Diversification of Islamic Financial Insturments
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3.6 CASE STUDY: BANGLADESH
3.6.1 INTRODUCTION
Bangladesh’s progress is a mosaic of solid achievements with some disappointments. Over the
past 46 years since independence, Bangladesh has increased its real per capita income by more
than 130 percent, cut poverty by more than half, and is well set to achieve most of the
millennium development goals. The economy today is a lot more flexible and resilient, as
indicated by the ability to withstand the global financial crisis with minimum adverse effects.
Higher private investment, exports, and wages underpinned GDP growth acceleration to 7.1%
in FY2016 (ended 30 June 2016) from 6.6% in the previous year.
A sound financial sector is a key to a sustained economic development for any country as it
facilitates the financial mechanisms between borrowers and lenders, helps expedite capital
accumulation, and makes use of resources into productive sectors. The banking industry
played a crucial role in mobilizing resources and economic growth. Financial system as a
whole widened and deepened. New banks contributed in parallel to old banks in the economy.
Banking system enhanced its resilience with the adoption of Basel III. In Bangladesh, the
contribution of the financial sector has increased over the years. In FY2011, financial sector’s
share in GDP was 2.99 per cent at constant price which has increased to 3.41 per cent in
FY2017. Commercial banks play the dominant role, possessing almost 80 per cent of the
financial sector. In FY2017 the share of banking sector in GDP was 2.91 per cent. The
contribution of other financial institutions including non-banking financial institutions and
insurances was only 0.5 per cent of GDP. However, amid global economic shocks, the
Bangladesh economy remained buoyant in 2016. Real GDP remained at 7% plus growth
trajectory while inflation remained within the target of 5.8%. Despite declining inward
remittance and moderating export growth, Bangladesh holds adequate reserves of foreign
exchange which is equivalent to eight months of import cover. Robust domestic demand, stable
exchange rate, and low debt-GDP ratio provide buffer against external vulnerability.
Bangladesh Bank’s continuous effort to upgrade the financial sector regulation and supervision
in line with the global standards contributes to maintain a stable -financial sector. In the year
2016, the banking sector had sufficient liquidity, notable balance sheet growth, and moderate
level of sectoral concentration of loans and advances. Non-bank -financial institutions also
demonstrated resilience against various stress scenarios.
3.6.2 ISLAMIC BANKING IN BANGLADESH
The banking sector in Bangladesh continued its evenness in the calendar year 2016 (CY16) like
as last couple of years. In CY16, banking sector's total assets grew steadily; among these
assets, loans and advances occupied the largest portion as usual followed by investments and
other assets. Credit growth was higher in CY16 than that of the previous year, though growth
of investment in government as well as other securities slowed down. Despite rigorous efforts
of Bangladesh Bank, non-performing loan of banking sector increases slightly in CY16 due to
deterioration of quality of the assets of state-owned commercial banks and specialized
development banks. Moreover, banking system experienced lower provision maintenance than
the previous year.