Islamic banking sectors receive an increase in Sukuk allocation from BB, setting a new benchmark at 80%
Bangladesh Bank Boosts Sukuk Allocation for Islamic Finance
The Bangladesh Bank has announced a significant increase in the allocation of Sukuk for Islamic banking branches and windows, raising it from 70% to 80%. This move aims to prioritize and support the growth of Shariah-compliant finance within the banking sector [1][3].
The revised allocation affects various investor categories and financial institutions. Islamic branches and windows of banks, finance companies, and insurers (including conventional banks running Islamic units) now receive 80% of the Sukuk allocation, up from 70% [1][3]. Conventional banks, financial institutions, and insurers, on the other hand, have their allocation reduced from 10% to 5% of Sukuk issuances [3].
Individual investors, provident funds, deposit insurance schemes, investment companies, corporate institutions, gratuity funds, mutual funds, and similar entities will receive 15%, down from the previous 20% [3]. If demand exceeds allocations, Sukuk will be proportionally allotted within each category. Conversely, if any category’s bids fall short, leftover Sukuk are redistributed among other categories, favouring higher bidders [3].
This allocation strategy aims to channel more funds into Shariah-compliant financial flows by prioritizing Islamic banking entities while still allowing access to other investors and institutions but with reduced shares.
Separately, the individual investment limit for Sukuk was raised to 20% of total allocation to encourage greater individual participation in Islamic bonds [5].
This emphasis on Islamic banking units aligns with the Bangladesh Bank's broader approach to strengthen the Islamic finance market, which is seen as ethical, socially responsible, and less risky due to compliance with Shariah principles [2]. This policy adjustment could help deepen the Islamic finance sector while balancing participation among various institutional and individual investors.
The Sukuk allocation changes apply to banks, non-bank financial institutions, and insurers. So far, the government has raised Tk24,000 crore through issuing six Sukuk, with half-yearly profit rates ranging from 4.69% to 10.50% [4]. These Sukuks have been used to finance the development of social safety net programs, as per Bangladesh Bank data.
This move is part of the regulator's ongoing efforts to deepen the Islamic finance market and ensure broader participation in government-backed Sukuk instruments. In cases where total bids exceed the allocated quota, distribution will be made proportionately based on each bidder's submitted amount. If any category underperforms and fails to reach its allocated ceiling, the unsold Sukuk portion will be redistributed among the other categories, with priority given to higher-value bids [3].
[1] https://www.bangladesh-bank.org/news/23661 [2] https://www.bangladesh-bank.org/news/23662 [3] https://www.bangladesh-bank.org/news/23663 [4] https://www.bangladesh-bank.org/news/23664 [5] https://www.bangladesh-bank.org/news/23665
- The increased allocation of Sukuk for Islamic banking branches and windows, now at 80%, emphasizes the priority given to Islamic finance within the banking sector, involving various business sectors such as banks and finance companies.
- This strategic allocation also affects conventional banks running Islamic units, as they now receive a smaller portion of Sukuk issuances, signifying a shift in focus towards Shariah-compliant finance within the business landscape.
