Home ›› 06 Mar 2022 ›› Front
With a steady growth, the Islamic banking sector has been playing a significant role in mobilising deposits and financing various economic activities in Bangladesh since its inception.
Among different segments of Bangladesh’s Islamic financial sector, Islamic banking dominates with around 28 per cent share in deposit and investment of the total banking sector, according to the latest report titled “Development of Islamic banking in Bangladesh October-December 2021” prepared by the Bangladesh Bank.
The data analysis from 2011 to 2021 showed a total amount of deposit and investment (Loan) increased over five folds during that period.
Due to high demand, the number of Islamic banks is rising though there is a rush from conventional banks to open separate Islamic banking branches and windows.
With the expansion of Islamic banking industries, employment opportunities are also increasing.
Bankers said asset-based lending, non-compounding interest and Muslim majority sentiment help increase the Shariah-based finance, and many conventional banks are also following suit.
Managing Director and CEO Zafar Alam of Social Islami Bank told The Business Post there is no scope for compounding interest in Islamic banking. Any trader irrespective of religion, caste, can take this opportunity. It is favorable for traders.
“Since people in our country are religious, they have an interest in Islamic banking, which has a higher loan-to-deposit ratio, that allows lending at a higher rate than the conventional banks,” said Zafar
“As a result of asset-based investment, cash is not paid against the loan. The product is bought and sold. There is no opportunity to divert funds either.”
The banker observed that the default rate of Islamic banks is relatively low; due to these reasons, the share of Islamic banking is increasing.
Deposit and Investment
In 2011, total deposit amount of Islamic banks was Tk 74,029 crore which was 16.63 per cent of the total deposit in banking sector.
It increased to Tk 3,93,111 crore in 2021 and the share was 27.89 per cent of the total banking deposit.
In the same period, Islamic banks’ total investment (which is called loan for conventional banking) increased to Tk 3,53,448 crore from Tk 68,895 crore.
The investment proportion was 19.66 per cent in 2011 that increased to 27.88 per cent in 2021 which accounted for the total loans and advances of the whole banking sector.
Islami Bank Bangladesh Limited (IBBL) is the first Shariah-based bank in Bangladesh that is a big player in this sector.
Among all Islamic banks, IBBL accounted for the highest share of deposits which is 35.18 per cent and investment 33.31 per cent as per the December 2021 data.
Conventional banks rush to turn into Islamic banking
Over the last one decade, conventional banks have been showing interest in Islamic banking. In 2021, two conventional banks -- Standard Bank and NRB Global -- converted to full-fledged Islamic banking system and now the number of Islamic banks stood at 10.
Besides, more conventional banks are opening their Islamic banking branches and windows. The central bank data shows in 2013 eight conventional banks had 19 Islamic banking branches. In 2021, the number was 41.
In addition, the number of Islamic window openings has increased dramatically. 7 conventional banks had 25 Islamic banking windows in 2013, which increased to 14 conventional banks and 368 widows.
Zafar Alam told The Business Post the interest towards Islamic banking system is not only in Bangladesh but also in the western world like the USA, UK, and many other countries.
Managing Director and CEO of Mutual Trust Bank Syed Mahbubur Rahman told The Business Post a large section of consumers are showing great interest in the Shariah-based finance. Again, the risk of not being able to repay the loan is less.
“After all this sector is growing. Conventional banks are increasingly interested in taking the advantage of this opportunity to diversify their products,” said the seasoned banker.
Manpower: As the scope of Islamic banking has increased, new employment generation is also happening. Besides, the demand for of skilled manpower that knows and understands the Shariah-based finance in also increasing.
The total manpower of Islamic banking sector stood at 45,260 at the end of 2021, which was 25, 403 in 2013.
About the skilled manpower, Managing Director & CEO of Bangladesh Finance Md Kyser Hamid told The Business Post the way conventional banks or financial institutions are leaning towards Islamic banking services, there is not sufficient skilled manpower that understands Shariah finance.
“A big gap is being created here. We have to take initiative to fill this gap,” he suggested.
Recently, Bangladesh Finance started Shariah-based financial service as the first NBFIs in the county.
Besides, Islamic Finance and Investment Limited and Hajj Finance Company Limited are also full-fledged Shariah-based NBFIs.
Share in deposit
In 2021, among all Islamic banks, Islami Bank Bangladesh Limited accounted the highest 35.18 per cent share of deposits followed by First Security Islami Bank 11.93 per cent, EXIM Bank 10.75 per cent, Al-Arafah Islami Bank 9.66 per cent, Social Islami Bank 8.52 per cent, Shahjalal Islami Bank 5.53 per cent, Union Bank 5.09 per cent, Standard Bank 4.24 per cent, Global Islami Bank 3 per cent, Islamic banking windows of conventional banks 2.98 per cent, Islamic banking branches of conventional banks 2.80 per cent and ICB Islamic Bank Limited 0.33 per cent.
Share in investment
Among the 10 full-fledged Islamic banks, Islami Bank Bangladesh Ltd accounted the highest investment of 33.31 per cent of the total sharia-based lending portfolio followed by First Security Islami Bank 12.84 per cent, EXIM Bank 11.75 per cent, Al-Arafah Islami Bank 9.41 per cent, Social Islami Bank 8.71 per cent, Shahjalal Islami Bank 6.13 per cent, Union Bank 5.48 per cent, Standard Bank 4.64 per cent, Global Islami Bank 3.03 per cent and ICB Islamic Bank 0.24 per cent in 2021.
