Bangladesh Bank on Monday introduced a short-term funding instrument titled "Islami Banks Liquidity Facility" (IBLF) for funneling funds into the local Shariah-based banking system to replenish their cash vaults.
It is meant for supporting liquidity management and deepening the financial system, says the central bank in the wake of reports of some big cash-outs through shady lending.
Shariah-based banks maintaining current accounts with Bangladesh Bank are eligible for availing the 14-day liquidity support, according to a circular issued on the day.
According to the circular, the IBLF is a framework of providing liquidity facility by BB to shariah banks under the Mudarabah contract where Bangladesh Bank acts as investor (Rab al Mal) and banks act as investment manager (Mudarib) under an agreed Profit Sharing Ratio (PSR).
It says the institution may apply for IBLF every workday on a prescribed form to Securities Section of Motijheel Office within stipulated time set by the BB while the applied amount of IBLF should be for a minimum amount of Tk1 crore or multiples thereof.
It says the IBLF will be provided according to the decision of the Auction Committee of BB and the decision will be disclosed within the stipulated timeframe set by the central bank.
The BB notice says the applicable haircut of the collateral security for IBLF shall be 5% of its face value.
While providing IBLF, the entire security will be treated as a collateralized 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 any) from BGIS (Bangladesh Government Investment Sukuk) used as collateral for IBLF, it read.
And BGIS against which respective institutions intend to avail IBLF shall be marked as lien in favour of BB during the IBLF period by its Motijheel Office.
The lien-marked securities cannot be used or traded during the IBLF period.
The liquidity to be provided by the BB shall be credited to the current account of the respective institution at the close of the same business day and BB reserves full discretion to accept or reject the application or provide partial investment.
The liquidity-supportive instrument comes at a time when the country's Islami banking system comes under the spotlight following recent media reports over loan-related deviations.
