A new financial instrument styled Mudarabah Liquidity Support (MLS) comes for feeding the cash-strapped Islamic banking system, in the wake of reports of recent hefty withdrawals.
Bangladesh Bank (BB) introduced Sunday the Shari'ah-compliant financial instrument in order to ensure "financial stability and resilience" in the banks.
The central bank introduced such guidelines on the day as there is a debate over liquidity support in recent times to Islamic banks through Islamic bonds.
The main feature of the MLS is claims of banks on the government of Bangladesh arising from subsidies or incentives to be received against special schemes/programmes shall be considered collateral.
Claims against remittance incentives and against financial stimulus or incentives facilities are also to be used as collateral.
The applied amount of MLS shall be for a minimum amount of Tk 100 million or multiples thereof.
"The expected profit rate shall be equivalent to the prevailing 03 (three) months MTDR (Mudarabah Term Deposit Receipt) rate of the respective bank at the time of availing MLS," says one guideline.
The tenure of the MLS is 07/14/28 days.
As per the set rules, the institutions may apply for the MLPS on every working day to the securities section of Motijheel office of the BB along with requisite documents.
The guidelines say after satisfactory scrutiny of the application by the departments concerned and the Auctions Committee of the BB, an investment decision will be made.
Important documents relating to authorization letters from the accounts and budgeting department of the BB regarding claims of incentives against remittances or financial stimulus facilities have to be furnished.
At maturity, BB will debit the current account of the bank to recover the investment amount and the profit and release the collateral in favour of the respective bank, according to the guidelines.
The ground rules read that if the bank receives any interim payment during the MLS period, the payment will be adjusted by BB accordingly and profit will be calculated on the remaining amount.
Bank can make an early settlement of full or partial MLS amount and the profit will be calculated for the holding period only.
If MLS matures on a holiday, then the tenure of MLS will be extended by the number of holidays, and the profit calculation will incorporate this extended period.
At the end of the calendar year, the profit will be adjusted according to the actual profit of the respective bank.
When contacted, BB spokesperson Md Mezbaul Hoque told the FE that this new instrument will help the Islamic banks meet their liquidity requirements.
"There are many claims of the banks against remittances and stimulus facilities, and the government usually pays the amount at three-month intervals. So they face some liquidity shortage on this ground," he says.
Mr. Hoque said the Islamic banks can now take liquidity support from the BB upon such claims.