The central bank has cut the maturity period of Islamic bonds by half as it amended the guideline on their issuance to make them attractive.
A Bangladesh Bank official said the maturity period has been set at three months, along with the existing six months, to help Islamic banks and financial institutions manage their fund smoothly.
The profit of Islamic bonds will equal the profit of a three-month fixed deposit scheme of the issuing Islamic banks, replacing the profits rate for savings deposits.
This will enhance profit of Islamic bonds and make them attractive, the BB official said.
The new guidelines will be known as Islamic Investment Bond Guidelines 2004 (Amended 2014), which came into effect on August 18.
Now shariah-based banks and financial institutions will be able to use the bonds as an instrument for repo operations.
The guidelines came on the back of a huge growth in Islamic banking in the country. There are seven full-fledged shariah-compliant banks. Most other banks have also launched their Islamic banking wing in recent years. However, officials said growth of Islamic banking has been dented in absence of a separate money market for such banks. Inter-Islamic banks call money rate and repo rate, the two instruments used in day-to-day liquidity management in the banking sector, were not introduced for them.
The return or profit on the only available Mudaraba Islamic bond, which Islamic banks use to meet the mandatory liquidity ratio, is also low.
Islamic banks have created a fund under the central bank management to issue bonds and trade the instruments among themselves, mainly for the purpose of maintaining statutory liquidity ratio.
The amount of money under the fund stood at Tk 10,977 crore as of August this year. Against the fund, bonds worth Tk 2,582 crore have been created. The government, however, does not buy any Islamic bonds.