BB to offer new tool for cash support to Islamic banks

Bangladesh Bank will introduce another tool to provide liquidity support to cash-strapped Shariah-based banks in order to safeguard their ailing financial health.

Under the new window, the banks will be able to get liquidity support from the central bank in the form of collateral against funds, which they initially provide to receivers of remitters as an incentive for attracting remittance.

A Bangladesh Bank official explained that banks provide an incentive of 2.5 per cent on the amount of remittance to clients, after which the lenders usually get back the fund from the government after three months.

This means the funds provided by banks get stuck for a certain period.

Thanks to the central bank's window called Mudarabah Liquidity Support (MLS), Shariah-based banks will be allowed to use the amount during the three months.

The central bank will issue a notice today to this end.

Shariah-based banks will also get liquidity support against the government's stimulus packages. The lenders use the packages to offer loans to companies to counter the pandemic's adverse effects.

The banks first disburse the funds among borrowers from their own pockets and they get back the funds under the stimulus packages from the central bank after three months.

Shariah-based banks will keep the amount as collateral for use as liquidity support from the central bank.

The lenders will be allowed a maximum of 90 per cent of funds of their disbursed cash incentives and loans under the stimulus packages.

Two stimulus packages, which the central bank has introduced for large borrowers and small and medium enterprises (SMEs) respectively, will be used to get funds from the BB.

The repayment tenures of the MLS are seven, 14, and 28 days. A bank will have to take at least Tk 10 each time.

The lenders will have to pay a profit-sharing ratio equivalent to a three-month fixed deposit scheme they offer.

In December last year, the central bank introduced another tool named "Islamic Bank Liquidity Facility" in order to help the Shariah-based lenders that faced a liquidity crunch.

In addition, the BB also provided a large amount of fund to the banks on the last week of December under a "lender of the last resort" facility.

There are 10 Shariah-based banks in Bangladesh, some of which are now facing liquidity stress amid withdrawal pressure of deposits after the revelation of financial scams in those institutions.

The banks that got liquidity support under the latest central bank tools are Islami Bank Bangladesh, First Security Islami Bank, Social Islami Bank, Union Bank, and Global Islami Bank.