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Better management, values drive Islamic deposits 

11 Mar 2023 09:10:30 | Update: 11 Mar 2023 09:13:56
Better management, values drive Islamic deposits 
SIBL Managing Director and CEO Zafar Alam — Courtesy Photo

The majority of people in the country are Muslims and they practise Islam. That’s why their interest in Islamic banks is growing. The major reason behind the increase in popularity is better Islamic banks’ management than that of conventional banks, said Zafar Alam, Managing Director and CEO of Social Islami Bank Limited (SIBL), in an exclusive interview with The Business Post’s Talukder Farhad

What is the basic difference between deposits in shariah-based banks and conventional banks?

Islamic banks basically follow two principles for collecting deposits. One is Mudaraba which is a partnership between labour and capital where one partner provides full capital and another manages business.

The capital provider is called Sahib-Al-Maal that means depositor while the user or the capital manager is called Mudarib that means bank.

Under this policy, customers deposit money in the banks and the banks invest this money as a manager of the deposits. Besides, customers and banks share the profit and loss, which come from deposits.

Another policy under which sharia-based banks collect deposits is called Al-Wadeeah. Conventional banks call it current account. But in case of Islamic banks, there is a slight difference.

Islamic banks obtain permission from Al-Wadeeah depositors to utilise the funds at its own responsibility and the depositors do not share any profit or loss earned/incurred out of using of this funds by the banks.

The banks have to pay back the deposits received on the principle of Al-Wadeeah on the demand of the account holders. The depositors have to pay taxes to the government and other charges, if any.

What do you think why deposits in Islamic banks tripled in last eight years?

Conventional banks offer fixed rates to the depositors against deposits and pay as per the rate at the end of the year, but there is no chance to change that rate. However, Islamic banks offer provisional rates and profits are paid regularly.

At the end of a year, if the profit amount exceeds against deposit, it is no longer taken back from the customers. But if the customer owes profit to the bank, the bank pays it. This is the basic difference between conventional and Islamic banks when it comes to deposits.

Why Islamic banking is gaining popularity?

It is the fact that the majority of people in the country are Muslims and they practise Islam. That’s why the interest in Islamic banks is increasing. The major reason behind the increase in popularity is better Islamic banks’ management than that of conventional banks.

For example, there is no scope for charging compound interest in Islamic banks against investment (known as loan for conventional banks).

But conventional banks have such opportunity. As a result, the cost of doing business increases due to loans taken from conventional banks. But in the case of Islamic banks, customers show more interest as there is no such opportunity.

Besides, Islamic banks do not make any investment which is harmful to public welfare. Not only that we cannot invest in any sector that is illegal according to Islamic and country’s laws.

There may be criticism of these practices, but systematically Islamic banks are much better than conventional banks. That’s why, I think Islamic banking is growing in popularity and interest is increasing.

Recently, the amount of withdrawal of deposits from Islamic banks has increased due to propaganda, but now the situation has returned to normal.

What are the popular deposit products in your bank?

SIBL has many popular deposit products. Some of these are directly related to Islam such as Hajj account, Zakat account etc. But we are working on six new products for mass people and getting huge response.

Three deposit products have been introduced for education, marriage and treatment purposes where depositors can earn double returns after a fixed period. However, we first offer for a maximum of Tk10 lakh deposit, another Tk10 lakh will be added and a total of Tk20 lakh will be given. 

These three products were launched in mid-March last year. Already a significant number of customers showed interest and it crossed 75,000 while the amount of deposits reached about Tk90 crore. These products are gaining popularity fast.

Deposit schemes for expatriates, retired persons and hawkers have been launched earlier this year. Under this scheme, expatriates will get transport facility to travel anywhere in Dhaka after land at the airport.

But the condition is that he/she has to open deposit account with our bank and send remittance through us.

And the retired persons will get free of cost transport facility by SIBL from home to hospital and hospital to home only for Dhaka city. Along with this, there are medical facilities for both expatriates and retired persons.

On the other hand, another deposit scheme has been introduced for hawkers. If they want to rent or purchase or lease a shop under the deposit scheme, SIBL will provide him/her with 80 per cent or more investment assistance on demand against their deposited money.