4:34 pm - Sunday October 18, 9587

Bangladesh Fund to tap $1.4 billion idle cash

Bangladesh Bank is setting up a fund that will help Islamic lenders manage idle money and provide cheap loans to small businesses as policy makers target the fastest economic growth in more than three decades.

bbBangladesh Bank estimates there is 105.8 billion taka ($1.4 billion) of surplus cash at Sharia-compliant banks that could be put in the fund, governor Atiur Rahman said. Participating banks will get 5 per cent when they deposit money and pay the same when they borrow.

“My expectation is that Islamic banks that are getting loans at 5 per cent from the fund will make credit more available to small businesses than before,” Rahman said. The interest rate charged by the banks will be “way less” than the average 14 per cent that such companies currently pay for conventional loans, he added.

The amount of unutilised money sitting in the nation’s Islamic banks climbed 36 per cent in the fiscal year ended June 30 as the supply of investments that comply with Muslim tenets failed to keep pace with deposits growth. Bangladesh is targeting economic expansion of 7.3 per cent this year, a pace the Dhaka-based Centre for Policy Dialogue says would be the fastest since the country separated from Pakistan in 1971.

“This new scheme is very helpful to the development of Islamic finance in Bangladesh,” Abas A. Jalil, chief executive officer at Kuala Lumpur-based consultant Amanah Capital, said. “Islamic finance can be developed in tandem with other economic agenda, but it can never be developed if other agenda are still lagging behind,” he said, citing political stability, a robust banking system and improving social conditions.