The absence of foreign Islamic banks
Bangladesh, in spite of being from the Third World side, has already attracted big economies for its phenomenal economic growth against all odds.
Now passing its mid-forties, the country's accelerated economic movement actually started no more than two decades back. The success story lies in the fact that Bangladesh has ensured inclusive development, which is an extremely difficult target to achieve.
The magic wand has changed not only the ancient agriculture sector, but also created healthy manufacturing and service sectors. The root of this change, which built a bridge across all corners of the economy, is our flourishing financial system.
The economy today stands on a strong financial system, which includes 56 scheduled banks, four non-scheduled banks, 31 non-bank financial institutions, 62 insurance companies, more than 600 micro-finance institutions, numerous merchant banks, brokerage houses, asset management companies and credit rating agencies.
To dig one step further, the count of 56 scheduled banks comprises five state-owned commercial banks, three specialised banks, 31 local private conventional banks, eight local Islamic banks, and nine foreign commercial banks (all conventional).
Interestingly, there is not a single foreign Islamic bank operating in Bangladesh. Though two foreign banks used to offer Islamic banking services through their subsidiaries, one has already closed its service in the country. The other offers services on a limited scale.
The question is, does the absence of a foreign Islamic bank make a difference. The answer is -- Yes.
Firstly, in terms of population, Bangladesh is one of the largest Muslim countries in the world with more than 80 percent of its population Muslim. A significant portion of the population prefers conducting their activities through Islamic banks, but the number of Islamic banks is still within single digits. So, there is room for more Islamic banks to join the flock.
Secondly, except for one or two, other Islamic banks are still struggling to compete with conventional banks in terms of product offerings and services.
The participation of foreign Islamic banks will obviously come up with new products, efficient services, and human resources training through knowledge sharing and experience.
Although initially a threat, there will eventually be real benefits in terms of overall qualitative improvement of the Islamic banks -- the same benefits that the conventional banks received from the participation of foreign banks in the market.
The global practices, products and services practiced by foreign banks, have influenced our local banks to improve.
Thirdly, Islamic banks from the Gulf region can be a wide channel for attracting petrodollars. It will not only encourage foreign direct investment, but also increase remittance inflow from the Middle East through legal channels.
Fourthly, Dhaka Stock Exchange launched an Islamic Index last year; the foreign Islamic banks can be a good way to attract investors in the market from a global window.
Fifthly, Islamic banks in many countries have started offering customised products like Sukuk, Islamic microfinance, Zakat Fund and so on, which have become very popular and attractive globally.
Compared to that, we are lagging behind. If we can invite some foreign Islamic banks in the Bangladesh market, we can also reap the benefits of such products by expanding those in the local market.
It is vital that policymakers realise these needs and strategise the process.
Bangladesh Bank has a pivotal role to play to widen this opportunity.
Regulations and policies in line with the AAOIFI (Accounting and Auditing Organisation for Islamic Financial Institutions) standards may offer a big comfort to the interested banks.
This era of globalisation demands business across borders and introducing the operation of foreign Islamic banks in the country may open new avenues of opportunity for the economy of Bangladesh.
The writer is Islamic finance-qualified from Chartered Institute for Securities and Investment, UK.