The government is working on launching Sukuk, a Shariah-compliant or Islamic bond, to help Islamic finance industry to flourish in the country, Bangladesh Bank's Deputy Governor Abu Hena Mohd Razee Hassan said yesterday.

Two to three Bangladeshi teams have already visited some countries that are practising Islamic banking, including Malaysia and Bahrain, to gather experience on introducing Sukuk and a new team will be doing the same soon, he said.

“The central bank and the finance ministry are jointly working on it. We are hopeful that we will be able to float Islamic bonds like Sukuk in the near future,” he said. Hassan was addressing a seminar titled “Product diversification of Islamic banks: prospects and challenges” organised by Bangladesh Institute of Bank Management (BIBM) on its premises in the capital.

Sukuk shows elements resembling both shares and bonds, depending on the applicable underlying Islamic financial contract and structure.

In countries where Sukuk has been introduced, Islamic banks and financial institutions are using it to operate their liquidity management.

Islamic banks use Sukuk to maintain the statutory liquidity ratio with their respective central bank and float it to mobilise long-term funds.

Many Islamic countries have introduced the tool to mobilise long-term funds from the global market.

According to Islamic Financial Service Industry Stability Report 218, Saudi Arabia has issued the largest share of Sukuk issuance (38.81 percent) whereas Malaysia possesses 32.88 percent. 

Md Alamgir, associate professor of BIBM, presented a keynote paper, saying that Sukuk was playing a vital role in the global Islamic financial market and its introduction had become the need of the time to expand Islamic banking activities in Bangladesh.

The instrument will help the government, central bank, corporate groups and Islamic banks to mobilise funds and in liquidity management, he said.

Mohammed Haider Ali Miah, managing director of Exim Bank, said Malaysia had introduced Sukuk 28 years ago and they had recently introduced green Sukuk, which resembles the green banking model launched by the BB.

“It is good news that the finance ministry has approved the issue to introduce the Sukuk. We should think to implement the Shariah-compliant rules to settle the transaction of the savings certificates, repo (repurchase agreement), reverse and special repo,” he said.

Md Mahbub-ul-Alam, managing director of Islami Bank Bangladesh, said the amount of default loans would come down in Islamic banks if they could diversify their products.

“The number of clients of our Islamic banks is much higher than those in Malaysia, but the latter is now controlling 70 percent of the asset shares of Islamic banks of Asia whereas Bangladesh possesses only 5 percent,” he said.

Malaysia has frequently been issuing different products like Sukuk to popularise Islamic banking, he said.

Helal Ahmed Chowdhury, a supernumerary professor of the BIBM, said Islamic banks in Bangladesh now hold 22 percent share of the banking sector's asset but they do not have adequate number of products that matches the share.

Financial risk of Islamic banks will be mitigated if they launch more products to disburse loans in the retail sector, mainly to small and medium entrepreneurs, he said.

Md Fariduddin Ahmed, former managing director of Islami Bank Bangladesh and Exim Bank, said there are 15 to 20 products in the country's Islamic banks but they usually use only one or two products.

The banks should use the products properly, he said, adding that Sukuk would help them to manage liquidity and regulatory operation.

Islamic banks had already captured an adequate market share in line with their requirement, said Yasin Ali, another supernumerary professor of BIBM.

“They will have to bring new products in the market for their business to survive competing with traditional banks,” he said.

Toufic Ahmad Choudhury, director general of BIBM, presided over the seminar.