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The Bangladesh Bank on Monday introduced a new financial instrument named Islamic banks liquidity facility for the Shariah-based banking system in Bangladesh to facilitate providing short-term liquidity in the Shariah-based banks.
The BB issued a circular in this regard on the day.
Shariah-based banks maintaining current accounts with the Bangladesh Bank will be eligible to participate in the IBLF.
The IBLF is a framework of providing liquidity facility by the BB to Shariah-based banks under the Mudarabah contract where the central bank acts as the investor (Rab al Mal) and banks act as the investment manager (Mudarib) under an agreed profit sharing ratio.
Tenor of the IBLF will be 14 days.
The profit rate will be three months MTDR (Mudaraba term deposit receipt) rate of the respective bank.
Unencumbered Bangladesh government investment Sukuk (BGIS) will be eligible securities.
The applicable hair-cut of the collateral security for the IBLF must be 5 per cent of its face value.
While providing the IBLF, the entire security will be treated as a collateralised security even if a hair-cut is imposed on the face value of the eligible security at a prescribed rate.
The institutions will receive interim profit, if there is any, from the BGIS used as collateral for the IBLF.
The institution may apply for the IBLF on every working day through the prescribed form to the securities section of the Motijheel Office within stipulated time set by the Bangladesh Bank.
The applied amount of the IBLF should be for a minimum amount of Tk 1 crore, or multiples thereof.
The IBLF will be provided according to the decision of auction committee of the BB.
The decision will be disclosed within stipulated time set by the central bank.
BGIS against which respective institutions intended to avail the IBLF must be marked as lien in favour of the BB during the IBLF period by the Motijheel office of the BB. The lien marked securities cannot be used or traded during the IBLF period.
The liquidity to be provided by the BB must be credited to the current account of the respective institution at the close of same business day.
BB reserves full discretion to accept or reject the application or provide partial investment.
At maturity, the BB will debit the current account of the institutions to recover the investment amount and the profit (as per the provisional profit rate), and release lien marked securities to respective institution.
If the IBLF matures on a holiday, tenor of the IBLF will be extended by the number of holidays and profit calculation will incorporate this extended period.
At the end of a calendar year, profit will be adjusted according to the actual profit of respective institutions.
At maturity, if the institution fails to maintain adequate fund in the current account for the settlement of the IBLF, the central bank must adjust the investment amount by disposing of lien marked securities.
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