Bangladesh launches Islamic interbank money market

(Reuters) - Bangladesh has launched an Islamic interbank money market, aiming to help sharia-compliant banks manage their short-term funding.

Central bank governor Atiur Rahman told Reuters that the market would provide Islamic banks with a channel to use surplus money. Islamic banks account for over 15 percent of the country's banking sector.

"Now the banks who practice Islamic sharia will be able to overcome any funding crisis like the conventional banking system. For the past several months, we took initiatives to bring them into a system..." Rahman told Reuters.

A central bank official, who declined to be named, told Reuters that the new market, launched on Sunday, "is a blend, a mixed model". He added that money market solutions from Indonesia, Malaysia and Saudi Arabia were studied while developing the Bangladeshi platform.

The central bank will act as custodian in the market. Interbank transactions, limited to overnight tenors, will be based on a pre-determined profit-share ratio that will be decided by a central bank committee using Islamic banks' deposit rates as a starting reference.

Three to four banks have placed bids in the market ranging from 10 million to 55 million taka ($122,000 to $671,000), the central bank official said.

The country's Islamic banks maintain liquid assets above statutory requirements and well above levels held by conventional banks, but limited money market tools have made it difficult to manage this excess liquidity.

SUKUK

The central bank official also said amendments to Islamic bond regulations were under consideration by the ministry of finance, as part of efforts to increase the activity of Islamic banks in the capital markets.

The proposals include a sukuk programme that would be issued by the central bank, and might be ready in two to three months, the official said.

In the long term, the sukuk could be used as collateral for interbank transactions, according to the official, lowering costs for Islamic banks by reducing counterparty risk in deals.

(Reuters / 05 June 2012)

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