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Govt brings changes in Islamic Bonds

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Commerce Reporter
The government has brought some changes in the existing Bangladesh government’s Islamic Investment Bond (Islamic Bond).
Internal Resource Division of the Finance Ministry issued a circular dated August 18, 2014, to bring the changes. Debt Management Department of Bangladesh Bank on Tuesday forwarded the circular to different banks for necessary action.
Officials at the central bank’s Debt Management Department said the new circular has brought in three major changes.
The first one is that a 3-month bond worth at least Tk 100,000 will be available in the market alongside the existing 6-month bond.
The second one is that the issuing banks will calculate the profit or loss on the basis of their fixed deposit rates as per Islamic banking rules instead of the earlier annual profit or loss.
The third change is that the bond will be sold through auction.
The central bank will publish detailed clarification on the system of the auction of the Islamic Bond within a week, general manager Bishnu Pada Saha of Bangladesh Bank’s Debt Management Department informed.
Officials said the government brought the changes in the Islamic Bond on the pretext of its growing demand for issuing such bonds for three-month tenure alongside the existing 6-month bond.
The government introduced interest-free Islamic Bond in October 2004 as a new window of investment by the country's Islamic banks and financial institutions.
Since its inception, the bond has been in transaction in accordance with the principles of Islamic rules and regulations (Shariah). An individual and any non-resident Bangladeshi (NRB) can also buy the bonds with the local currency.
One of the objectives of introducing the Islamic Bond was to allow Islamic banks and Sariah-based financial institution to create an alternative investment as they can't invest their surplus funds in treasury bills and other interest bearing government bonds, the sources mentioned.
Under the existing rules, Islamic banks cannot purchase bonds that involve receipt of interest. The Shariah rules cannot permit payment or receipt of interest by any individual or institution.
Currently, six out of 30 private commercial banks and a foreign bank are operating in Bangladesh under the Islamic Shariah. The banks have their own Shariah Councils to fix the terms and conditions of banking services under the Islamic rules and regulations.
The banks are Islami Bank Bangladesh Ltd., Al-Arafah Islami Bank Ltd., ICB Islamic Bank Ltd., Export Import Bank of Bangladesh Ltd. (EXIM), Social Investment Bank Ltd., Shahjalal Islami Bank Ltd. and Shamil Bank of Bahrain E.C.