BB introduces incentive mortgage facility for Islamic banks

Bangladesh BankFile photo

Bangladesh Bank has introduced a new facility to lend money to five Islamic banks that are facing severe liquidity crisis. Under this new facility, the banks could borrow money from the central bank against the incentive the government gives for remittance income these banks bring in.

At the same time, the five Islamic banks also can borrow money against the government’s subsidy on interest for the loans being distributed as incentive in the industries and service and CSME sectors.

The central bank has introduced the Mudaraba Liquidity Support (MLS) as the Islamic banks no more have Sukuk bonds (Islamic bond or Sharia-compliant bond) that the Islamic banks use to borrow money from the central bank, said a concerned official of Bangladesh Bank to Prothom Alo.

The facility, already implemented on Sunday, is not for the traditional commercial banks. The tenure of the facility will be 7, 14 and 28 days.

The five banks are – Islami Bank Bangladesh Limited, First Security Islami Bank Limited, Union Bank, Social Islami Bank Limited and Global Islami Bank.

The current crisis cannot be mitigated by providing liquidity assistance without taking any (punitive) action. This will increase the looting. The central bank has to take steps to resolve the crisis by asserting its authority
Ahsan H Mansur, Policy Research Institute’s executive director

The central bank issued a notification and guidelines in this regard on Sunday. The notification said special liquidity facility, MLS, with tenure of 7, 14 and 28 days has been introduced to ensure proper liquidity management and financial stability at the sharia-compliant banks.

The guidelines said a bank can borrow 90 per cent of the government incentive it has distributed against the expatriate remittance income. In the same way, a bank can borrow 90 per cent of the government’s subsidy on interest for the incentive loans it distributed in the industries and service and CSME sectors. The profit rate will be equal of the profit rate of three-month term loan of the concerned bank, it added.

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The policy further states that the managing director of a bank has to apply for a loan of at least 100 million taka. The money will be deducted from the concerned bank’s current account at the central bank at the end of the tenure.

Earlier, the central bank introduced a facility for the Islamic banks to borrow money from the central bank by depositing sukuk bonds. Five Islamic banks borrowed 40.65 billion taka depositing all the sukuk bonds they have on 31 January.

Besides, the central bank lent about 147.9 billion taka without any security so that the crisis-ridden five banks could show their financial statements as good on the last day of last year.

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Speaking about this, Policy Research Institute’s executive director Ahsan H Mansur told Prothom Alo, “Providing such facility is beyond the jurisdiction of law. No central bank provides such facility.”

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“The current crisis cannot be mitigated by providing liquidity assistance without taking any (punitive) action. This will increase the looting. The central bank has to take steps to resolve the crisis by asserting its authority,” he added.

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