IDLC Finance Bangla Desh Launches “IDLC Islamic” for Shariah-Compliant Financing

Looking for ethical, faith-based financing in Bangladesh? You’re not alone. With a growing demand for Shariah-compliant solutions, IDLC Finance PLC has launched IDLC Islamic, a new financing window designed to meet the specific needs of Bangladesh’s majority Muslim population. This exciting development marks a significant step towards greater financial inclusion in the country. The launch event, held at the prestigious Pan Pacific Sonargaon Dhaka, signals a new era for ethical finance.

Related: Islamic Finance Growing in Bangladesh Despite Structural Issues

Aligning Faith with Financial Practices

Shariah-compliant finance, also known as Islamic finance, operates under a set of Islamic religious principles, or Sharia. These principles prohibit practices common in conventional finance, such as riba (interest) and gharar (excessive uncertainty or speculation). Instead, Islamic finance promotes ethical and transparent financial models based on profit-sharing (mudarabah), joint ventures (musharakah), and cost-plus financing (murabaha).

This ethical approach to finance has witnessed remarkable global growth. The global Islamic finance market is projected to reach a staggering $5.6 trillion by 2026, with a Compound Annual Growth Rate (CAGR) of 10.2% during the period 2021-2026 (Source: Mordor Intelligence). This expansion is fueled by increasing awareness of ethical investing and a growing Muslim population seeking financial products aligned with their beliefs. In Bangladesh, where Islam is the religion of over 90% of the population, the demand for Shariah-compliant financial products has been particularly strong, creating a fertile ground for initiatives like IDLC Islamic.

IDLC Islamic: A Comprehensive Shariah-Compliant Solution

IDLC Islamic goes beyond simply being a new product line; it represents IDLC Finance’s unwavering commitment to financial innovation, ethical practices, and financial inclusion. The launch ceremony, a high-profile event graced by the presence of Md Zakir Hossain Chowdhury, Deputy Governor of Bangladesh Bank, underscored the significance of this initiative. A key highlight of the event was a presentation titled “Succeeding Sustainability through Shariah-Compliant Financing,” emphasizing the crucial link between ethical finance and long-term economic stability. This was followed by a dynamic panel discussion featuring experts in Islamic finance, further exploring how IDLC Islamic aligns with both core Shariah principles and global sustainability goals.

The launch event was distinguished by the presence of prominent figures from Bangladesh’s financial and academic communities. Aziz Al Mahmood, Chairman of IDLC Finance, provided valuable strategic insights into the company’s vision for IDLC Islamic. Prof Mohammad Gias Uddin Talukder, Chairman of the Central Shariah Board for Islamic Banks of Bangladesh, lent his expertise on Shariah compliance, ensuring the new window adheres to the highest ethical standards.

A pivotal moment was the address by M Jamal Uddin, CEO and Managing Director of IDLC Finance. His words resonated with the core values behind IDLC Islamic: “IDLC Islamic is a significant step in our journey to create Shariah-based, ethical, and sustainable financial solutions. It reflects our commitment to addressing the diverse needs of our customers while adhering to the highest standards of governance and Shariah compliance.” This statement encapsulates the driving force behind the initiative: a dedication to providing accessible, ethical, and faith-based financial solutions for all.

Shariah-Compliant Products Tailored for Diverse Needs

IDLC Islamic offers a comprehensive portfolio of Shariah-compliant financial products designed to cater to a broad spectrum of clients, from individual savers to large corporations. This diversified approach is crucial for promoting financial inclusion and driving economic growth within the framework of Islamic finance.

• Mudarabah Deposit Schemes: These profit-sharing accounts offer individuals and institutions various term and recurring deposit options. Under the mudarabah contract, the depositor (Rab-ul-Mal) provides the capital, while IDLC Islamic (Mudarib) manages the funds. Profits generated are shared according to a pre-agreed ratio, while losses, if any, are borne by the capital provider. This model fosters a collaborative investment approach, aligning the interests of the depositor and the financial institution.

• Shariah-Compliant Financing Solutions: IDLC Islamic offers a range of financing products tailored to specific needs:

  • Ijarah Muntahia Bit Tamleek (IMBT): This lease-to-own agreement allows customers to acquire assets, such as vehicles or equipment, through a lease arrangement that eventually transfers ownership to the lessee upon completion of the lease term. This structure avoids interest-based lending while facilitating asset acquisition.

•   Murabaha: This cost-plus-profit financing model involves the financial institution purchasing an asset on behalf of the customer and then selling it to them at a predetermined markup. This transparent pricing mechanism ensures compliance with Shariah principles.

  • Diminishing Musharakah: This is a joint ownership agreement where the financial institution and the customer jointly own an asset. Gradually, the customer buys out the institution’s share until they become the sole owner. This model is often used for home financing.

  • Wakalah: In this agency agreement, the financial institution acts as an agent on behalf of the customer to manage their investments or execute specific transactions.

  • Istisna’a: This is a contract for manufacturing or construction, where the financial institution finances the production of a specific asset according to agreed-upon specifications.

Other Potential Products: Depending on market demand and regulatory approvals, IDLC Islamic could also offer other Shariah-compliant products such as:

• 1. Sukuk (Islamic Bonds): Certificates of ownership in an asset or project, offering a Shariah-compliant alternative to conventional bonds. Sukuk can be used to finance large-scale infrastructure projects or provide working capital for businesses.

  2. Takaful (Islamic Insurance): A cooperative risk-sharing system based on mutual guarantee and contribution, protecting against various risks in a Shariah-compliant manner.

These diverse financing solutions are designed to empower Micro, Small, and Medium Enterprises (MSMEs), large corporations, and individual customers, promoting economic activity and financial growth within the framework of Shariah law.

The Regulatory Landscape: Ensuring Compliance

The growth and stability of Islamic finance in Bangladesh are underpinned by a robust regulatory framework overseen by the Bangladesh Bank, the central bank of the country, and other relevant authorities, such as the Bangladesh Securities and Exchange Commission (BSEC). These institutions play a crucial role in ensuring adherence to Shariah principles, promoting transparency, and maintaining the overall stability of the Islamic finance sector.

Bangladesh Bank has issued various guidelines and circulars to regulate Islamic banking and finance activities. These regulations cover aspects such as:

• Shariah Governance: Establishing Shariah Supervisory Boards within Islamic financial institutions to ensure compliance with Shariah principles.

• Capital Adequacy: Setting capital requirements for Islamic financial institutions to maintain financial soundness.

• Liquidity Management: Providing guidelines for managing liquidity by Shariah principles.

• Accounting and Auditing Standards: Establishing specific accounting and auditing standards for Islamic financial transactions.

The Central Shariah Board for Islamic Banks of Bangladesh also plays a significant role in providing guidance and oversight on Shariah compliance for Islamic financial institutions. This multi-layered regulatory structure provides confidence and transparency for both institutions and customers, fostering a healthy and sustainable Islamic finance ecosystem.

The Landscape of Islamic Finance in Bangladesh

Bangladesh’s Islamic finance sector is experiencing rapid growth and increasing competition, with several established full-fledged Islamic banks and conventional banks offering Islamic banking windows. This competitive landscape drives innovation and enhances the availability of Shariah-compliant financial products and services.

However, IDLC Islamic differentiates itself through several key factors:

1. Focus on Ethical Finance: The explicit emphasis on aligning Shariah compliance with environmental, social, and governance (ESG) factors sets IDLC Islamic apart. This focus resonates with a growing global awareness of responsible investing and sustainable development.

2. Tailored Solutions for MSMEs: IDLC Islamic’s commitment to providing tailored financing solutions for MSMEs addresses a critical need in the Bangladeshi economy. MSMEs are the backbone of the economy, contributing significantly to job creation, innovation, and economic diversification. Access to Shariah-compliant financing can unlock their growth potential and contribute to overall economic development.

3. Strong Governance: IDLC Islamic operates under the strong corporate governance framework of IDLC Finance, a well-established and reputable NBFI. This ensures transparency, accountability, and ethical conduct in all its operations, building trust and confidence among customers and stakeholders.

4. Innovation: By leveraging technology and innovative financial solutions, IDLC Islamic aims to provide efficient, accessible, and customer-centric services. This includes exploring digital banking channels, mobile banking solutions, and other technological advancements to enhance customer experience and expand reach.

5. Expertise: IDLC Finance’s extensive experience in the financial sector, combined with the guidance of renowned Shariah scholars, provides a strong foundation for IDLC Islamic’s operations.

Promoting Economic Growth

The launch of IDLC Islamic has the potential to significantly impact financial inclusion and literacy in Bangladesh. By offering Shariah-compliant products and services, IDLC Islamic aims to reach a segment of the population that has been traditionally underserved by conventional financial institutions. This includes individuals and businesses who prefer to conduct their financial affairs by their religious beliefs.

Increased access to financial services can empower individuals and businesses, contributing to:

• Increased Savings: Shariah-compliant deposit schemes can encourage savings and investment, fostering capital formation and economic growth.

• Business Development: Shariah-compliant financing solutions can provide MSMEs and larger corporations with the necessary capital to expand their operations, create jobs, and contribute to economic diversification.

• Improved Living Standards: Access to home financing and other consumer financing products can improve living standards and facilitate asset ownership.

Furthermore, IDLC Islamic can play a vital role in promoting financial literacy among its customers. By providing educational resources, conducting workshops, and offering personalized financial advice on Shariah-compliant finance, IDLC Islamic can empower individuals to make informed financial decisions, manage their finances effectively, and participate more fully in the formal financial system.

The launch of IDLC Islamic represents a significant milestone in the evolution of Bangladesh’s financial sector. It caters to the growing demand for ethical and faith-based financial solutions, promoting financial inclusion, sustainable economic growth, and social responsibility.  IDLC Islamic’s launch promises a more inclusive and ethical financial future for Bangladesh. By providing diverse Shariah-compliant products, including Mudarabah, Ijarah, and Murabaha, IDLC Islamic empowers individuals and businesses to participate in a values-driven financial system.