Diversification of Islamic Financial Insturments
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a long time resulted in the lack of legal infrastructure institutions that can support the use of
Islamic commercial law during contemporary times. With the advent of Islamic finance, Islamic
financial contracts are being used, but this is being done in an alien legal environment. For that
reason, laws and courts are unable to interpret and enforce the form of these contracts.
Successful application of Islamic law in contemporary financial transactions requires various
supporting legal infrastructure institutions. To ensure the growth of the Islamic financial
industry, there is a need to have dispute settlement institutions or Islamic courts that
understand the form of the contracts so that these can be interpreted and enforced
accordingly. While the whole court system for the practical reason is not expected to re-design
as per Shariah, but a solution may be to have special Islamic bench at high court that may deal
with, among others, Islamic financial transactions. A sound legislative framework is a
precondition to ensure the financial stability of the Islamic banking sector and the safety and
soundness of individual Islamic banks.
There is strong demand from the Islamic banking community in Bangladesh for a thorough
review of the legislative framework for Islamic banking and Islamic NBFIs. A separate and
completely self-contained legislative framework for Islamic banking is highly emphasized by
all sorts of stakeholders because of the systemically importance the Islamic banking sector.
Islamic NBFI Sector
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 problems confronting the Islamic NBFIs in Bangladesh are:
they cannot avail Bangladesh Bank fund (SME financing, green banking etc.) due to absence of
Shariah rules, they cannot invest in all sectors due to restrictions imposed by central bank,
cannot issue cheques in their own name, cannot receive cash from the investment clients,
cannot provide L/C commitment like Banks, cannot participant in foreign exchange trade,
period of Bai-Muajjal facility (working capital and trade facility) is one year etc. to get rid of
these problems central bank should provide some rules and regulations and amend the
Financial Institutions Act.
3.6.3 ISLAMIC CAPITAL MARKETS IN BANGLADESH
In 2016, both the index value and the trade volume increased at the Dhaka Stock Exchange
(DSE), the prime bourse in Bangladesh. The number of listed companies and issued securities
also grew at a steady pace. At present, DSE has 294 companies and 560 securities listed with
it81. The market capitalization of DSE stood at BDT 3,412.4 billion at end-December 2016,
which is about 8.0 percent higher than that of the previous year-end balance of BDT 3,159.8
billion. Total issued capital at DSE, increased to BDT 1,145.3 billion at end-December, 2016
from BDT 1,106.1 billion of end-December, 2015, recording a rise of 3.5 percent over the
period. In FY 2016, the market capitalization-to-GDP ratio declined to 15.1 percent from 17.9
percent of FY 2015. It is the lowest ratio recorded in the last financial years. This happened
due to the dip in the market capitalization in the first half of 2016 while nominal GDP was
higher than that of FY 2015.
During the last couple of years, growth of nominal GDP and market capitalization found to
move in same direction. But the trend reversed in FY 2016. While nominal GDP growth rate