[🇧🇩] Banking System in Bangladesh

[Saif]

Banking sector shows resilience as NOP and liquidity bounce back: BB report

The Bangladesh Bank (BB) has reported a significant recovery in the Net Open Position (NOP) and a stabilization of market liquidity (Net FX Holding) within the country’s banking sector. According to the central bank’s latest data, the banking sector has demonstrated a robust turnaround

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Banking sector shows resilience as NOP and liquidity bounce back: BB report

BSS
Published :
Apr 02, 2026 20:27
Updated :
Apr 02, 2026 20:27

The Bangladesh Bank (BB) has reported a significant recovery in the Net Open Position (NOP) and a stabilization of market liquidity (Net FX Holding) within the country’s banking sector.

According to the central bank’s latest data, the banking sector has demonstrated a robust turnaround, with the NOP reaching $1,080.70 million and market liquidity stabilizing at $3.39 billion as of April 2, 2026.

This recovery indicates a strong continuity of foreign currency exposure management across the financial landscape.

The central bank’s report highlights a consistent and positive growth trajectory for the Net Open Position, reflecting a strengthened standing in foreign exchange management by commercial banks over the past three years.

The NOP was recorded at $107.03 million in June 2023. By June 2024, this figure grew substantially to $272.70 million. The sector reached its peak NOP of $1,116.70 million in June 2025.

A temporary dip followed in February 2026, with the position falling to $602.71 million. As of April 2, 2026, the NOP has successfully recovered to its current level of $1,080.70 million.

This trajectory underscores the sector’s ability to manage foreign currency exposure effectively, maintaining a healthy and stable balance in open positions despite periodic market fluctuations.

Market liquidity, measured by Net FX Holding, has exhibited a commendable pattern of resilience and stabilization. The sector began with a liquidity position of $3.40 billion in June 2023, which rose to $3.89 billion by June 2024. While the position moderated slightly to $3.50 billion in June 2025 and faced a notable contraction to $2.30 billion in February 2026, it has since achieved a strong recovery.

As of April 2, 2026, Net FX Holding has stabilized at USD 3.39 billion. This rebound from the February lows indicates a strong recovery and a steady environment for foreign exchange transactions, signaling that the banking sector has successfully navigated recent liquidity pressures.​

 

[Saif]

Central banks, banking stability, and national growth

For Bangladesh, an economy with nearly 200 million people but limited land and natural resources, the central bank's role is particularly critical. Economic growth, employment, social stability, and protection of national savings depend heavily on the strength and credibility of the banking and fin

thefinancialexpress.com.bd

Central banks, banking stability, and national growth

M Fazlur Rahman

Published :
Apr 04, 2026 00:01
Updated :
Apr 04, 2026 00:01

For Bangladesh, an economy with nearly 200 million people but limited land and natural resources, the central bank's role is particularly critical. Economic growth, employment, social stability, and protection of national savings depend heavily on the strength and credibility of the banking and financial system.

Bangladesh currently faces a challenging banking sector. Addressing these challenges requires strong institutional reform, effective supervision, restoring depositor confidence, and coordinated fiscal and monetary policy to ensure sustainable growth while keeping inflation within tolerable limits for low-income households.

ROLE OF CENTRAL BANKS IN DIFFERENT ECONOMIES: Across countries, central banks perform several fundamental responsibilities. These include maintaining monetary stability, supervising banks, managing liquidity in the money market, operating payment systems, and safeguarding financial stability during crises.

In developed economies such as the United States (US), the United Kingdom (UK), Japan, and the Eurozone, central banks operate within highly mature financial systems supported by deep capital markets. Their primary focus is typically on inflation targeting, interest rate management, financial market stability, macroeconomic forecasting, and monitoring systemic risks.

In developing economies like India, Malaysia, Thailand, Vietnam, and Indonesia, central banks play a broader developmental role. With underdeveloped capital markets, banks are the primary source of financing. Consequently, central banks must manage inflation, supervise banks, maintain exchange rate stability, and support financial sector development.

In economies with weak banking governance, the central bank must focus even more on protecting the financial system. In such environments, priorities include controlling excessive non-performing loans, enforcing capital adequacy, preventing insider lending, and restoring depositor confidence.

CURRENT CHALLENGES IN BANGLADESH'S BANKING SECTOR: Bangladesh's banking sector is currently facing several structural challenges.

A significant portion of loans has become non-performing, and many borrowers' businesses have stopped operating or cannot be traced. Weak corporate governance in some banks has caused poor credit decisions and inadequate risk management. Lending decisions have sometimes been influenced by external pressures instead of sound financial analysis.

Concerns have emerged about deposit safety in some institutions due to loan diversion and inflated project financing. Several banks face shortages in capital adequacy, CRR and SLR compliance, and operational liquidity.

These challenges have created a confidence deficit in parts of the banking system that must be addressed urgently to protect depositors and restore economic momentum.

Recognising the need for stronger oversight, Bangladesh Bank has recently reorganised its supervisory framework.

Several previous inspection-based departments have been dissolved and replaced with a new supervisory structure to improve monitoring and regulatory effectiveness. The new structure includes twelve Bank Supervision Departments (BSD-1 to BSD-12) responsible for direct bank supervision. In addition, several specialised supervisory units have been created, including departments responsible for technology risks and digital banking supervision, supervisory data analytics, supervisory policy coordination, anti-money laundering and terrorist financing prevention, and payment systems supervision.

This reform aims to establish a modern, data-driven supervisory system that enables Bangladesh Bank to detect risks earlier and enforce regulatory discipline more effectively.

ECONOMIC REALITY AND POLICY BALANCE: Bangladesh faces a complex economic reality. Nearly 20 million people need employment, food security, and social protection. Many struggle daily to secure a basic livelihood, while the middle class faces growing pressure from rising living costs.

For this reason, continued development spending and economic expansion are necessary. Investment in infrastructure, industry, and export promotion is essential for job creation and long-term growth.

Inflation must remain within a tolerable range, especially for low-income households. Inflation control should be seen not only as a macroeconomic goal but also as a social protection measure.

The policy challenge is not whether development spending should happen, but whether it is supported by a strong, disciplined, and trustworthy banking system.

TEN PRIORITY BANKING REFORMS FOR BANGLADESH: To restore stability and confidence in the banking sector, several reforms should receive priority attention: (1) Strengthen loan recovery mechanisms for large defaulted loans; (2) Enforce strict accountability for bank boards and management; (3) Improve credit risk assessment and loan monitoring systems; (4) Recapitalise financially distressed banks where necessary; (5) Restructure or consolidate structurally weak banks; (6) Strengthen the regulatory independence of the central bank; (7) Introduce stronger corporate governance standards in banks; (8) Improve transparency in financial reporting and supervision; (9). Strengthen anti-money laundering and financial integrity frameworks; and (10) Protect depositor funds through stronger regulatory safeguards.

FIVE IMMEDIATE ACTIONS FOR BANGLADESH BANK: In the short term, Bangladesh Bank may consider the following actions: (1) Conducting a comprehensive asset quality review of the banking sector; (2) Enforcing strict capital adequacy compliance across all banks; (3) Strengthening real-time supervision using data analytics; (4) Accelerating recovery processes for large non-performing loans; and (5) Providing policy support to revive viable businesses and productive sectors.

LEADERSHIP OF THE CENTRAL BANK: Economists typically bring strength to monetary policy and macroeconomic analysis, while professional accountants contribute expertise in financial discipline, balance sheet analysis, governance oversight, and fraud detection.

In Bangladesh's current situation, a leadership team combining macroeconomic expertise with strong financial oversight capability may be most effective. Equally important are the personal qualities of leadership: independence, integrity, courage to enforce regulations, and commitment to protecting depositor confidence.

CONCLUSION: Restoring confidence in the banking system must be a national priority. With effective supervision, credible leadership, responsible banking governance, and coordinated fiscal-monetary policy, Bangladesh can strengthen its financial system and support sustainable economic growth while maintaining price stability and protecting national savings.

M Fazlur Rahman is a banking and capital market analyst.​

 

[Saif]

Liquidity boost for Islamic banks as BB plans interbank market

Bangladesh Bank (BB) has initiated steps to launch an Islamic Interbank Money Market by June this year, aiming to improve liquidity management for Shariah-based banks. At present, Islamic banks face difficulties during liquidity shortages as they are unable to participate in the conventional call

thefinancialexpress.com.bd

Liquidity boost for Islamic banks as BB plans interbank market

UNB
Published :
Apr 04, 2026 18:20
Updated :
Apr 04, 2026 18:20

Bangladesh Bank (BB) has initiated steps to launch an Islamic Interbank Money Market by June this year, aiming to improve liquidity management for Shariah-based banks.

At present, Islamic banks face difficulties during liquidity shortages as they are unable to participate in the conventional call money market used by traditional banks. The absence of a Shariah-compliant short-term funding mechanism often puts these institutions under financial strain.

The new marketplace is expected to provide an alternative financing avenue, making it easier for Islamic banks to trade short-term funds among themselves.

In designing the framework for this new market, the central bank has reportedly reviewed and analysed the successful models of Islamic interbank money markets in Indonesia, Malaysia, and Bahrain.

A senior BB official said there has been a lack of an effective interbank system for fund transfers specifically tailored for Islamic banks.

"Once the new market is operational, banks with surplus liquidity will be able to support those facing deficits. This will play a positive role in stabilising the liquidity situation within the Shariah-based banking sector," he said.

While the move has been welcomed, some industry experts emphasise that this is only a partial fix.

A former managing director of a private sector Islamic bank observed that while an interbank system is helpful for managing short-term liquidity gaps, it is not a solution for long-term structural issues.

He stressed that the central bank must maintain strict monitoring over the fund management of these banks to ensure lasting stability.

The introduction of this dedicated money market is seen as a crucial step in modernising Bangladesh’s Islamic banking sector, which currently holds a substantial share of the country's total banking assets.​

 

[Saif]

Unlocking offshore banking potential for hi-tech industries

Bangladesh has taken an important step toward strengthening its international financial architecture by introducing the Offshore Banking Act, 2024. The objective of this legislation is to facilitate cross-border financial transactions, support foreign investment, and create a globally competitive f

thefinancialexpress.com.bd

Unlocking offshore banking potential for hi-tech industries

Md Saidul Islam

Published :
Apr 07, 2026 00:48
Updated :
Apr 07, 2026 01:46

Bangladesh has taken an important step toward strengthening its international financial architecture by introducing the Offshore Banking Act, 2024. The objective of this legislation is to facilitate cross-border financial transactions, support foreign investment, and create a globally competitive financial environment for enterprises operating in specialised economic zones such as Hi-Tech Parks.

However, despite the policy intent, some operational opacities remain. One issue is the interaction between Domestic Banking Units (DBUs) and Offshore Banking Units (OBUs), especially when companies in specialised zones generate revenues in local currency but must conduct foreign currency transactions.

Hi-Tech Park–based industrialisation and efforts to attract foreign investment in Bangladesh are not new. However, integrating OBU-centric commercial structures has added a new dimension. Multinational companies in the smartphone and electronics sector—such as OPPO, VIVO, OnePlus, and Realme—which are fully foreign-owned, now face a practical operational challenge.

The core issue is simple but significant. These companies import goods in foreign currency, while much of their sales revenue is in Bangladeshi Taka (BDT). As a result, they must settle import liabilities (LC payments) in foreign currency, while their income is mostly in local currency, creating a clear currency mismatch.

Many of these companies use OBUs to open import LCs because they suit international trade and foreign currency transactions. However, once an LC is opened, its settlement requires foreign currency, which is not always available in the OBU since sales proceeds are deposited in DBUs in BDT. Companies also prefer OBUs due to their simplified operational procedures worldwide.

So, how can an effective operational linkage be established between these two platforms?

A practical and efficient model may be structured as follows. First, the company’s local sales proceeds are deposited in the DBU in BDT. Then, under foreign exchange regulations, the DBU converts these funds into foreign currency. The foreign currency is then transferred to the OBU, where it is credited to the company’s foreign currency (FC) account and held until LC settlement is due.

To ensure the effectiveness of OBU-based commercial activities, a well-defined funding mechanism between DBU and OBU is essential. Without such a mechanism, even if LCs are opened, timely settlement may become difficult, potentially disrupting supply chains and undermining business confidence.

Moreover, since these companies are fully foreign-owned, repatriation of profits in foreign currency is also critical. In this regard, the OBU can serve as an effective platform—provided that the conversion and transfer of funds from DBU to OBU are clearly defined and permitted within the regulatory framework.

While existing Bangladesh Bank guidelines have laid the foundation for OBU operations, operational gaps remain in DBU–OBU coordination. Clearer guidance is needed on BDT-to-foreign currency conversion, inter-unit fund transfers, and LC settlement mechanisms.

International experience suggests that building a successful Offshore Financial Centre (OFC) requires more than policy liberalisation—it demands operational integration. Financial hubs such as Singapore, Dubai, and India’s GIFT City have well-defined frameworks for coordinated fund movement between onshore and offshore units, ensuring a seamless financial environment for investors.

Bangladesh needs to adopt a similar approach. If Hi-Tech Parks and Special Economic Zones are to emerge as genuine global investment hubs, DBU–OBU coordination must be policy-clear, technologically efficient, and supported by robust risk management.

The Hi-Tech Park ecosystem in Bangladesh is expanding rapidly under the leadership of the Bangladesh Hi-Tech Park Authority. According to official data, more than 175 companies have been allocated space across various hi-tech parks, while over 148 startups are operating in incubation facilities. These parks have already created more than 22,000 direct jobs and contributed to the development of a growing pool of skilled ICT professionals.

Investment momentum is also encouraging. The Hi-Tech City, kaliakoir alone has attracted over $800 million in investments from around 50 local and foreign firms, with dozens of companies already in operation. Once fully operational, employment in the park is expected to reach approximately 50,000, highlighting the sector’s strong economic potential.

Government projections further indicate that cumulative investment in hi-tech parks could exceed Tk 24 billion by 2026, underscoring the sector’s growing importance in Bangladesh’s industrial transformation.

Many of these enterprises are fully foreign-owned and eligible to maintain accounts with OBUs. However, a significant portion of their revenue comes from domestic sales, so earnings are largely in BDT.

At the same time, these firms regularly import machinery, technology equipment, software solutions, and raw materials from foreign suppliers. To facilitate these transactions efficiently, companies often prefer to open LCs through OBUs.

From a financial perspective, the transaction structure is straightforward. A company receives sales proceeds in BDT through a DBU, purchases foreign currency with those funds, and transfers the converted amount to its OBU account. The OBU then uses these funds to open LCs and settle payments with overseas suppliers.

This is fundamentally a legitimate foreign exchange transaction. The purchase of foreign currency from authorised dealer banks for genuine import payments is already permitted under Bangladesh’s foreign exchange regulations. Additionally, these companies qualify as offshore clients due to their presence in specialised economic zones.

However, many commercial banks hesitate to process such transactions through OBUs due to the lack of explicit operational guidance from the central bank. This uncertainty discourages banks from facilitating legitimate transactions, even when the underlying business activities are fully compliant.

The hesitation stems more from compliance concerns than from legal restrictions. Bankers often prefer to avoid potential regulatory interpretation risks during inspection or audit by the Bangladesh Bank.

This situation highlights the need for clear policy direction. A simple circular or operational clarification from Bangladesh Bank could confirm that foreign currency purchased by DBUs against legitimate local currency earnings may be transferred to OBU accounts to settle permissible external transactions, including LC payments.

Such clarification would not introduce new financial risks. Rather, it would enhance transparency, improve operational efficiency, and ensure better regulatory compliance.

More importantly, improved clarity would significantly strengthen Bangladesh’s attractiveness to foreign investors. Hi-Tech Parks are intended to serve as innovation-driven industrial clusters that combine technology manufacturing, research, and digital services. Efficient, predictable banking operations in these zones would make Bangladesh a more competitive destination for technology-based investments.

As Bangladesh moves toward a knowledge-based economy and prepares for its post-LDC transition, strengthening the financial ecosystem supporting high-tech industries is essential. Clear policy support for practical offshore banking operations can play a pivotal role in accelerating foreign direct investment and expanding the country’s technology sector.

Bangladesh has already laid the foundation for a modern offshore banking regime. With targeted regulatory clarifications and operational alignment between DBUs and OBUs, the system can become significantly more effective in supporting high-tech industries.

A coordinated and practical approach will ensure that OBUs evolve not merely as parallel banking structures, but as integral components of a dynamic, investor-friendly financial ecosystem—positioning Bangladesh as an emerging hub for technology-driven investment in South Asia.

Md. Saidul Islam CDCS, Vice President & Head of OBU Business, One Bank PLC.​

 

[Saif]

The Financial Express | First Financial Daily of Bangladesh

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Reserve Heist: Ex-BB chief Mansur to testify in NY court on Apr 10

UNB
Published :
Apr 07, 2026 18:04
Updated :
Apr 07, 2026 18:04

Dr Ahsan H Mansur, former Governor of Bangladesh Bank, will make a deposition before a New York court in the US on April 10 in connection with the ongoing legal battle to recover the central bank’s stolen reserve funds.

The deposition follows an order earlier issued by the New York court, according to an internal document of the Bangladesh Financial Intelligence Unit (BFIU).

According to the document, lawyers Dharmendra Nayar and Barrister Syed Afzal Hasan Uddin confirmed the court’s order via email on March 11.

Dr Mansur has already submitted an affidavit at the court’s request and is now required to provide a formal deposition. Legal firms BSNK and Keystone, appointed by the central bank, organised preparatory meetings for him on April 6 and 10.

The former BB Governor left Dhaka for New York via Washington, D.C. on April 4 and is expected to return on April 12. He is accompanied by an official concerned to assist in the process.

According to the BFIU document, Bangladesh Bank will bear all expenses for the trip, including airfare, accommodation, and protocol equivalent to the status of a sitting Governor.

Additionally, BFIU Deputy Head Md Mafizur Rahman Khan Chowdhury has been requested by the legal team to be present in the US during the same period to provide expert testimony and discuss ongoing case developments. A meeting with the co-lead law firm, Cozen O’Connor, has also been scheduled.

The document further noted that lawyer Dharmendra Nayar from Keystone requested 15,000 British Pounds to cover costs related to the deposition and the New York visit.

Furthermore, a proposal has been made to approve Barrister Syed Afzal Hasan Uddin’s visit from April 8-10, during which he will receive benefits equivalent to a Deputy Governor.

Due to the sensitivity of the legal proceedings, the BFIU recommended that the travel orders not be published on the Bangladesh Bank website, though immigration authorities will be formally notified.​

 

[Saif]

Banking sector faces negative CRAR for first time

Bangladesh’s banking sector has recorded a negative Capital to Risk-Weighted Assets Ratio (CRAR) for the first time, an incident rarely seen in functioning economies under modern regulatory frameworks...

www.newagebd.net

Banking sector faces negative CRAR for first time
Mostafizur Rahman 08 April, 2026, 00:28

Representational image. | New Age file photo

Bangladesh’s banking sector has recorded a negative Capital to Risk-Weighted Assets Ratio (CRAR) for the first time, an incident rarely seen in functioning economies under modern regulatory frameworks.

According to Bangladesh Bank data, the sector’s CRAR fell to negative 2.9 per cent in December 2025, a sharp reversal from 11.64 per cent in December 2023.

The ratio had already dropped to 3.08 per cent in December 2024, edged up to 4.47 per cent in June 2025, then declined 1.56 per cent in September before turning negative by year-end.

Globally, banking systems rarely operate with negative capital adequacy at the aggregate level as authorities prevented sector-wide negative capital through bailouts or closures.Human rights reports

During the 2008 global financial crisis, banks in the United States, the United Kingdom and the eurozone faced acute stress, but large-scale public recapitalisation prevented sector-wide negative CRAR.

In Greece during the sovereign debt crisis and in Ukraine during conflict periods, individual banks failed, but regulators either injected capital or shut them down to avoid systemic insolvency.

Under the Basel III framework, banks must maintain at least 10 per cent CRAR along with a 2.5 per cent capital conservation buffer.

Bangladesh’s sector-wide negative ratio indicates that accumulated losses have exceeded total regulatory capital across a significant portion of the system.

CRAR measures the capacity of banks to absorb losses. It compares capital — including paid-up capital, reserves and retained earnings — with risk-weighted assets such as loans and investments.

When the ratio turns negative, it means losses have wiped out capital, leaving banks technically insolvent.

The stress is widespread. Out of 61 banks, 23 failed to meet the minimum requirement, while 16 reported negative CRAR.

These banks have already exhausted their core capital and have limited ability to absorb further shocks.

The primary driver of the collapse is the surge in non-performing loans.

Defaulted loans stood at Tk 5.47 lakh crore in December 2025, about 30 per cent of total outstanding loans. The figure had reached Tk 6.44 lakh crore in September.

As defaults increased, banks had to set aside higher provisions, which directly reduced capital.

The problem reflects long-standing weaknesses.

Banks extended large volumes of loans with weak due diligence, often influenced by political and business interests.Politics

Repeated rescheduling, regulatory forbearance and delayed recognition of bad loans masked underlying risks.

Once stricter classification rules were enforced, the accumulated losses quickly eroded capital.

The implications are serious for the economy. Banks with weak or negative capital cannot expand lending, as regulatory constraints limit their ability to take additional risks.

This restricts credit to businesses, slows investment and affects overall economic activity.

The situation also raises concerns about depositor confidence.

Persistent weakness in bank balance sheets may increase funding pressure and force greater reliance on central bank support.

Bangladesh Bank has already injected Tk 68,245 crore into 12 crisis-hit banks under special liquidity arrangements to prevent disruptions.

At the fiscal level, the burden may shift to the government. State-owned banks may require recapitalisation using public funds, while private banks may seek regulatory relief.

At the same time, ongoing restructuring efforts, including the merger of weak banks, indicate attempts to contain systemic risks.

The negative CRAR is not a temporary fluctuation. It signals a structural breakdown in capital strength across the banking sector.​

 

[Saif]

End cronyism in the banking sector

Habitual defaulters, their enablers must no longer be afforded leniency

www.thedailystar.net

End cronyism in the banking sector

VISUAL: STAR

The finance minister’s submission to parliament of the list of top loan defaulters is another stark reminder of how political cronyism has, over the years, enabled a select few to manipulate the system, pushing the banking sector to the brink of collapse. The facts presented reveal both the scale and the depth of the problem. They also underscore how formidable the challenge will be for the BNP government in recovering these vast sums and holding those responsible for this debacle to account.

Among the most striking revelations is the dominance of the S Alam Group, already implicated in some of the most serious financial crimes imaginable. The group exercises direct and indirect control over 11 companies listed among the top 20 defaulters. These companies alone account for at least Tk 22,881 crore in defaulted loans—approximately 65 percent of the total owed by the top 20 defaulters. For context, this figure exceeds half of the current fiscal year’s health sector allocation of Tk 41,908 crore. The Anti-Corruption Commission (ACC) has already filed multiple cases against the group, alleging embezzlement and money laundering worth billions of dollars. The fate of these cases may now hinge on international arbitration, as the group has reportedly moved to the World Bank’s International Centre for Settlement of Investment Disputes.

Beyond S Alam Group, the list of top defaulters also includes two entities of the Beximco Group, owned by Salman F Rahman, a powerful adviser to the deposed prime minister Sheikh Hasina. He is reportedly facing multiple allegations, including financial crimes and other serious charges linked to his political role under the previous regime. The list further reflects the extent of political patronage in banking decisions, with several top-defaulter companies linked to former members of parliament.

Expanding beyond the top 20, the finance minister also disclosed that loans involving current members of parliament and their associated entities amount to Tk 11,117 crore, although the exact number of such individuals was not specified. Notably, this figure excludes individuals who obtained stay orders from the High Court, suggesting that the true scale may be even larger. While borrowing is not inherently problematic, these revelations offer little assurance that the entrenched nexus between political power and banking will dissipate any time soon. They also highlight a troubling reality: recent electoral reforms have not gone far enough to prevent defaulters from contesting for public offices.

Finally, the staggering volume of non-performing loans reached at the end of last year—amounting to Tk 5.45 lakh crore—underscores the severity of the crisis in banking governance. As noted in a report in this paper, this sum could have financed up to four nuclear power plants comparable to Rooppur, despite concerns that the Rooppur project itself is among the most expensive of its kind globally. Bangladesh can ill afford the persistence of such systemic failures. The new government must urgently initiate a robust recovery drive to safeguard depositors’ savings. Habitual defaulters, along with their enablers, must no longer be afforded leniency.​

 

[Saif]

The Financial Express | First Financial Daily of Bangladesh

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Launching Islamic interbank money market

Asjadul Kibria
Published :
Apr 12, 2026 00:12
Updated :
Apr 12, 2026 00:12

After a long wait, the central bank has finally stepped up the process of introducing the Islamic interbank money market in the country. In this connection, it has also issued a draft guideline for comments and suggestions from the different stakeholders. So, the guideline will be finalised once suggestions and recommendations are compiled and reviewed. There is also the expectation that the new type of interbank money market will come into operation by June this year, providing short-term liquidity support to Sharia-compliant banks and Islamic windows/branches of conventional banks.

At present, there are 10 full-fledged Islamic banks in the country, operating 1,700 branches. There are also 43 Islamic banking branches of 17 conventional commercial banks and 976 Islamic banking windows of 21 conventional commercial banks providing Islamic financial services. Currently, the share of Islamic banks’ deposit accounts for around 25 per cent of the total deposits of the entire banking sector. Again, the share of investment of Islamic banks accounted for 29.10 per cent of total loans and advances of the whole banking sector at the end of December 2025.

Interest-free banking is one of the core principles of the Islamic financial system. That’s why Islamic banks cannot mobilise funds through the traditional interbank money market, in which banks extend loans to one another for a specified term. Most interbank loans have maturities of one week or less, with the majority being overnight. Such loans are made at the interbank rate, also called the overnight rate, provided the loan term is overnight. The interbank rate is the rate of interest charged on short-term loans between banks. Banks borrow and lend in the interbank lending market to manage liquidity and meet regulatory reserve requirements. The market is also known as the call money market, as the loans offered through it are immediate and short-term.

To date, there is no dedicated market for Islamic banks in the country to deploy and redistribute surplus liquidity efficiently. However, one-fourth of the country’s banking activities are sharia-compliant. As a result, Islamic banks have been facing unfair competition in the money market and more challenges in managing liquidity during a crisis. Conventional banks can easily mobilise funds through the inter-bank money market by borrowing. These banks can also invest excess liquidity in treasury bills and bonds. Again, during a liquidity crunch, they can borrow from the central bank using government securities, a process known as a repurchase agreement (repo). As all these transactions are based on interests, it is not permissible for Islamic banks to participate. So, how do these banks mobilise funds when necessary, and where do they invest when surplus liquidity is available?

Under the current system, Islamic banks have limited avenues to borrow from the open market. These are: Islamic Interbank Fund Market (IIFM), used to provide short-term liquidity support, and Bangladesh Government Islamic Investment Bond (BGIIB), for long-term liquidity support. To get cash support from the central bank through IIFM, a Sukuk or Islamic bond is required as collateral. Islamic banks are not participating in this market due to lower yield rates. Since 2020, six government and two corporate Sukuk have been issued, and the outstanding Sukuk amount stood at Tk 240.00 billion by the end of December 2025. In February this year, another Islamic bond named ‘7th Bangladesh Government Investment Sukuk’ was issued, worth a total face value of Tk 25 billion.

A research paper, published in the INCEIF Journal of Islamic Finance and Sustainable Development (Vol. 8, Number 1, 2026), examined the various aspects of the issued Sukuk. It found that though Bangladesh’s Sukuk market is growing, the accountability infrastructure is yet to keep pace. The paper added that all the issued Sukuk, except one, are linked with environmental sustainability. Nevertheless, it pointed out that sustainability-labelled instruments without verified outcomes are not green finance; they are green labelling. The observations in the paper will help overcome the limitations of the Sukuk market in Bangladesh.

Islamic banks also borrow from each other to meet sudden shortfalls through interbank deposits, based on mudaraba principles that offer profit-sharing returns.

The above-mentioned items, however, are inadequate to meet Islamic banks’ requirements. The lack of adequate investment tools makes it difficult for these banks to park their excess liquidity. Excess liquidity of Islamic banks in the country stood at Tk 193.92 billion at the end of December last year.

Though the problem was identified many years ago, there is a lack of the necessary initiative on the part of the government and regulators to introduce Sharia-compliant tools. Several studies have also been conducted over the years to provide recommendations to overcome the problem. For instance, a comprehensive study report titled “Liquidity Management Instruments for the Islamic Banks in Bangladesh” was published in 2019, clearly outlining the necessary actions. It also suggested three Islamic financial instruments for liquidity management by Islamic banks in Bangladesh: Bangladesh Government Islamic Treasury Bill (BGITB), Bangladesh Government Ijarah Sukuk (BGIS), and an Unrestricted Wakalah alternative to Repo and Reverse Repo.

Against this backdrop, ‘Guidelines for Islamic Interbank Money Market (Unsecured)’ is a critical step that provides various measures to establish a shariah-compliant unsecured interbank market, enabling eligible institutions to place and obtain short-term liquidity using approved Islamic contracts. The proposed market is unsecured, meaning transactions are not backed by collateral or pledges and are based solely on counterparties’ creditworthiness and the enforceability of the underlying contract.

Two types of shariah-compliant contracts will be allowed in the market, as per the guidelines. These are: Mudarabah and Wakalah. Mudarabah is a partnership contract where one party (Rab-ul-Mal) provides capital, and the other party (Mudarib) manages the funds. So, it is a fund management where profits will be shared as per an agreed ratio, and losses will be borne by the Rab-ul-Mal except in cases of misconduct, negligence, or breach of contract. Wakalah is an agency contract in which a principal (Muakkil) appoints an agent (Wakil) to invest/manage funds within agreed parameters, in return for an agreed agency fee. Under the system, the principal will bear investment risk, and returns will be linked to the performance of the underlying investment pool.

According to the guideline, only Mudarabah-based and Wakalah-based interbank placements will be allowed in the proposed market. Traditionally, interbank placement is an arrangement where one bank holds funds in an account for another. Banks use a special interest rate on deposits and short-term loans called the interbank rate. In the proposed Islamic money market, placement will be made under either the Mudarabah or Wakalah mechanism.

The draft guideline primarily underscores transforming the current unstructured inter-bank transactions among Islamic banks into a structured one through debt-based operations. As a first step, it is a welcome move, though the guideline does not mention developing new tools. Without necessary and eligible Islamic financial products or instruments, banks may find it difficult to mobilise funds, even with an inter-bank Islamic money market. In this connection, the development of Islamic financial instruments, as recommended in the 2019 study, needs to be taken seriously.​