Dhaka, Bangladesh (BBN) – The central bank of Bangladesh has initiated a move to develop an Islamic Financial Market in Bangladesh aiming to manage properly the liquidity of the Shariah-based Islamic banks, officials said.

“The central bank has taken the latest move to facilitate the fund management of Islamic banks in a competitive and profitable manner,” a senior official of the Bangladesh Bank (BB) said, adding that instruments of money and capital markets will be introduced under the Islamic Financial Market.

As part of the process, the central bank senior officials are expected to meet with the chief executive officers and managing directors of seven Islamic banks and two non-banking financial institutions (NBFIs) on August 01.

The chief executive officer of a foreign commercial bank has been invited to attend the meeting as a special invitee, the BB officials added.

“We’ve planned to discuss a lot of things relating to Islamic Financial Market development,” another BB official said, adding that introduction of repurchase agreement (repo) and reverse repo, using Islamic bonds, might be discussed at the meeting.

The Islamic banks are allowed to invest their surplus funds in the Islamic bonds that are transacted in accordance with the principles of Islamic rules and regulations.

Currently, there is a lack of both money and capital market instruments, hindering the growth of Islamic banking system in the country, the central bank official said.

Market operators have welcomed the BB’s latest move saying that it will largely facilitate the Islamic banks and NBFIs operating in Bangladesh to function properly.

Chairman of Islamic Banks Consultative Forum (IBCF) Abu Nasser M Abduz Zaher said Islamic bankers, scholars and experts earlier urged the policy makers and the regulatory authorities for taking effective measures to put appropriate instruments in place for proper development of Islamic money and capital markets in the country.

“The central bank has taken up the matter for study and consideration for taking a final positive decision on development of the Islamic Financial Market,” Mr. Abduz Zaher, who also Chairman of the Islami Bank Bangladesh Limited, said.

The central bank of Bangladesh agreed to allow an Islamic money market at a meeting with the chief executive officers and managing directors of seven Islamic banks held in the central bank on June 20 last with BB governor Atiur Rahman in the chair.

The Shariah rules cannot permit payment or receipt of interest by any individual or institution.

Currently, some Islamic banks are using their surplus funds among them through an informal or unofficial money market.

Seven private commercial banks, out of a total of 30 are now operating under the rules of Islamic Shariah. The banks have their own Shariah Councils to set the terms of banking under Islamic rules and regulations.

The banks are Islami Bank Bangladesh Limited (IBBL), Al-Arafah Islami Bank Ltd., Export Import Bank of Bangladesh Ltd., Social Islami Bank Ltd., Shahjalal Islami Bank Ltd., First Security Islami Bank Ltd. and ICB Islamic Bank Ltd.

Besides, a good number of local and foreign banks have introduced Islamic banking branches and windows, the BB officials added.

BBN/SSR/AD-26July11-11:30 am (BST)