Recent news that Bangladesh’s central bank approved the conversion of two more local banks to fully-fledged Islamic banks warrants taking a closer look at the Shariah-compliant banking and finance industry in the world’s fourth-most populous Muslim country.
According to recent media Dhaka Tribune, The Daily Star and The Financial Express last week, the central bank of Bangladesh approved applications from two domestic banks, Standard Bank and NRB Global Bank, to become fully Islamic banks. The two privately-held commercial banks so far only operated Islamic windows but sought to convert to fully-fledged Shariah-compliant banks to enlarge their scope of product offerings amid growing popularity of Islamic banking in the country and tougher competition on the conventional banking market. NRB Global Bank said it plans to change its name to Global Islami Bank to underscore its new role.
The move brings the number of fully-fledged Islamic banks in Bangladesh to ten, with the others being Al-Arafah Islami Bank, Islami Bank Bangladesh, Exim Bank, Social Islami Bank, Shahjalal Islami Bank, Union Bank, First Security Islami Bank and ICB Islamic Bank. In addition, 19 Islamic banking branches of nine conventional commercial banks and 41 Islamic banking windows of seven conventional commercial banks are currently providing Islamic financial services in the country.
Bangladesh is one of the Muslim nations whose impressive growth in Islamic finance has somehow been overlooked in the past. The country with a population of 165mn, of which 91 per cent are Muslim – which translates into 8.0 per cent of the global Muslim population –, has experienced strong public demand from the public and from businesses for Islamic banking and finance services basically since the industry’s inception in 1983. According to latest available central bank data, at the end of the July-September 2019 quarter, total Shariah-compliant deposits at Bangladesh’s banks reached $30.8bn, a 15 per cent increase over the same quarter of the previous year. This is in line with the 15 to 20 per cent annual growth of the industry over the past decades and brings the share of Islamic banking deposits close to 24 per cent of the entire deposit volume of the country’s banking market, while the share of loans and financing is even higher at close to 25 per cent. The number of branches of the Islamic banking sector including Islamic branches and windows of conventional commercial banks reached 1,301 at the end of the quarter, up from 1,200 in the same quarter of the previous year. Islamic banking now employs more than 36,000 people in Bangladesh, the central bank said.
“Bangladesh’s Islamic banking sector has experienced robust growth due to policy supports and strong public demand,” the central bank noted in its quarterly report. “Recent issuance of sukuk rules by the Bangladesh Securities and Exchange Commission will promote Islamic capital markets badly needed for financing infrastructure and industrial projects towards achieving higher inclusive GDP growth and other sustainable development goals,” it added.
Analysts note that the industry has still high potential for further expansion as Bangladesh enjoys a vibrant economy with GDP per capita having more than tripled over the past decade to close to $1,800 with an average (nominal) GDP growth of 6.0 per cent annually to $288.4bn in 2018. Last year, Bangladesh’s economy posted record high growth of 8.1 per cent and is now close to achieving double-digit GDP growth. Since 2009, the country’s economy has grown by 188 per cent in size, and the per-capita income as per purchasing power parity has surpassed $4,000, up from $2,400 ten years ago.
These are very positive preconditions for the Islamic banking and finance market since foreign investors beyond Indian companies, namely Muslim investors, are beginning to look at the “Bangladesh boom” and seek to identify business opportunities. It is also expected that the Islamic capital market and the Islamic insurance and microfinance sector will expand in tandem as supportive policies are adopted and implemented. Bangladesh’s Islamic finance industry with the help of its many IT entrepreneurs is now also adopting Shariah-compliant fintech to carry out financial transactions and processes more efficiently through technological innovations.