Diversification of Islamic Financial Instruments
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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 Shariah based investment. There is no specific or customized
Islamic Shariah based products in Bangladesh Capital Market. To uphold the integrity of the
market and meet the demand of an increasingly sophisticated investor class, there is a need to
strengthen the policy and market practices of Islamic capital markets. Development would
need to balance the needs of both parties, where, in Sukuk cases, issuers are seeking more
options and flexibility to raise funds whereas investors are demanding more protection on
their investments. The growth of Islamic capital markets is a direct effect of the growth of the
Islamic banking industry. The need for liquidity management for Islamic banks and takaful
operators drove a number of countries such as Malaysia, Kuwait and Bahrain to introduce
Sukuk to facilitate management of assets by Islamic financial institutions. Growth is also
attributed to growing awareness of, and demand for, investing in accordance with Shariah
principles.
The key components of the Islamic finance value chain have been firmly set in place, the
industry is still facing various challenges at both regional and global levels given its nascent
level of development. Many jurisdictions that operate Islamic finance sectors and offer
Shariah-compliant financial solutions are yet to develop holistic regulatory frameworks and
legislation that enable smooth functioning of the Islamic financial system. There is a critical
need for regulatory support to drive the growth of Islamic finance. Pressing matters include
the need for: (1) an appropriate supervisory environment that caters to the unique features of
Islamic financial products; (2) a wider understanding of Shariah practices, and of the
differences between the Islamic financial system and the conventional system; (3) the
adoption of accounting and auditing standards that recognize the unique features of Islamic
finance transactions; (4) the introduction of Shariah-compliant financial instruments to
manage the excess liquidity of Islamic banks; (5) standardization of products and other-related
documents; (6) the drafting of clear rules and practices for dispute settlement in transactions;
and (7) the development of human resources that are well-versed in both Shariah matters and
the dynamics of the financial industry.
Islamic Capital Market has high potential in Bangladesh. But this potential needs proper
nourishment from both the organizations and regulatory body. The government should take
some major steps for the betterment of this sector. The government itself can establish an
Islamic Capital Market organization to improve the faith of people in this sector. This will also
encourage people to get more aware of the products and scopes of Islamic Capital Market
sector. This will drastically improve the condition of Islamic Capital Market sector in
Bangladesh. More regulatory framework should also be developed, by the government, in favor
of this sector.
Takaful
The factors preventing the development of Takaful and its financial instruments’
diversification are investment system, financial instruments’ interest, gambling, absence of
Islamic insurance rules and regulations and ambiguity in the Insurance Act. This is a big
obstacle in promoting the Islamic insurance industry in the country. However, the growth and
development of the Islamic Insurance sector is being held back by several factors. The
prominent factors are: