Brilliant Developments of Islamic Banking in Bangladesh- This Shariah-based banking was introduced in Bangladesh in 1983, to present halal (religiously permissible) and interest-free lifestyle. This banking has quickly flourished alongside a steady growth of the Bangladesh economy in recent decades. It has earned a reputation in society by turning itself into a promising industry and also enormous popularity within a short time.
In fact, the concept of Islamic Shariah-based business and banking has evolved from the guidelines of Quran and Sunnah that have provided solutions to problems of livelihoods and economic activities. In the holy Quran [11:6], Allah says: “There is no creature on earth but that upon Allah is its provision, and He knows its place of dwelling and place of storage. All is in a clear register.” Accordingly, the humankind have been asked to eat and drink from the halals and to ensure safety and purity in economic functions of human life. Business has been declared as halal and interest as haram (prohibited).
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❏ Islamic banks post highest deposit growth
Islamic financial sector is now considered as a global industry in terms of its assets like Islamic banks, Islamic bonds, Islamic mutual fund and Islamic insurance etc. The sector is growing globally based on its risk sharing, optimism, inclusiveness and real asset backed transaction features. In line with global trends, Islamic banking sector in Bangladesh has also been witnessing robust growth due to policy supports from the Bangladesh Bank and strong public demand.
Islamic Banking Sector in Bangladesh, Performance till March 2022
Total deposits of Islamic banking sector (including branches of Conventional Banks & windows) reached to BDT 3996.79 billion at the end of March 2022 with an increase of BDT 65.68 billion or 1.67% as compared to the end of December 2021 and BDT 418.87 billion or 11.71 % as compared to the same quarter of the last year. The share of total deposits of Islamic banks accounted for 28.21% of total deposits of the entire banking sector during the period under report. Total Bank Deposit stands at BDT 14166.81 billion.
Amongst all Islamic Banks Islami Bank Bangladesh Limited IBBL accounted for the highest share of deposit i.e 35.26% followed by First Security Islami Bank Ltd. 12.08%, EXIM Bank Ltd. 10.43%, Al-Arafah Islami Bank Ltd. 9.62%, Social Islami Bank Ltd. 8.32%, Shahjalal Islami Bank Ltd. 5.31%, Union Bank Limited 5.06%, Standard Bank Ltd. 4.30%.
Among different types of deposits of the Islamic banking industry, Mudaraba Term Deposits (MTD) secured the highest position (45.99%) followed by Mudaraba Savings Deposits (MSD) (19.75%), Other Deposits (15.52%), Mudaraba Special Savings (pension/profit) Deposits (8.67%), Mudaraba Special Notice Deposits (5.22%), Al-Wadeeah Current Account Deposits (4.15%), Mudaraba Savings Bond (0.52%) and Mudaraba Hajj Deposits (0.19%) during January- March 2022.
Total Investment (loans & advances) of Islamic banking sector stood at BDT 3606.49 billion at the end of March 2022 which went up by BDT 72.01 billion or 2.04% and by BDT 382.51 billion or 11.86% as compared to the end of December 2021 and the end of same quarter of the last year respectively. The share of total investment of Islamic banks accounted for 27.78% of total loans & advances of the whole banking sector i.e Btk 12980.49 billion.
In case of the sector-wise investment, Trade and Commerce sector was secured the highest position (37.92%) among all sectors at the end of March 2022 followed by Large Industry (27.16%), CMSMEs (Cottage, Micro, Small and Medium Enterprises (10.71%), Construction (6.51%), Services Industry (5.42%), Miscellaneous (6.83%), Agriculture, Fishing and Forestry (1.95%), Consumer Finance (1.95%), Transport (0.96%), and Other Institutional Loan (0.59%).
The analysis of mode-wise investment revealed that the highest investment was made through Bai-Murabaha (45.94%) at the end of March 2022 followed by Bai-Muajjal (23.63%), HPSM (18.13%), Ijara & Ijara-bil Bai (4.26%), Others (4.41%), Bai-Salam (1.79%), Quard with Security (1.09%), Musharaka (0.45%), Mudaraba (0.27%), and Bai-Istisna (0.03%)
At the end of March 2022, Investment-Deposit ratio stood at 0.90 which was same as at the end of December 2021 and at the end of March 2021.
Excess liquidity of Islamic banking sector stood at BDT 299.99 billion at the end of March 2022 which was lower by BDT 36.26 billion (9.90%) and by BDT 4.10 billion (1.35%) than that of the end of December 2021 and the same period of the last year respectively.
Total remittances mobilized by the Islamic banking sector stood at BDT 134.70 billion during January-March 2022, which was lower by BDT 68.98 billion or by (33.87%) and lower by BDT 22.64 billion or (14.39%) than that of the previous quarter and the same quarter of 2021 respectively. Islamic banks have accounted for 30.96% share of remittances mobilized by the entire banking sector during January-March 2022.
The number of branches of Islamic banking sector including Islamic branches/windows of conventional commercial banks reached to 2154 at the end of March 2022 which was 2080 at the end of December 2021 and 1755 at the end March of last year.
Total employment in the Islamic banking sector stood at 47927 at the end of March 2022 which was 45260 at the end of December 2021 and 43288 at the end of March 2021.
The market share of Islamic banks in the total banking sector stood at 28.21 percent in terms of deposits and 27.78 percent in terms of investments at the end of March, 2022.
At present, 10 full-fledged Islamic banks have been operating with 1679 branches out of total 10942 branches of the whole banking sector. In addition, 41 Islamic banking branches of 9 conventional commercial banks and 434 Islamic banking windows of 13 conventional commercial banks are also providing Islamic financial services in Bangladesh.
A-There are 10 Full-fledged Islamic Banks operating
1) Islami Bank Bangladesh Limited with 394 Branch
2) Al-Arafah Islami Bank Limited with 201 Branch
3) First Security Islami Bank Limited with 201 Branch
4) Global Islami Bank Limited with 174 Branch
5) Social Islami Bank Limited with 172 Branch
6) EXIM Bank Limited with 140 Branch
7) Standard Bank Limited with 138 Branch
8) Shahjalal Islami Bank Limited with 132 Branch
9) Union Bank Limited with 104 Branch
10) ICB Islamic Bank Limited with 33 Branch
B-Islamic Banking Branches in Conventional Banks
1) Premier Bank Limited in 22 Branch
2) South East Bank Limited in 6 Branch
3) Prime Bank Limited in 5 Branch
4) Dhaka Bank Limited in 2 Branch
5) Jumna Bank Limit in 2 Branch
6) The City Bank Limited in 1 Branch
7) AB Bank Limited in 1 Branch
8) Bank Al-Falah Limited in 1 Branch
9) NRB Bank Limited in 1 Branch
C-Islamic Banking Window in Conventional Bank
1) NRBC Bank Limited in 231 Branch
2) Somali Bank Limited in 58 Branch
3) Mercantile Bank Limited in 48 Branch
4) Agrani Bank Limited in 31 Branch
5) Pubali Bank Limited in 17 Branch
6) Trust Bank Limited in 15 Branch
7) Bank Asia in 5 Branch
8) Midland Bank Limited in 2 Branch
9) Standard Chartered Bank in 1 Branch
10) Janata Bank Limited not yet started
Islamic banking industry of the country is playing a vital role in collecting foreign remittances and distributing it among beneficiaries across the country. Total remittances mobilized by the Islamic banking sector stood at BDT 134.70 billion during January-March 2022, which were lower by BDT 68.98 billion or 33.87% and BDT 22.64 billion or 14.39% than that of previous quarter and the same quarter of the previous year respectively.
Among the Islamic banking sector, Islami Bank Bangladesh Ltd. secured top position (75.16%) in remittance mobilization during January-March 2022, followed by Al-Arafah Islami Bank Ltd. (9.86%), Shahjalal Islami Bank (3.03%), Social Islami Bank Ltd (2.76%). The Islamic banking sector accounted for 30.96% share of total remittances mobilized by the whole banking sector during the quarter under report.
Islamic banking sector has been playing significant role in mobilizing deposits and financing in various economic activities in Bangladesh since its inception. Among different segments of Bangladesh‟s Islamic financial sector, Islamic banking sector dominates with more than 28% share of deposit and 27% share of investment of the total banking sector. The other segments of Islamic financial sector such as Islamic capital market, Islamic insurance (Takaful) and microfinance sector may also flourish systematically if supportive policies are adopted and implemented.
When Islamic banking is becoming the fastest growing banking system worldwide, Bangladesh has already been a role model for expansion of the system and its popularity. A system that reduces non-performing loans and promotes social welfare, the Islamic banking now requires short-term money market support and specific law for its more sustainable operations in the country.
Sources: Islamic Banking Wing> Research Department> Bangladesh Bank
