Islamic Interbank Market Planned by June

Bangladesh Bank is preparing to introduce a dedicated Islamic interbank money market by June, in a move widely viewed as a significant step towards strengthening liquidity management within the country’s Shariah-compliant banking sector.

At present, Islamic banks in Bangladesh operate under constraints when faced with short-term liquidity shortages. Unlike their conventional counterparts, they are unable to access the call money market due to the prohibition of interest-based transactions under Islamic finance principles. This structural limitation often leaves Shariah-based institutions exposed to temporary funding pressures, particularly during periods of uneven cash flow.

The proposed Islamic Interbank Money Market is expected to provide a compliant alternative, enabling Islamic banks to lend and borrow short-term funds among themselves using Shariah-approved instruments. By facilitating smoother fund flows, the platform aims to reduce volatility and enhance operational resilience across the sector.

Central bank officials indicate that the framework for this new market has been developed after carefully studying successful models in countries such as Indonesia, Malaysia, and Bahrain—jurisdictions recognised for their well-established Islamic finance ecosystems. These international benchmarks are expected to guide the design of instruments and governance structures suited to Bangladesh’s financial landscape.

A senior official at the central bank noted that the absence of a specialised interbank mechanism has long hindered efficient fund transfers among Islamic banks. Once operational, the new system will allow institutions with surplus liquidity to support those experiencing shortfalls, thereby promoting greater balance and stability.

However, industry observers caution that the initiative, while timely, addresses only part of the broader challenge. Experts argue that although an interbank market can effectively manage short-term mismatches, it does not resolve deeper structural concerns such as asset-liability imbalances, governance standards, and risk management practices.

A former managing director of a leading private Islamic bank emphasised the need for robust regulatory oversight. He suggested that sustained stability would depend on vigilant supervision by the central bank, particularly in ensuring prudent fund management and adherence to Shariah principles.

The Islamic banking sector in Bangladesh has grown steadily over the past decade and now accounts for a notable share of the country’s total banking assets. The introduction of a dedicated interbank money market is therefore seen not only as a liquidity tool but also as part of a broader effort to modernise and deepen the sector.

Key Features of the Proposed Market

As Bangladesh continues to expand its Islamic finance footprint, the success of this initiative will likely depend on effective implementation, strong governance, and continued regulatory support.