Islami Bank borrowed from the Central Bank at ‘interest’

Islamic banks run on Shariah-based banking principles pay profit instead of interest, the rate of which is finalized at the end of the year. But the one-day borrowing rate from the central bank was 8.75 percent, which was fixed.

According to their own policies, Shariah-based banks cannot collect or borrow any kind of deposits against interest or fixed rate of profit.

However, when Islami Bank borrowed Tk 8,000 crore for one day from the Central Bank, the highest overnight or one-day interest rate for conventional banks was Tk 6.25, Tk 8 for three days and Tk 8.95 for four days.

Faced with liquidity crisis, Islamic banks borrowed money at higher interest rates than conventional banks. Besides, there was no other option for this private bank, which is the largest in many indices. Another method of borrowing cash from the central bank was also taken by the bank earlier. For example, the bank has already used the opportunity to take money through sukuk bonds.

Again, Shariah-based banks do not have the opportunity to borrow on repo like other conventional banks to meet the cash demand from Bangladesh Bank. Because of which the bank had no option but to take ‘Demand Promissory Note’.

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