Tapping the Islamic finance industry's growth potential in Bangladesh

The growth potential for Bangladesh's Islamic finance industry is enormous, and coupled with a steadily growing economy and financial reforms. With support from the Bangladesh government, financial regulators and the central bank, Bangladesh can be poised to become the next hub for Islamic finance in Asia and on a global scale, the world Islamic scholars opined in the International Islamic Finance Roadshow held recently in Bangladesh.

In the roadshow, the panelists discussed on various issues on Islamic Finance such as Challenges & Opportunities in Bangladesh's Islamic Finance Sector, Possibilities and Opportunities for Diversification of Islamic Products, Facilitating Shariah Compliant Investment Flows in Bangladesh and South Asia through innovative products, structures and channels, crucial steps to take Bangladesh's Islamic Finance to the Next Level etc.

In the discussion, the panelists urged upon ‘SUKUK’ (an Islamic Bond) as alternative source of financing for construction big infrastructure project in Bangladesh. Sukuk is one type of Islamic Bond, which is asset based or asset-backed, where there is an asset (or pool of assets) underlying every transaction and the ownership of that asset or pool is transferred to investors. Thus investors enjoy all rights and obligations that accompany ownership.

In asset-backed structures sukuk holders have recourse to the underlying assets. The other panelists and delegates have also gave their thought provoking speeches on this issue which were extremely enlightening, eye-opening and riveting for future Islamic Banking in Bangladesh and suggests that the Government of Bangladesh can work on it through cross-border “SUKUK” transaction to raise required fund under syndication process.

With a Muslim population of 160 million, a growing middle class sector and increased foreign participation in the investment arena, there is much potential in Bangladesh Islamic finance market. Among the key issues pertinent to the country’s Islamic financial market include recent governmental efforts, tax and regulatory updates, as well as the Islamic micro financing, SME and agro-financing sectors.

About 77% of this population lives in the rural area; while 23% are from urban areas. The country’s economy with growth rate of 6.20% is dependent on traditional agriculture and has an inflation rate of 15%. It’s more than four years - Bangladesh Bank, the Central Bank of Bangladesh has introduced ‘Guidelines for Islamic Banking’, supplementary to the existing banking laws, to be followed by the Islamic banks and conventional commercial banks having Islamic branches, with a view to bring greater transparency and accountability and therefore governance to Islamic banking.

This was a major break-through in banking sector that will help banks to organize their Islamic banking business and comply the rules of Shariah. Presently 13 conventional banks of Bangladesh are providing Islamic banking services through 24 Islamic banking branches and counters while there are 7 full fledged Islamic banks offering products and services through 500+ branches and SME centers.

Bangladesh can help to explore the growth opportunities for Islamic finance, as well as tax and regulatory developments to boost the country's Islamic capital markets. With the proper implementation of regulations, education and understanding of Islamic financial products, and the provision of sufficient infrastructure, Bangladesh is set to become a major player in the field of Islamic finance of the world. And other Muslim countries may share 30 years experience of Bangladesh in Islamic banking in setting up, operation, conversion, dual banking etc.

In the Roadshow more than 100 delegates from all over the globe, who are mainly market experts and regulators attended and shared their knowledge and expertise with the Bangladeshi market, and explore the opportunities within the country for Islamic issuers, investors, corporate and financial institutions.