An Islamic inter-bank money market is now required as the shariah-driven financiers' cannot participate in the conventional call money market as a means of short-term borrowing following its contradiction with the Islamic spirits.
Shariah-based financiers under both banks and Non-Bank Financial Institution categories have nearly 20 per cent shares in the entire financial market by deposits while it occupies approximately 18 per cent by lending.
But they lack a common platform for short term or overnight borrowing to meet regulatory obligations or quick needs.
This was viewed by A.Z.M. Saleh, the managing director and CEO of Islamic Finance and Investment Limited (IFIL), country's oldest Islamic non-bank financier.
"To my mind, such type of creation of call money market will increase the depth and widen the scopes of the Shariah-compliant financial market," Mr. Saleh said.
The CEO was talking to the Financial Express (FE) exclusively at the headquarters of IFIL at Dilkusha in the city.
Mr. Saleh said Islamic bond called "Sukuk" remained a far cry for many years.
A sukuk is an Islamic financial certificate, similar to a bond in conventional finance, that complies with Shariah - Islamic religious law.
Since the traditional interest-paying bond is not permissible in the Islamic economics, the issuer of a sukuk sells the instruments to an investor group and then uses the proceeds to purchase an asset or develop a project, of which the investor group has partial ownership.
The issuer must also make a contractual promise to buy back the bond at a future date at par value.
He said Islamic bond system "Sukuk" should be introduced considering the exponential growth of the shariah-compliant banks and NBFIs and to patronise, among others, national infrastructure development.
"Actually such types of arrangements [shariah-based call money market and sukuk] by the regulator pave the way for smooth operation of the shariah-driven finance companies."
Sukuk is a debt instrument generally to raise long term fund for infrastructure and development projects/assets. It is popularly used for public/government project globally.
If Sukuk is introduced, the prevailing liquidity crisis for mid-term as well as long-term, financing by the Shariah-based banks and NBFIs can be minimized to a large extent. On the other hand, the government may find a way to collect funds for the long-term development projects. It would help the economy to thrive. Besides, general people may find a way to contribute to the development sectors/projects as partners.
Mr. Saleh has over 32 years of proven experiences in the country's financial sector, mostly in banks and joined the IFIL in June last.
The IFIL chief said this is high time to make a clear-cut demarcation of the NBFIs specialised area for business.
The CEO views that NBFIs should concentrate on the medium term financing, e.g., four to seven-year term projects.
"To my view, fund mobilisation for long term financing should come from the capital market," Mr. Saleh said.
The CEO said the lease financing should be exclusively kept for the NBFIs. The core business of NBFI is funding to projects with medium to long terms.
Short-term finance should be arranged by the banks. Mid and long-term finance should be sourced from the NBFIs. Capital marker should be an exclusive source for long-term finance in the financial system.
Mutual funds, bonds and other debt securities should be issued through NBFIs and Investment Banks only.
"We significantly borrow from banks and invest the money to lease financing. Banks are also doing same business in the same market which creates an uneven competition and unhealthy practice."
He said the IFIL has a unique product-"Sahbul Fulus," a borrowing from the time-deposit.
A partial amount from deposit can be withdrawn/borrowed and under such case the clients need not pay any profit to the NBFI.
"Suppose you have deposited Tk 100,000 and later you may borrow Tk 80,000 from the deposits and in such cases the clients will get profits on the remaining amount of Tk 20,000 only."
Conventional financial organisation usually charges at least two per cent higher interest on top of the original rate of interest.
The IFIL has about 8000 depositors with its present capital amounting to Tk 2.0 billion was established in 2001, as the country's first Shariah-based NBFI and listed with the country's both exchanges.
