Diversification of Islamic Financial Insturments
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Efforts should be made to change the legal framework for conducting insurance operations
according to Islamic Shariah principles. Sufficient training and research institute having
logistics of modern technology may be established to train up the manpower. To regain and
maintain a positive public image, should practice appropriate marketing strategy and provide
better service to its customers. To create people awareness, insurance companies should also
arrange on regular basis seminar, symposium, road show etc. in different parts of the country.
The biggest problem is the regulatory requirement to invest 30% of the investable funds with
government securities and bonds. While the government securities provide interest from 8%
to 10% depending on the period, the Bangladesh Government Islami Investment Bond (BGIIB)
issued by the Central Bank give Islamic insurance companies profit between 2% to 4% only.
The investment returns of Islamic insurance companies are therefore 60% to 75% less than
their competitors in the conventional insurance from compulsory investment portfolio.
Furthermore, the funds which are invested in Sharia'h-compliant Islamic bonds are reinvested
by the Central Bank to Islami banks of the country, which hold excess cash liquidity and
seldom in need to buy Islami bonds. Therefore, a major portion of the fund of BGIB remains
idle without investment. This is a real financial strangulation for the Islami insurance
companies.
A strong Shariah framework is needed to enhance consumer confidence and which would
provide Takaful operators with greater flexibility and innovativeness within the boundary of
Sharia'h. Central Sharia'h Board of Islamic Insurance Companies of Bangladesh has proposed a
Sharia'h framework for the Takaful industry of Bangladesh. The proposed Sharia'h framework
allows operators to follow any of the prevailing operational models and combination of the
models based on the Sharia'h concepts of Wakalah, Mudaraba, Jualah and so on. The rules for
investment also allow Takaful operators to adhere to principles and injunctions of Islam as
well as to operate on a level playing field. The nascent Takaful industry needs the special
attention of the government and the regulatory body.
3.6.5 POLICY RECOMMENDATIONS
Islamic Banking Sector
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 Shariah. These conversion applications have been
proposed according to the Islamic Banking Guidelines, 1999. However, Islamic banking sector
has been thriving effectively in the vibrantly growing Bangladesh economy with avid
participation of the Islamic banks in the financial inclusion campaign. Islamic Banking industry
in Bangladesh has contributed significantly to encourage economic growth and generate
employment in the country, to fulfill the vision of the government of reaching a Middle Income
Level by the year 2021. Thereby, this banking industry, with more than 23% market share has
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 Sirkat ul Mulk). The role of the