BB not giving new Islamic banking licences

It has no regulatory framework to monitor the industry

More and more banks are showing interest in converting into full-fledged Islamic banks but the central bank is not giving new licences for the expansion of the shariah-compliant finance.

The reason is the absence of a regulatory framework that would enable proper monitoring of the Islamic banking industry, said a senior Bangladesh Bank official.

The BB has long been working on a uniform shariah law framework but could not finalise yet, he added.

Three conventional banks -- Standard, Jamuna and IFIC -- had applied to the BB several years ago to switch to Islamic banking but they did not get the green light.

"We want to go for Islamic banking because people are more interested in it," said Mamun-Ur-Rashid, managing director of Standard Bank, adding that the Islamic banking sector has been outperforming the conventional banking industry.

Shafiqul Alam, managing director of Jamuna Bank, said they had tried for several years to obtain permission from the central bank to launch Islamic banking.

"Now we have abandoned the plan." 

Islamic banks are showing steady growth over the last couple of years in terms of assets, deposits, and loans and advances.

In 2016, Islamic banking assets increased 13.2 percent, loans and advances grew 17.5 percent and deposits 14.7 percent.

In contrast, the banking industry's deposits rose 12.8 percent last year and loans and advances 15.3 percent, according to data from the central bank. Net profit of the Islamic banking sector increased 18.1 percent in contrast to 4.9 percent registered by the conventional banking industry.

Moreover, Islamic banks enjoy regulatory facilities such as maintaining lower reserves in the form of liquid assets: 5.5 percent as opposed to 13 percent for conventional banks, said Rashid of Standard Bank.

"But the central bank is reluctant to expand Islamic banking as it does not have enough resources and manpower to regulate the Islamic banking industry," Rashid added.

At present, eight full-fledged Islamic banks are in operation in Bangladesh by way of 1,047 branches. In addition, nine conventional banks have 18 Islamic banking branches and eight have 25 Islamic banking windows, according to central bank data.

Union was the last bank to get an Islamic banking licence, which came in 2013.

The BB though recently gave Sonali Bank the nod to open six new windows to provide Islamic banking service to its clients.

The bank, however, applied for permission to open 16 such windows but got the nod for only six, according to its managing director Obayed Ullah Al Masud.

"We have plans to take Islamic banking services to every district," he said, adding that a full-fledged branch will be opened if the windows draw in enough customers.     


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