Bank aims rural uplift of Bangladesh economy

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Bank aims rural uplift of Bangladesh economy
Islami Bank Bangladesh Limited is the largest financer in the country's readymade garments industry that represents 80 per cent of Bangladesh's $32 billion export earnings.

Micro-credit, Islamic finance top IBBL tools for rural development

By Muzaffar Rizvi

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Published: Sun 20 Mar 2016, 3:32 PM

Islami bank bangladesh Limited (IBBL) will continue to invest in the country's rural economy as it sees strong growth potential in the rural areas and micro-finance disbursement, its top official says.
Mohammad Abdul Mannan, managing director and chief executive of IBBL, said most Bangladeshis live in villages and are largely remain out of the banking system. More than 80 per cent of Bangladesh's 80 million accounts are based in Dhaka and Chittagong cities.
"We see a strong growth in the rural areas, micro-finance and investing in the rural economy - especially in agriculture, agro-based industries. In future, we will continue to spend in financial inclusion, supporting social ventures and help the needy. Our growth will come from the key areas of the economy and rural development," Mannan told Khaleej Times in an interview during his visit to Dubai last week.
IBBL, which was established in March 1983 as the first Islamic bank in the Southeast Asia, is the largest Islamic bank in Bangladesh. There are eight full-fledged Islamic banks and 17 conventional banks with Islamic windows, out of 56 scheduled banks currently operating in Bangladesh.
Bangladesh's Islamic banking sector makes up 35 per cent of the global Islamic banking business and IBBL alone represents 25 per cent of the total Islamic banking activities in the world. IBBL has a customer base of 11 million account holders, out of a total 44 million global Islamic account holder base and a deposit base exceeding Tk640 billion ($8.2 billion or Dh30 billion) and an investment portfolio of Tk560 billion ($7.17 billion or Dh26.3 billion).
"We are the largest investor in Bangladesh's transport, readymade garments, backward and forward linking of textiles and housing sectors - the most important areas in Bangladesh economy. Our banking has a very strong social obligation, obligation to the people and to the country. That's how we see the role of an Islamic bank," Mannan said. 

Focus on micro-finance
To a question, he said micro-finance represents four per cent of the bank's credit portfolio and is serviced by 22 per cent of IBBL manpower resources, reflecting the lender's strong commitment to the needy people.
"We are a major micro-finance institution and the largest Islamic micro-finance provider in the world. Bangladesh is the world's biggest micro-finance hub and some of our micro-credit organisations are internationally recognised and reputed. However, they all run on conventional credit system with high interest rates," he said.
He said IBBL has a graduation process in micro-finance and it help the students graduate from micro-finance to micro entrepreneurship and then to a small and medium enterprise entrepreneur. IBBL represents 17 per cent of the total SME borrowers of Bangladesh, he said.
Differentiating his bank from conventional lenders, he said IBBL is an Islamic bank with a difference.
"Conventional banking does not serve the poor, we do. Conventional banking does not finance based on moral values or social needs. We do. They are dividend-driven. Our biggest dividend comes from empowering the people - our customers and helping the economy. As a financial institution, we remain highly profitable, despite supporting social causes," he said.
To a question, he said despite high default ration amongst rural borrowers the bank is determined to support them with additional funding without any commercial interest.
"We have recently granted an additional Tk1 billion to support the rural borrowers to carry on with their projects - without any profit rate attached. We will be looking at getting back only the principal amount. We will continue to increase our investment in social causes, micro-finance, rural economy and empowering those at the bottom of the pyramid," he said.
About the bank's growth strategy, he said: "We usually triple our balance sheet every five years - that has been the level of our growth. In 2000, our deposit level was at Tk30 billion, that jumped to Tk100 billion in 2005. In 2010, it tripled further to Tk300 billion and in 2015, our deposit level crossed Tk640 billion."
"Despite our strong commitment to the poor and the unbanked people, we have continued to maintain similar growth rate. With renewed vigour, we will continue to grow, although our focus shifts to the rural Bangladesh. So, we do not see any reason for a slowdown, especially, when our GDP growth maintained above six per cent for the last decade and the government expects it to increase to seven per cent," he added. 
Islamic banking in Bangladesh
Mannan said Islamic banking is the fastest growing financial sector in Bangladesh, which currently ranked 11 amongst 65 countries with sizeable Islamic banking operations. As Islamic banking is gaining popularity, conventional banks are also trying their hands in this sector by opening Islamic windows and branches as they see its growth.
"Bangladesh is a country where 88 per cent people are Muslims. Islam is deep-rooted in our society, which is largely secular as well. People of other faiths live in peace and harmony in Bangladesh - which is an oasis of religious tolerance - something that is also promoted by Islam, a religion of peace. All these factors make Bangladesh a fertile ground for Islamic banking easy," he said.
He said Islamic banking is not just about Islamisation of the conventional banking system, but it has a strong social objective and that is to empower those at the bottom of the pyramid and poverty eradication - something that is deep-rooted in the Islamic values and theology.
"Our Prophet Mohammed (PBUH) started his life as a businessman and he saw the exploitation of people and wealth by the lenders who controlled economy though interest-based system. The whole objective of the Islamic economy and finance is to free up mankind from exploitation. That's why Islam prohibits riba (interest) - which is a tool of exploitation and oppression," he said
Globally, he said most Islamic banks focus on the mechanism of Islamic finance - profit-orientation as opposed to interest-based conventional lending, product development such as sukuk, ijarah, mudaraba and murabaha. The mechanism is different, although the products are similar - that sometimes creates misconception or confusion among the consumers.
"Most of the Islamic banks re-engineer the conventional banking operation and reproduce the conventional products through Shariah-compliant mechanism. In this process, the core objective of the Islamic banking philosophy gets diluted," he said. "As a leading Islamic financial institution, we play an instrumental role in promoting the core values of Islamic economy and Islamic finance," he added.


Challenges for Islamic banking
Mannan said Bangladesh has a growth-oriented government that believes in financial inclusion and rural development is at the core of the government's economic agenda. "Fortunately our current government and the central bank is also emphasising on financial inclusion and the upliftment of the poor," he said.
While highlighting some challenges being faced by the Islamic banking in the country, he said the challenge lies in getting the right human resources and the Islamic lenders will have to train students graduating in conventional economy and sometimes help them to 'unlearn' certain aspects of the economic principles.
"Lack of academic institutions on Islamic economy is an issue, although we have two Islamic universities in Bangladesh. The other issue is the absence of Islamic Banking Act and unified Shariah code of Islamic banking - these issues are faced by Islamic banks in all the countries. However, our government is currently looking at these issues," he said.
"I have been fortunate to address the Parliamentary Standing Committee on Finance and the enactment of an Islamic Banking Act - something the committee has agreed upon. This will bring Islamic banking under a new set of laws and we will be governed by strict Islamic banking philosophy and principles. This is a necessity of the day." 
Dubai - A capital of Islamic economy
As a major centre of the global economy, Mannan said Dubai is well positioned to create a hub for Islamic economy. "This reflects a strong vision of Dubai government and I am proud to say that we share this vision. We will be happy to participate and partner with Dubai government in realising this vision in our own small way," he said.
He said IBBL has correspondent relationship with many banks in the UAE and also with all money exchange houses that helps the bank to serve its population. He said IBBL is very much present in the Middle East - home to a large Bangladeshi expatriate community.
"We are well represented by our senior representatives who serve all our clients and the 150-odd remittance houses. Bangladeshi expatriates can open bank accounts, operate online bank account from Dubai, transfer money and pay bills in Bangladesh from their online accounts sitting in Dubai. So, we are currently able to support all our clients and look after their banking needs from here. If we are permitted to open branches, which is subject to the UAE Central Bank regulations, then we will certainly do at the right time," he said.
"We are the largest banking and remittance channel for Bangladeshi expatriates in the GCC. As much as 21 per cent of the remittance from the UAE is channelled to Bangladesh by IBBL. We also serve their beneficiaries at Bangladesh end."
- muzaffarrizvi@khaleejtimes.com


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