Islamic Finance in Bangladesh

Due to the vast Muslim population in Bangladesh, there are exceptional chances and potential to grow the Islamic finance sector and a sustainable investment model through new Islamic products.

The Bangladeshi Islamic banking and finance industry witnessed a flurry of activity and received stronger governmental support in the last two years as demand for Shariah-compliant financial products is growing. In 2009, the central bank, Bangladesh Bank (BB), issued Islamic banking guidelines which include, among others, licensing and conversion requirements for banks and financial institutions.

In 2019, the Bangladesh Securities and Exchange Commission issued regulations to facilitate the trading of Sukuk and derivatives in the capital market, as well as the entry of Sukuk into the stock market. The following year, BB started working on guidelines on green Sukuk for Shariah banks and financial institutions as well as a policy framework on Shariah-based green financing, and then later placed a quota limit on Sukuk allocated for Islamic banks. Early this year, to boost the domestic Sukuk market, the National Board of Revenue waived the value-added tax (ranging from 7.5% to 15%) on the sale and purchase of assets between an originator and a Special Purpose Vehicle (SPV) of Sukuk. The government has also offered income tax exemptions on Sukuk.

Bangladesh’s Islamic finance sector is ready for the next level market, experts said in IFN International OnAir Roadshow-2022 recently held through a virtual platform. The demand and potential for Islamic finance and banking in Bangladesh are high and growing as a result of the country’s economic growth and rising population, which is predominantly Muslim.

The landmark transactions witnessed by the sector this past year have been encouraging, but there is still more work to be done, according to the speakers and panelists at the Roadshow, the post-event report of which has been published this month on the roadshow. The theme of the Roadshow was “Building Momentum: Islamic Finance in Bangladesh” organized by the REDmoney group.

The panelists in the Roadshow were Asif Rahman, Director, Saadiq, Standard Chartered Bangladesh, Hasan Mohammad Nayeem Rahman, Country Manager-Bangladesh of Islamic Development Bank (IsDB) Group,  Professor Dr. M. Kabir Hassan, Professor of Finance, Department of Economics and Finance, University of New Orleans, Dr. Md. Golzare Nabi, General Manager of Bangladesh Bank, Dr. Natalie Schoon, Chief Executive Officer, REDmoney Consulting, Shirley Zeng, Analyst, Moody’s Investors Service Singapore and Dr. Scott Levy, Chief Executive Officer, Bedford Row Capital, UK.

Dr Scott Levy, CEO of Bedford Row Capital (BRC) and founder of Al Waseelah, UK as a panelist said, “Bangladesh has a strong local market presence and is beginning to take steps to access the international markets. Sovereign Sukuk has created some interest for local corporates to follow the lead into the international Islamic capital markets. Bangladesh has an excellent foreign currency export market which can underpin corporate issuances and a growing, stable economy. Bangla­desh could be the next big thing for new corporate issuers in the Islamic capital markets; sovereign and corporates have opportunities which they engage with”.

Bangladesh’s Sukuk market, for one, has been very busy, and the government’s recent Sukuk issuances being oversubscribed have shown the demand for the instrument as well as its high potential, especially in facilitating infrastructure development. 

Shirley Zen, Analyst at Moody’s Investors Service Singapore opined, “It was a pleasure to join a panel and hear views from different perspectives of market participants. While the increasing presence of Islamic banks in Bangladesh is raising awareness among the public about Shariah-compliant financing and deposit products, there is a lack of Sukuk available for Islamic banks to manage liquidity. 

There is also growing interested from investors, both domestic and foreign, in the Sukuk market of Bangladesh. However, the Sukuk market is still new and limited, and more needs to be done to complete the governance framework around Islamic finance. As also seen from the experience of other Islamic finance markets such as Malaysia, initiatives led by the public sector including frequent government Sukuk issuances and regulatory support will play a crucial role in the deepening of the Sukuk market and the development of the Islamic finance system overall”.

“Sukuk can be a viable option for financing large infrastructure projects that are being and will be undertaken in Bangladesh, and the recent sovereign Sukuk issuances have been steps taken in the right direction,” Hasan Mohammad Nayeem Rahman, Country Manager, Bangladesh, The Islamic Corporation for the Insurance of Investment and Export Credit (ICIEC) and Islamic Development Bank (IsDB) Group mentioned in the Roadshow.

“Having said that, we all know that the necessary legal framework is not really in place. Sukuk instruments can be very complex, so proper policies have to be put in place to address challenges in the market, in terms of legal, regulatory, and tax regimes (among others), in order to take it to the next level,” Hasan also said, some guidelines and regulations were recently introduced and issued by the regulators to help guide the Islamic capital market, but the proper establishment of a dedicated regulatory framework is extremely important.

Sukuk offerings seem to be the popular choice of Islamic finance deals for both the government and the private sector, so more Islamic papers can be expected out of Bangladesh. The robust growth of the Shariah finance and banking sector in the country is also largely thanks to policy support from the regulators, as well as strong public demand.

Prof Dr. M Kabir Hassan, a professor of finance at the University of New Orleans’s Department of Economics and Finance, agrees with the above statements of the panelists. He mentioned, “There has been remarkable development in the last few months, and some lessons to be learned from the recent Sukuk issuances (out of Bangladesh). Sukuk is a new instrument, there’s a learning curve; we are increasing our capacity in understanding the Sukuk market.” 

“The oversubscription of government Sukuk means that people trust in it and they believe their investment is safe, but can the same thing be said about private sector Sukuk? My recommendation is that the sovereign Sukuk market to be developed first before going into the private sector,” Prof Dr. M Kabir added.

As moderator of the International Roadshow, Md Touhidul Alam Khan, FCMA, Additional Managing Director of Standard Bank, Bangladesh opined on the overall discussion on the Roadshow, “The esteemed speakers shared their opinions on Bangladesh’s demand for and potential for Islamic banking and finance. Despite the challenges the nation has, particularly when trying to raise money from private sectors acting as issuers, they argued that Sukuk is one of the main tools for infrastructure finance in the Islamic mode. To gain the best results from Sukuk in terms of worldwide standards and to advance it, the government should take the right steps to address the tax structure, universal accounting procedures, and legal and regulatory frameworks.”

“The most important requirement for creating a thriving Sukuk market in Bangladesh is human capital development. In order to promote excellent corporate governance, the speakers suggested the establishment of independent Shariah boards including Islamic scholars in all Islamic banks in Bangladesh. Since long-term project financing by banks is not feasible, the country’s capital market must develop through the expansion of the bond market. Large non-government organizations and microfinance institutions that can play a major role in promoting financial inclusion and lowering poverty can use social Sukuk in addition to green Sukuk. 

Although inflation is the main obstacle to stabilizing the pricing of these Islamic items, the establishment of a Halal food industry with an appropriate supply chain can also play a significant role in this regard.

Due to the vast Muslim population in Bangladesh, there are exceptional chances and potential to grow the Islamic finance sector and a sustainable investment model through new Islamic products. The panelists agreed that there is no room for a parallel financial system, including an Islamic one”, the moderator of the Roadshow also added during summarizing the discussions of the panelists. Andrew Tebbutt, Managing Director of REDmoney Group delivered the opening speech at IFN Roadshow Bangladesh which was held in Bangladesh for the third time.

Md. Touhidul Alam Khan is the additional managing director of Standard Bank Limited who was the moderator of the IFN OnAir Roadshow-2022.

He can be reached at:

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