The Bangladesh Bank has introduced a new financial instrument "Islamic Banks Liquidity Facility (IBLF)" for the Shariah-compliant banks in the country to aid their liquidity management and strengthen their financial system.
Under the scheme, Islamic banks will now get a short-term liquidity facility of 14 days from the central bank, according to a circular issued by the Debt Management Department (DMD) of the Bangladesh Bank on Monday.
At present, 10 banks in the country are operating according to Shariah – a body of religious law that forms a part of the Islamic tradition.
The banks are – Islami Bank Bangladesh, ICB Islamic Bank, Al-Arafah Islami Bank, Social Islami Bank, Exim Bank, First Security Islami Bank, Shahjalal Islami Bank, Union Bank, Standard Bank and NRB Global Bank.
According to the central bank circular, Islamic banks can apply every working day to get a minimum of Tk1 crore. Profit sharing of this liquidity will be determined as per the Mudaraba term deposit rate for a three-month term.
"Liquidity support for 14 days is a great opportunity for Islamic banks. The central bank has taken the right decision considering the current situation," Mosleh Uddin Ahmed, managing director and CEO of Shahjalal Islami Bank said, adding that the facility will increase the ability of the banks to return customers' money whenever they ask for it.
A senior official of the central bank, on condition of anonymity, told The Business Standard (TBS) that the central bank will hold unencumbered Bangladesh Government Investment Sukuk (BGIS) bonds as securities while providing the facility to banks. The banking institutions will receive interim profit (if any) from BGIS used as collateral for IBLF.
"As of now, the Islamic banks did not have the opportunity to receive the liquidity facility that the central bank provides to conventional banks through Repo. So, if there is liquidity stress, it would be difficult for them to manage it. The matter will be solved with the introduction of this new facility," the official said.
When asked about the amount of liquidity support, the central bank official said the Auction Committee of the central bank will review the situation and decide the amount after the applicant banks inform about their liquidity needs.