Many in Bangladesh like Islamic banking--a genre of financial dealings avowedly designed along religious lines. Not that all of the admirers are strict adherent to religious principles. Moreover, a bank is different from a shopping store because the product it sells can't be hung on a hook. The seller often spends hours to make the buyer understand the product, and it is here where begins the problem.
This scribe was once asked by a customer that how much he could get against the deposit made under Shariah Law. While this scribe could offer a ratio to share the future income with the depositor, he failed to provide a fixed rate. The man left the bank immediately.
While most people see Islamic banking as a faith-based banking, M Azizul Huq, one of the founding fathers of Islamic banking in Bangladesh, has seen it as a philosophy to evolve around the banking and economic life. It was not a different mode of banking to him. It was what banking for society should be. The banking industry in Bangladesh is now going through an uncharted territory. In a world mired in uncertainty, the banking system which promises to work with uncertainty deserves a revisit.
The scribe also knew a businessman who had shifted from conventional to Islamic banking. He was a strong believer and over the moon to reach the world of divine banking. However, his fantasy withered away soon. Mandatory submission of evidence against each transaction seemed too disturbing to him. At one stage, he retired to pavilion, shifting his orientation to the conventional again.
It is not that the Shariah lovers use the borrowed money for other purposes. A sense of discomfort grows from unknown elements involved with the banking.
The Islamic banking is a financial culture which requires hard block of patience and sacrifice for paving its road. However, banks of Bangladesh are in a hurry. Both new and old banks in Bangladesh are rushing to take the shape of Islamic banking system. The question is whether it is a shape or cover? The irony is that the Islamic-banking binge appears to target quick bucks which the principles of Islamic banking intend to check.
The big businesses throng the yard of Islamic banking to take advantage of the flexibilities in mandatory ceiling of lending, reserve requirements etc.
The market share of Islamic banks in entire banking sector rose to 27.54 per cent in terms of deposits and 27.72 per cent in terms of investments at the end of March 2021. The figures were 25.33 per cent and 25.69 per cent in previous quarter.
Meanwhile, the recently published June closing profit figures of Islamic banks present a dismal performance. While most of the conventional banks posted a growth of around 5.0 per cent, the growth in Islamic banks hovered around 1.0 per cent. The picture is not inconsistent with the historical trend. Low opportunity for investment, excess liquidity, cost inefficiency, non-performing loan etc are explained as the major reasons for the disappointing performance of Islamic banks in Bangladesh.
The profit orientation often makes big holes in the concrete wall of Islamic banking which has promised to save us from the chaos created by conventional banking. The 'profit/loss-sharing method', the beauty of Shariah-based banking, is often compromised under the cover of price mark-up or lease rental set in advance.
It is not surprising that deposit has become a real 'liability' for the Islamic banks. One doesn't need to explain the rules when faith plays its part to win the game. As a consequence, a tsunami of idle money engulfs the Islamic banks. The excess liquidity of Islamic-banking sector stood at Tk 304.09 billion at the end of March 2021, a 320.66-per cent rise from previous year. While the deposit floods the sacred house of Islamic banking, the excess liquidity makes its living costly. A competitive advantage thus becomes a disadvantage for the sector.
This is widely believed that Islamic banks provide better rates. Even depositors from other belief systems crowd Islamic Banks. The rate often aims at outpacing the conventional competitors and, thereby, misses the basic determinants of pricing. The trend of the rate of deposit with Islamic banks doesn't match with that of loans.
The average rate of deposit for the Islamic Banks stood at 4.95 per cent at the end of March 2021 while the industry average remained at 4.14 per cent. However, the lending business presented a poorer figure for Islamic Banks (i.e.,7.30pc) than the industry average (i.e.,7.40pc).
Islamic banking system wants to ensure that every banking transaction is supported by a real economic transaction involving a tangible asset, whether fixed or floating. Doesn't the conventional banking tell us to confirm that the concerned business happens or project is built? The truth is that there remains no separate policing policy in Islamic banking. Many studies argue that they have found no significant difference between the business models of Islamic and conventional banking. If we agree with the statement, the only difference remains to be spiritual. This is the compliance call of faith which can make a difference creating justice in banking, finance, economy and society. Islamic banking is, therefore, synonymous with faith-based compliance in banking.
The strength of the Islamic banking lies in its simplicity. Those who want to live in the world of Islamic banking, need to bear the pain associated with its compliance vaccination.
The writer is a banker.
