapital in 5$1(, which hascontributed to raise the euityinde&!


10/25

i. Deposits

+otal deposit of the Islamic banks stood at +k! 1,1(,(J$ crore inBecember 5$1(, which was 18!$$M of total deposits of the countryand 5DM deposits of the private commercial banks! +otal deposits of the Islamic banks stood at +k! 1,((,#J1 crore in Cune 5$1F!

ii. ,umber o! depositors

In *arch 5$1F, the customer deposits of Islamic banks in the countrywere 1 crore and 1E lakh, which was 1E!D5M of the total customerdeposits! %ntil this period, country3s total customer deposits for allprivate commercial banks were 5 crore and E8 lakh, of them F5!15Mwas in the Islamic banks!

iii. In$estment

+otal investment of the Islamic banks was +k! DE,#($ crore onBecember 5$1(, which was 51M of total investments in the country3s


11/25

banking sector and ($M investment of the private commercial banks!Islamic banks’ investment stood at +k! 11(,EDJ crore on Cune 5$1F!

i$. -lassied In$estment

)n Becember 5$1(, 8!D$Minvestment of the country3sbanking sector was in classied,which was F!5M for Islamicbanks! "t the same time, theamount of classied investmentsin Islamic banks, compared toeuity was (D!DM, which was5$M lower than the country3s banking sector!

$. Assets

)n Becember 5$1(, the si4e of Islamic banks assets stood at +k!1(#,D$$ crore, which was 1E M of country’s banking assets and5E!F$M of the total assets of private commercial banks! +otal amountof assets of Islamic banks was +k! 1FE,J$F crore on Cune 5$1F!

"i. #uity


12/25

y following the principles of capital adeuacy rules set by thecentral bank, Islamic banks’ share in total euity was in a satisfactorylevel in the past years! +otal euity of Islamic banks was +k! 1$,58$crore on Becember 5$1(! It is 1# percent euity of the country3sbanking sector and 5( percent euity share of private commercialbanks! +otal euity of the country’s Islamic banks stood at +k! 11,(85crore in Cune 5$1F!

$ii. Remittance

/ard-earned remittance by angladeshi e&patriates is one of themain pillars of country’s overalleconomy! Islamic banks play asignicant role in transferring itto beneciaries! angladeshreceived a total of +k! #E,$FFcrore in rst J months .Canuary- Cune0 of 5$1F! )f the amount, +k! 1#,D#5 crore has comethrough the Islamic banks, whichwas 58M of the total remittanceinAow in the country and F(M of 6’s!

$iii. Import

+he amount of total imports in angladesh, during Canuary-Cune of 5$1F, was +k! 1JE,$1F crore! Islamic banks imported over +k! (F,D#5crore@ which was 51M of the total imports! +he Islamic banks were atthe forefront in importing various raw materials and essential goodsincluding fertili4ers, cotton, rice, wheat, etc!


13/25

i/. #/port

+otal e&ports of the country, during Canuary-Cune 5$1F period, stoodat +k! 11$,$DJ crore! +he amount of +k! 5J,E8E crore has beene&ported through the Islamic banks, which was FM of total national

e&ports! Islamic banks have been playing a leading role in drawing of foreign e&change through the e&port of various products includingready-made garments!

/. Deposit'in$estment ratio

+he 6entral bank has set the deposit-investment ratio at D$M, incontrast, the deposit-investmentratio of Islamic banks was8#!1$M in Becember 5$1(! +hisratio was E1!18M in the

country3s overall banking sector!

0.1.k -apital AdeuacyRatio 2-AR%3 R)A3 and R)#

6ompared to 1$ percent 6apital"deuacy Latio .6"L0 set by the 6entral bank, country3s bankingsector 6"L was 11!#$M in Becember 5$1(! "t that time, capitaladeuacy ratio of the Islamic banks was 15!1JM!

+otal asset-based average net prot .Leturn on "sset-L)"0 for theIslamic banks was +k! $!D8 during 5$15 and 5$1(! +otal euity-basedaverage net prot .Leturn on >uity-L)>0 was +k! 1(!$# and theamount was +k! 1F!11 for the overall banking sector in the sameperiod!


14/25

"I. &hari4ah -ompliance

%nder the condition that banking activities should be operated inconsonance with the provisions of Shari3ah, Islami banks havesecured approval from angladesh ank! +hese banks are under thesurveillance of angladesh ank for ensuring the terms of thisagreement! In 5$$D, angladesh ank issued some guiding principlesfor the Islamic anks in regards to Shari’ah compliance! +he Islamicanks are following these guidelines!

esides, to ensure the upholding of Shari’ah, each bank has aindependent Shari’ah supervising committee, which stay free of thecontrol of the banks’ oard of Birectors! :amous "leems, :ika’he&perts, economists and lawyers constitute the committee! +heyconduct their supervisory works independently! )ther thanadministrative activities of the Shari’ah secretariat, it supervises allpolicy-related and critical macro level issues of these banks!

K6entral Shari’ah oard for Islamic anks of angladesh’ .6SI0, abody formed by combining the Shari’ah committees of all the Islamicbanks of the country, provides instructions or guidance regardingShari’ah from time to time!

+he internal audit teams of the Islamic anks work vigorously toensure internal control and compliance! +he central bank supervise,monitor and audit through o9-site and on-site basis! Geading auditrms of the country also conduct audit and reports the activities of each bank!

*oreover, Shari’ah *uraibs of the Islamic banks serve to auditShari’ah compliance of the banks under their own Shari’ahsupervisory committee! +he Shari’ah supervisory committee preparesassessment and evaluation report on the basis of audit report from*uraibs! Leport of the statutory auditor of the bank as well as the

certicate given by Shari’ah supervisory committee is included in theannual report of the Islamic banks!

Islamic banks follow the guidelines of di9erent Internationalorgani4ations regarding their management, uality assessment,administration and for setting accounting policies and managementrules and procedures! +hese organi4ations include 7the International:inancial Services oard 3.I:S0@ 7"ccounting and "uditing)rgani4ation for Islamic :inancial Institute 3."")I:I0@ and 7the IslamicInternational credit rating agency’ .II6L"0!

"II. 5uman Resources De$elopment Acti$ities


15/25

6urrently, more than 5J,$$$ employees are working in Islamicbanking sector in the country! +hey were recruited from di9erentacademic disciplines through rigorous competitive e&aminations! +hebanks encourage their workforces to achieve professional degrees athigher level! *eanwhile, 1F ocers of IG have earned h!B! onvarious sub2ects like economy, Islamic banking, Islami Shari’ah,human resources development etc!, from di9erent universitiesof home and abroad! "mong the ($J ocers, having the K6ertiedBocumentary 6redit Specialist’ .6B6S0 certicate, 1E1 are working indi9erent Islamic banks! )f them, 1(J are working e&clusively in theIslami ank angladesh Gimited .IG0! *oreover, the ocials of theIslamic banks regularly take part in the banking diplomae&aminations under the KInstitute of ankers angladesh’ .I0! :orthis, the banks concerned encourage their employees to obtain

diplomas to develop professionalism in their respective elds!

"long with practice of the banking rules and regulations, Islamicbanks also train regularly their ocials on the sub2ect of Shari’ah!"lmost all Islamic banks have their /LBQtraining centres! Islamic ank +raining and Lesearch "cademy .I+L"0 along with training their ownsta9, provides Islamic banking foundation training for the newrecruits! It also organi4es seminars and workshops for the employeesof both private and public banns including "grani ank, :irstSecurity Islami ank and Shah2alal Islami ank! *oreover, IG has

arranged training programs for high ocials of the Cai4 ankInternational of 'igeria and the bank of 6eylone of Sri Ganka onIslamic banking in Bhaka!

+o make the Islamic bank workforce competent, KIslamic bank +raining and Lesearch "cademy’ .I+L"0 introduced KIslami ankingBiploma’ .BI0 in 1DDE! So far, the rst and the second part of thediploma have been completed by (E(D and 1JDJ ocersrespectively, of di9erent banks!

"III. -ontribution to #conomic De$elopment

Islamic banks, in their overall activities, assigns precedence to thepriority-sector of the country’s economy! +hus, they are playing apivotal role in enhancing the pace of the country’s economic wheel!Islamic banks are contributing to the national economic developmentinclusive of industriali4ation, S*>, agriculture and agro-basedindustries, strengthening rural economy, entrepreneur development,women’s empowerment, investment diversication and poverty

alleviation and serving e&patriate customers through intensive care!


16/25

a% Industriali6ation3 In!rastructure De$elopment and#mployment

In the investment sector, Islamic banks prioriti4e overall social

developments including welfare of the people and development of the underprivileged, remote areas of the country! Islamic banks haveinvested in Harment, +e&tile, Steel, harmaceutical, ower generationand chemical industries, which is the one-fourth of the totalinvestment of the country!

Islamic banks give much importance to Import-substitute and e&port-oriented industries! +hese banks take up 5(!11M of thier totalinvestment in industriali4ation! Islamic banks are playing a vital rolein infrastructural development, including private sector power

generation!

Investing F#M of its resources in industrial sector, IG has beencontributing in country’s industriali4ation process and has createdemployment for about 5# lakh people!

b0 &M#s and the agricultural sector

+he nature of investment of Islamic banks is more e&tensive than thesi4e of their investment! +hese banks are investing in all priority

sectors! +hey have invested 5E!DJM of their total investment in smalland medium sector!

+he Islami banks have made tangible contributions in sectors andsub-sectors of agricultural and rural investment programs! In 5$1(-1Fscal year, Islamic banks have invested about +k! 1E$$ crore oncrops, sheries, livestock, agricultural machinery, irrigationeuipment and other poverty alleviation and income generationactivities!

Islamic banks have been nancing e&tensively in di9erent types of small and medium industries, especially producing food, seedpreservation, cold storage, hospitals and clinics, renewable energy,light engineering industry, plastics industry, 2ute and 2ute blendedproducts, fro4en food, leather and leather products, rice mill, avariety of small businesses, transport and communications etc!

c0 &pecial In$estment &chemes

Islamic banks have embarked upon di9erent kinds of welfare-oriented investment programs! ith the ob2ective of improving thelife style of low-income and lower middle class, they have made


17/25

investments in K/ousing Investment scheme,3 Lural /ousingInvestment scheme, 3/ome "ppliances scheme,3 omen>ntrepreneurship Bevelopment scheme, Small usiness Investmentscheme, 3Boctor investment scheme, etc! +hrough these schemes,these anks have been investing to meet the mundane needs of thepeople!

I7. Po$erty Alle$iation and Micro 8inancing

In order to alleviate rural poverty IG started a micro nancingpro2ect designated as KLural Bevelopment Scheme .LBS0 in 1DD#!%ntil Cune 5$1F, about D lac families in 1E$$$ villages of the countryhave received nancial help in rural agriculture, sh farming, trade,communication, housing, tree plantation, etc! under this program!

%nder the micro nancing program Islamic banks have so far distributed +k! 8E#J crore in the past two decades, whose currentbalance is about +k! 1#F$ crore! Bue to no caution-money policy, lowprot rates and easy installment payments, the recovery rate of thispro2ect is DD!FEM!

+he members of LBS, by now, have made an accumulated savings of +k! #15 crore on a weekly basis! Islamic banks are running programslike education, training, health and relief and rehabilitation by forming

welfare funds under the LBS! %ntil now, more than one lacbeneciaries have received services under this welfare fund!

Islamic micro nance system of angladesh has been acclaimed byvarious international organi4ations including IB, 6H" and %'B!

In 5$15, IG launched a new pro2ect under the name and style of K%rban oor Bevelopment Scheme’ .%BS0 for the rootless andAoating people of the urban areas! *icro investment programs havealready been running under this pro2ect in 5J$ centres in Bhaka and

6hittagong!

esides these, some Islamic banks are working for micro nance incollaboration with credible 'H)s!

7. #ntrepreneurship De$elopment and 9omen#mpowerment

:or the development of entrepreneurs, Islamic banks have embarkedupon di9erent types of productive sectors and have cataly4edinvolvement of the educated but 2obless youths in the entrepreneurial


18/25

business! "s a result of this initiative many small entrepreneurs haveemerged as successful industrial entrepreneurs!

+hrough training and orientation, Islamic banks are working to createa vast productive workforce including repatriates and transform theminto successful entrepreneurs!

" host of entrepreneurs, who were once micro, small or mediumcustomers of Islamic banks, have now established themselves asma2or industries and businesses and therefore have been able toemploy si4eable number of unemployed people of the country!

Involvement of women in development activities hasbeen incorporated in the regular agenda of the Islamic banks! :orwomen’s participation in service, industries and trade, Islamic bankshave initiated the omen >ntrepreneur Scheme under which someIslamic banks have disbursed without any collateral, up to +k # lac tofemale entrepreneurs!

+here are D lac members of IG’s Lural Bevelopment Scheme! )f them, J lac 8$ thousand or 8$M subscribers are women! " signicantnumber of these entrepreneurs have embarked upon theirenterprises with only +k! #$$$ investment and have been able topromote upgrade themselves to S*>! +his has

contributed signicantly to the process of women empowerment!

7I. 8inancial Inclusion

:inancial inclusiveness is the underlying concept orinstitutional forte7 of Islamic banks! Islamic banking is not merely anidea of being interest-free, it is rather a system pursuing thefundamental philosophy of helping the deprived and neglected

people of the society enabling them to stand upright! +hus,empowerment of the deprived and poor through nancial inclusion isan important strategy of Islamic banks! eeping this in view, theyhave introduced a variety of banking accounts! ith the help of these, e9orts are being made to bring the large segment of themasses, who stay outside the banking system, into banking!

+hrough openings of accounts on a minimal deposit, Islamic banksare accelerating the nancial inclusion programs for garmentsworkers, sanitation workers, students, working children and street

children! +he Islamic banks work with di9erent welfare and nancialinclusion products for collecting deposits! Bi9erent types of welfare-oriented accounts like 7a’f’ and 7*uhor’ are playingsupplementary role in nancial inclusion and creating involvement


19/25

or linkages with poor people who are outside the normal bankingsystem!

7II. reen Banking

Islamic banking is basically a Hreen anking! +hese banks are playinga pioneering role in the conversion of banking system into green inangladesh! +hese welfare propagating banks do not invest intobacco, drugs, vulgarism or any other harmful sector! Islamic bankshave no chance in participating in grey investments! It’s a moralobligation for Islamic banks to adopt environment protection processin their every investment!

%nder the Hreen banking activities, Islamic banks have ensured fuelecient electrical euipments, usage of solar panel, hundred percent

online dependent internal communications!

7. &ocial Responsibility

Islamic banking is an e&cellent platform for ensuring socio-economicdevelopment by fostering a sense of mutual obligation and a sense of compassion for the disadvantaged section of the community!6ommitted to overall welfare, these banks, in addition to normal

transactions, make contributions to the sectors like education, health,

disaster management, sports, cultural development, city’sbeautication!

esides, Islamic bank *edical 6ollege ; /ospital and >&im ank"gricultural %niversity can be considered an e&ample of importantcontributions of Islamic banks to education and health sector!

+he Islamic banks have spent almost +k! 118 crore in corporate socialresponsibility sector in 5$1(! +his amount represents above 5JM of the total 6SL e&penditure of banking sector!

7I. Islamic banking on the lobal &tage

"ccording to the >rnst ; Roung’s orld Islamic anking6ompetitiveness Leport 5$1(-1F, the si4e of world Islamic nanceasset is currently almost %SB5 trillion! In the last F years the averagegrowth of Islamic bank’s assets was 18M! In the same period, theassets of Islamic banks in angladesh amounted to over %SB5$billion! In the last four years, Islamic banks of the country haveachieved 18M growth on an average!

"s per the >rnst ; Roung’s report, the total customers of Islamicbanks worldwide was more than (8 million! Buring the same period,the number of customers in angladesh was about 1( million! +hat is,


20/25

in respect of the number of customers, the Islamic banks of angladesh alone have occupied one-fourth of the total customers of the world!

In terms of customers’ inclusion, Islamic banks of angladesh are farahead in comparison to other countries! "ccording to the report of K6onsultative Hroup to "ssist the oor’, an associate organi4ation of the orld ank, in terms of number of beneciaries, IG alonehandles half of the world’s Islamic *icro nance!

orld famous maga4ine, K+he anker’ prepared a list of 1$$$ banksof the world in terms of capital .+ier-I 6apital0! In its ranking for 5$15,IG has been able to capture 1$$$th place as the only bank fromangladesh! +he ank’s position improved to D8F in 5$1( and DE$ in5$1F! +hrough this, angladesh banking as well as Islamic bankingactivities in the hemisphere acuired an admirable place in the list of top 1$$$ banks!

"t the reuest of IB, Islami ank angladesh Gimited has assisted inestablishing KCai4 ank International’ in 'igeria! " senior managementteam of Cai4 bank was rst trained in Bhaka! Gater, a team comprisingeight members from IG was sent to that bank on a three year-contract to perform duties on vital posts including the 6hief >&ecutive!

IG has also arranged training programs for senior ocials of SriGanka and %ganda! +hese activities can be considered helpful inmaking angladesh Islamic banking known worldwide! arious Islamicbanks of angladesh have acuired the membership of di9erentIslamic banking and nancial institutions or forums including"ccounting and "uditing )rgani4ation for Islamic :inancial Institute."")I:I0, Islamic :inancial Services oard .I:S0, Islamic International6redit Lating "gency .II6L"0, International Islamic :und *arket .II:*0,etc! and has played a seminal role in developing professionalism and

sharing e&periences with these organi4ations!

7II. Islamic banking in Bangladesh: Indications o!Potentialities

a% Islamic Banking Act


21/25

Islamic banking law was formulated and came to be in practice beforeIslamic banking had been introduced in di9erent countries like*alaysia and +urkey! Islamic banking was introduced in +hailand in5$$( and Islamic banking law was enacted there in 5$$5! In this way,Islamic ank has been secure the support for establishment andoperation!

*ore than one-fth of angladeshi banking is now being run throughIslamic banking system! 6ompared to the many countries of the worldIslamic banking has assumes a vital position based on the applicationof globally recogni4ed indicators! In recent years, the operationaleciency and e&pansion ability of Islamic anking have increasedowing to the overall supportive supervision of angladesh ank!Bistinct banking law is reuired to support e&pansion of the uniue

activities of Islamic bank!

In 5$11, at a meeting on the activities of the Islamic banks in thecountry, the arliamentary Standing 6ommittee on *inistry of :inance considered the importance of formulating "ct in this regard! +he committee has drawn attention of *inistry of :inance and the6entral ank to take initiative on this matter! )nce Islamic ankinglaw is passed in angladesh, Islamic banking activities will be morecomprehensive or widespread in the country!

b% Incorporating Islamic Banking in #ducationalinstitution curriculum

+o strengthen the emerging trend of Islamic bank, more competenthuman resource is reuired! 6urrently, more than 5J,$$$ employeesare engaged in this sector! )ne fth of the banking activities inangladesh is being carried out applying the Islamic system and thisnew trend in banking is e&panding fast! So, Islamic nance andbanking system as a content should be incorporated in the te&t

curriculum of the country to increase opportunities for supplyingworkforce in this sub-sector!

6ourse on Islamic banking have already been introduced in one ortwo public and private universities, but that seems inadeuate!6ourses on this sub2ect can be introduced in all universities togenerate or build professionali4ed and committed workforce in thissector!

c% 5igher *raining

+raining institutes of the Islamic banks in the country are procientmainly in conducting foundation and orientation courses and in somecases mid-level training! /igher training facility on Islamic banking is


22/25

yet to be introduced in the country! 'o world class full-Aedgedinstitute on Islamic banking has been set up until now in angladesh!

In this regard, *alaysia and ahrain have been able to builde&pertise and they display the height of e&cellence in training andresearch! Henerous patroni4ation of these countries’ central bank andstate authority has helped them reach this position!

angladesh Institute of ank *anagement .I*0 and angladeshank +raining "cademy .+"0 have already initiated a few trainingcourses and research workshops on Islamic banking! Such the rangeand diversity of these activities need to be e&panded further!

Institutional capacities of Islamic banking industry in angladesh willincrease if training centers of national and international standards areset up to deliver higher training on Islamic banking! /igher degreeson Islamic banking and separate diploma courses can be introducedin these training centers following curricula of internationalstandards! If these are implemented the persisting training andresearch gap on this sector will be bridged and it will be possibleto create a vast reservoir of competent workforce!

7III. ;pdating and re$ising Islamic Bank guidelines

:or bringing discipline in management and for crafting acoherent set of principles on Islamic bank, angladesh ank hasformulated Islamic banking guidelines and it has been revised once! +his policy guidance is of course a milestone in the process of institution-building and setting up governance in Islamic banking!

In the conte&t of Shari’ah based bank activities, operationaldi9erences and introduction of new products and rapid changes in thepractice of Shari’ah, steps need to be taken for updating andrevising the old guidelines!

7I". *he -entral Bank &hari(ah Board

+he central bank of *alaysia has established a central Sari’ah boardfor the Islamic banks of the country! "s a result, the Islamic banksmanage themselves according to a uniform policy! If a similar centralShari’ah board is constituted in angladesh under the guidance of thecentral bank, it will be helpful in carrying out Islamic bankingoperations under the same policy! "s a result, a proper ad2ustment

and a new dimension will be added in compliance with bankingregulation, innovation of new product and the research on thissub2ect! It will also increase the intensity of communication with the


23/25

outside world and attract people to the Islamic banking systemor culture!

7". Research and De$elopment 2R


24/25

*alaysia! It is believed, the Islamic banking system of the countryhas more opportunity to gain importance in the international arena!

Islamic anks 6onsultative :orum .I6:0, an association of Islamicbanks of the country, has organi4ed international seminars, symposia

etc! on various occasions! orld3s renowned Islamic economists andShari’ah e&perts, including IB president, have participated in theseprograms! +here is more scope for educative e&ercises to promotethe Islamic banking activities of the country to bring it to the globalmagnitude!

-oncluding words

In view of the spectacular contribution of the Islamic banks to thecountry’s socio-economic development and their continued growth assustainable, modern and humane bank, at an international seminarheld on 5( September 5$1(, 2ointly organi4ed by Islamic :inancialServices oard .I:S0 and angladesh ank, Hovernor Br! "tiurLahman said<

“...With its ethical, inclusivity promoting and stability

enhancing attributes, Islamic fnance undoubtedly bears

promise o playing major benefcial role in our socio-

economic development.”

Indeed, Islamic banking, as a public nancing system, has been ableto carve out a new paradigm of development for the global people regardless of race, language, religion and creed! "t the end, weremember a forecast of late Gutfar Lahman Sarker, a legendarybanker of the country< 7:or making of a humanitarian banking, overall

nancing system of the country will be transformed into Islamicbefore the end of the twenty-rst century!’

In ensuring a compassionate banking system we must strive with 4ealto reali4e the vision of the visionaries of the past and the present!


25/25

Re!erences

1! 6hapra, *! %mar .1$$$0, Islam and >conomic 6hallenge, Islamic:oundation, %!

5! Siddiui, *! 'e2atullaha .1D8(0, Issues in Islamic anking, Islamic:oundation, %!

(! Kah, *on4er, .5$$50, Strategic +rends in the Islamic anking and:inance *ovement, /arvard %niversity, %S", articles read at a seminarof /arvard :orum on Islamic :inance and anking ."pril J-E, 5$$50!

F! 'ienhaus, olker .5$110, Islamic :inance >thics and Shari3ah Gaw inthe crisis of the aftermath< 6oncept and ractice of Shari3ah 6ompliant:inance, in ethical perspectives, volume 18, Issue 'o! F!

#! Wilson, odney , 5$15, Gegal, regulatory and governance issues inIslamic :inance, >dinburgh %niversity ress and 6olumbia %niversityress, 'ew Rork!

J! *annan, *ohammad "bdul .5$$E0, Islamic banking system, 6entralShari3ah oard for Islamic anks of angladesh!

E! /amid, *!"! .1DDD0, Islamic >conomics, La2shahi %niversity,Bepartment of >conomics!

8! orld Islamic anking 6ompetitiveness Leport 5$1(-1F, >rnst ; Roung!

D! +he >conomist ."ugust $J, 1DDF0, Survey of Islam, %nited ingdom!

1$! +he anker, Issue - Culy 5$1F, +op 1$$$ orld anks Lanking, %!11! Bevelopment of Islamic anking in angladesh, "pril-Cune $1F,

Lesearch Bepartment, angladesh ank!

15! "gricultural and rural credit policies and programs .5$1F, 5$1#0,angladesh ank!

1(! "nnual Leports of Islamic anks of angladesh!

1F! "ctivities of anking, insurance and nancial organi4ations, 5$1(-5$1F, anking and :inancial Institutions Bivision, *inistry of :inance!

1#! Leview of the 6SL activities of the :inancial Sector 5$1( .Cune 5$1F0,angladesh ank!

1J! :inancial Stability Leport 5$1(, Issue F, Cune 5$1F, angladesh ank!

1E! Scheduled ank Statistics, Becember 1( ; *arch 1F, angladeshank!

islamic banking in bangladesh progress and potentials

Documents