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DGFI, Islamic parties against BB guidelines for Islamic banking

Star Report

In an unprecedented move, the Directorate General of Forces Intelligence (DGFI) and some Islamic political parties are preventing the Bangladesh Bank (BB) from circulating its recently finalised new guidelines for Islamic banks.Going out of its jurisdiction, DGFI in a report to the finance ministry recommended that the central bank forms the guidelines in line with the wishes of a focus group comprising ‘Islamic economists, bankers and Shariah Council experts’.

The central bank should not modify or add any idea to the focus group recommended guidelines, wrote DGFI. The report all along echoed the recommendations of various Islamic groups and advised the central bank on how to protect the interest and image of the four-party alliance government.

Expressing DGFI’s concerns about protecting the alliance government’s image, the report urged the central bank to urgently frame the policy in line with the wishes of the Shariah Council.

“If the Bangladesh Bank refrains from circulating the [focus group recommended] guidelines under pressure from some higher authority, the forces opposing the alliance government might take an initiative to implement the guidelines during the caretaker government’s regime. That could create a negative impact on the alliance government during the next election,” the report pointed out.

The central bank in February finalised the new guidelines for Islamic banking that makes the provision for Shariah Council optional. The guidelines also allow banks to decide whether they want to be a member of the Shariah Council.

According to the new guidelines, a bank may form a shariah supervisory body to monitor its Islamic banking services but the board of directors of that bank will be accountable to the central bank for its overall operation.

Presently, banks have their own shariah councils and there has been a central shariah council to look into whether Islamic banking as a whole is in compliance with the Islamic principles.

The central bank could not issue a circular with its guidelines due to last minute pressure from different Islamic groups including a certain partner in the ruling alliance as well as Bangladesh Sharia Council (IBBSC) and others.

Before scripting the guidelines, BB formed a focus group comprising Shariah Council members and representatives from different Islamic banks. Shariah Council members in the meetings of the focus group recommended making Shariah Council mandatory to keep exerting their influence like before. However when the central bank framed the final guidelines it did not accommodate the council’s recommendations.

Some officials of the banks that are operated on the basis of Islamic principles said the Shariah Council often interferes with a bank’s day to day business. It even insists on seeing internal circulars of a bank.

The council is acting as if it is parallel with the central bank, observed the officials. Although there are a number of banks in the country which operate on Islamic principles, there has not been a standard guideline for Islamic banking and that is why the central bank took the initiative to frame the new guidelines.

The Bangladesh Bank as the regulatory body often consults with stakeholders while framing policy guidelines, but it is in no way obligated to accommodate any view or recommendation put forward by any of the stakeholders. But surprisingly, DGFI in its report explicitly suggested that the central bank incorporates the focus group’s recommendations in the guidelines.

“The Bangladesh Bank, after failing to bring changes into the focus group recommended guidelines in the face of opposition from most of the focus group members, took steps to circulate the guideline prepared by itself, after changing two important sections of the recommendations,” the report pointed out.

The six commercial banks presently providing Islamic banking services in the country are Islami Bank Bangladesh Ltd, Al-Arafah Bank, Social Investment Bank Ltd, Exim Bank Ltd, Oriental Bank Ltd and Shahjalal Islami Bank Ltd. Some other banks also provide Islamic banking services in some of their branches.

According to the central bank proposed guidelines, a commercial bank may form a separate company with Tk 100 crore paid up capital for providing Islamic banking services. The subsidiary company will need to offload 49 percent of its share while the parent company may own the remaining 51 percent.

As per the proposed guidelines, commercial banks will have to maintain separate accounts for their Islamic banking services at the branches where such services are provided and they also have to maintain separate statutory liquidity ratio (SLR) and cash reserve requirement (CRR) with the central bank for such services.

At the same time, the central bank also finalised the guidelines for new Islamic banks in the country. In case of a new Islamic bank, the sponsors will have to offload 50 percent of the bank’s shares and sponsor directors will not be allowed to own shares worth more than Tk 2.5 crore.

Currently, there is no separate guideline for Islamic banking in the country. The central bank, for the first time, formulated the guidelines for new Islamic banks and for the banks already providing Islamic banking services at some of their branches.

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