Currently, 10 full-fledged Islamic banks operate with 1,674 branches

TDS desk:

The amount of loans disbursed and money invested by the country’s Shariah-based banks was higher than the deposits they had as of April this year, according to the Bangladesh Bank data.

Deposits in the Islamic banking sector have been rising, but they were still facing a persistent liquidity crunch for months due to their increasing loan disbursement and investments. A trend of deposit withdrawal by these banks’ customers has also contributed to lowering their deposits below their loans and investments, said people involved in this sector.

According to the Bangladesh Bank data, deposits in the Shariah-based banks collectively increased to Tk4,24,601 crore in April this year. However, in the same month, these banks’ investments stood at Tk4,98,098 crore. That means their investment was Tk73,497 crore higher than their deposits in that month.

Salehuddin Ahmed, former governor of the Bangladesh Bank, said in a Muslim-majority country like Bangladesh, many people feel more comfortable with Shariah-based transactions rather than interest-based banking.

He told the Daily Sun, “Islamic banks have a low cost of funds. Remittance flow is also more there. Due to these reasons, the trend in Islamic banking is increasing.”

Many conventional banks are adopting a Shariah-based banking system to survive the challenge of market competition because many depositors are attracted to Islamic banks. However, various scams and irregularities found in several Shariah-based banks have posed a challenge to their reputation, he said.

Asked about the reasons behind the higher loan disbursement than deposit collection, officials of several Islamic banks said aside from their deposits, they were also using their capital, security reserves and money borrowed from the Bangladesh Bank and other financial institutions for investments.

The current account of some of these banks has a large deficit, but instead of taking any action against these banks, the Bangladesh Bank is helping them in various ways, said sector insiders.

At the end of April, the total deposits in the Islamic banking system reached Tk4,24,601 crore.

The total banking sector’s deposit, at that time, stood at Tk17,94,382 crore, of which the Islamic banks’ share was 23.66%.

The amount of deposits in Shariah-based banks in March, February, and January was Tk4,19,299 crore, Tk4,18,914 crore and Tk4,13,969 crore, respectively.

Among different types of deposits of the Islamic banking system, Mudaraba Term Deposits (MTD) accounted for 47.73%, followed by Mudaraba Savings accounts (MSA) with 19.04%. Total investment in the banking system was Tk20,02,857 crore by the end of April. The share of loans of Islamic banks among all banks stood at 24.87%.

An analysis of sector-wise investment reveals that large industries secured 42.37%, trade and commerce 33.73%, construction 6.25%, and consumer finance 2.28% of the loans.

Currently, 10 full-fledged Islamic banks operate with 1,674 branches. Additionally, 33 Islamic banking branches of 16 conventional banks and 650 Islamic banking windows of 17 conventional banks offer Islamic financial services.