Diversification of Islamic Financial Instruments
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Though the banking sector is implementing Basel III as per roadmap released in 2014, the
banking industry was successful in maintaining capital to risk weighted asset ratio (CRAR)
same as previous year. Moreover, most of the banks maintained the required leverage ratio, a
simple and non-risk
Based-leverage ratio is adopted under the Basel III framework, to avoid build-up of excessive
on- and 0-balance sheet leverage in the banking system. Low call money rate and low advance
to deposit ratio (ADR) helped the banking sector edging liquidity stresses in CY16. The newly
introduced Basel III liquidity indicators (LCR and NSFR) also revealed that banking industry
was well set to absorb any liquidity shock. During the review year, operating profit decreased
slightly, but net profit increased attributable to a decline in loan loss provision. PCBs
performed well in terms of asset quality, capital adequacy and profitability while SCBs and
SDBs found lagging behind the industry average and thereby required more vigilant
supervision by their regulator.
Islamic banks are showing a steady growth over the last couple of years in terms of assets,
deposits, investments (loans and advances); and shareholders’ equity. The growth of Islamic
banking sector decreased in CY16 compared to the previous year. In CY16, Islamic banking
assets increased by 13.2 percent (16.3 percent in CY 15); investments (loans and advances)
grew by 17.5 percent (18.6 percent in CY15), while the overall growth of loans of the banking
industry was 15.3 percent. The liabilities also grew by 13.8 percent (16.6 percent in CY15),
mostly due to a positive growth in the deposit base of 14.7 percent (13.6 percent in CY15)
compared to growth of 12.8 percent in the overall deposit base of the banking industry.
The Islamic banking sector in Bangladesh has been continuously growing at a rapid pace which
is reflected by the increasing branch network of Islamic Banks and the conventional banks
having Islamic banking branches. Some other conventional banks had applied to convert their
whole operations in line with the Islamic Sharia'h. Islamic Banking Industry in Bangladesh has
been highly contributing to encourage economic growth and generate employment in the
country to fulfill the vision of the government to reach the country at a Middle Income Level by
the year 2021.Thereby, this banking industry with more than 23% market share and 29,176
employees have been playing a very dominant role in mobilizing deposits and financing in the
real sector industries, services and other key sectors of the economy and collecting 39.95% of
total foreign remittances in Bangladesh. The principal financial instruments used by the
Islamic banks are Bai-Murabaha, Bai-Muajjal, Qard-e-Hasan, Ijarah-bil-Bai and HPSM (Hire
Purchase under Sirkatul Melk). Role of the Islamic Banking industry, as a whole, in respect of
Islamic Microfinance is commendable. Since the core objectives of Islamic banking industry is
to fulfill the Maqasid-al-Sharia'h i.e. to help expedite the financial inclusion drives with Islamic
financial literacy programs to associate the poor and disadvantaged people of the country in
small types of income generating activities so that they can get a space to live as a respectable
human being.
The Islamic NBFIs play an important role in the financial system of the country by providing
financing facility to both retail and commercial clients. Since Islamic NBFIs cannot accept
demand deposits, they incur higher cost of funds than banks which makes it difficult for them
to compete. They try to make up for this by providing some special products usually not
available from banks. The main obstacles preventing innovation of new products for
developing a vibrant Islamic capital market in Bangladesh is the lack of initiatives from the
concerned authorities and absence of guidelines based on Sharia'h based investment. There is