Bangladesh Bank is preparing to introduce a Shariah-compliant interbank money market by June this year, aiming to strengthen liquidity management for Islamic banks and enhance stability across the sector.
Currently, Islamic banks in Bangladesh face significant challenges during liquidity shortages. Unlike conventional banks, they cannot access the call money market, which operates on interest-based transactions, leaving them without a short-term funding mechanism that complies with Shariah principles. This limitation can result in operational strain, particularly during periods of uneven cash flow.
The new Islamic Interbank Money Market is expected to allow banks to lend and borrow short-term funds among themselves using Shariah-compliant instruments. By creating a structured platform, the initiative aims to reduce liquidity mismatches, improve cash flow management, and foster a more resilient banking system.
Bangladesh Bank officials have indicated that the framework has been developed after examining successful Islamic interbank money markets in Indonesia, Malaysia, and Bahrain. These models have demonstrated how compliant mechanisms can efficiently facilitate fund transfers while adhering to Islamic finance principles.
A senior official at the central bank highlighted that the absence of a dedicated interbank system has historically limited the ability of Islamic banks to redistribute funds efficiently. “Once operational, banks with surplus liquidity will be able to support those facing deficits. This will contribute to a more stable Shariah-based banking environment,” he said.
While the move has been welcomed by the industry, experts emphasise that it addresses only short-term liquidity issues. A former managing director of a private Islamic bank noted that although the interbank market will help manage temporary funding gaps, it is not a solution for long-term structural challenges, such as asset-liability imbalances and governance risks. He stressed the importance of strict regulatory oversight to ensure sustainable stability.
Bangladesh’s Islamic banking sector has grown steadily over the last decade, now holding a substantial portion of total banking assets. The introduction of a dedicated interbank market represents a critical step in modernising the sector, aligning it with international best practices, and enhancing its capacity to manage liquidity efficiently.
Key Features of the Proposed Market
| Feature | Details |
|---|---|
| Launch Timeline | Expected by June |
| Purpose | Facilitate Shariah-compliant short-term liquidity management |
| Participants | Islamic banks |
| Main Benefit | Enables fund transfers between surplus and deficit banks |
| International Models Reviewed | Indonesia, Malaysia, Bahrain |
| Limitation | Does not address long-term structural issues |
With the market’s launch, the central bank aims to provide Islamic banks with a practical, compliant mechanism to manage liquidity, marking a major step in strengthening Bangladesh’s Shariah-based financial sector.