Regulatory Alerts2022-10-26
Added
BRPD Circular Letter No. 42: Ensuring pre-finance facilities for providing working capital to the affected large Industries and Service sector by the outbreak of Novel Corona Virus (Covid-19) through Restricted Mudaraba Term Deposit
The document amends previous circulars to allow Shariah-based banks and financial institutions to provide working capital to large industries and the service sector affected by the COVID-19 outbreak through a pre-finance mechanism using Restricted Mudaraba Term Deposits. It replaces previous liquidity provision rules by requiring these institutions to invest 50% of their own funds immediately and apply for pre-finance approval for the remaining 50% within 10 working days of receiving consent. The profit rate for this facility is set at 9%, with 1% retained by the bank as Mudaraba Management Fee and the remainder split equally between the Mudarib and the Sahib-ul-Maal, while capital loss provisions and compensation for negligence are also specified.
Bangladesh Bank Chief Executive Motijheel, Dhaka-1000 Bangladesh. Ref No: BRPD Banking Regulation and Policy Department BRPD Circular Letter No.-42 Date: 26 October 2022
10 Kartik 1429 Managing Director/Chief Executive All Scheduled Banks and Financial Institutions operating in Bangladesh. Dear Sir, Regarding the context of pre-finance to provide working capital investment facilities to the affected large Industries and Service sector due to the outbreak of Novel Corona Virus (Covid-19). Reference is invited to BRPD Circulars No. 8 and 10 dated 12 and 23 April 2020 respectively on the subject cited above.
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Through BRPD Circular No.-10 dated 23 April 2020, Bangladesh Bank has been providing funds through a re-authorization scheme to scheduled banks/financial institutions operating in Bangladesh to provide working capital investment facilities to the affected large Industries and Service sector due to the Novel Corona Virus. Under the re-authorization scheme, since Shariah compliance is not adhered to, Shariah-based banks/financial institutions operating on Shariah principles cannot avail the liquidity facility under the said re-authorization scheme. In this regard, it has been decided to provide funds to Shariah-based banks/branches or windows and financial institutions through a Shariah-compliant pre-finance method instead of the re-authorization method for the liquidity facility allocated under the said re-authorization scheme.
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For this purpose, clause 7(b) of BRPD Circular No.-8 dated 12 April 2020 shall be replaced as follows: (b) After obtaining the consent letter from Bangladesh Bank, the bank shall perform the necessary programs under its own loan/investment policy and distribute loans/investments from its own funds. However, in the case of Shariah-based banks/financial institutions, to provide investment to potential customers, the bank shall invest 50% on its own authority after obtaining the consent letter from Bangladesh Bank. The remaining 50% investment shall be applied for pre-finance to Bangladesh Bank with the intention of providing it within 10 working days after obtaining the consent letter. After receiving authorization as pre-finance from Bangladesh Bank, the bank/financial institution shall invest the remaining 50% funds. However, from the day the authorization is granted by Bangladesh Bank, profit shall be calculated on the profit rate applicable on Restricted Mudaraba Term Deposits.
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Page/02 4. Furthermore, clause 2(5) of BRPD Circular No.-10 dated 23 April 2020 shall be replaced as follows: (5) Interest/Profit Rate: The interest/profit rate shall be 4.00% (four percent), which shall be imposed on a quarterly basis (based on March, June, September, and December). However, in the case of Shariah-based banks/financial institutions, liquidity facilities shall be provided through the pre-finance method only if the customer provides investment solely through the Murabaha method. In such cases, the customer's profit rate shall be 9%. From this, 1% profit shall be retained as Mudaraba Management Fee (MMF), and the remaining 50% of the profit shall be paid to the Mudarib and 50% to the Sahib-ul-Maal. The profit payable to the Sahib-ul-Maal or Bangladesh Bank shall be imposed on a quarterly basis on a provisional rate (subject to final adjustment with the final profit at the end of the year). In the case of final profit adjustment, MMF may be used if necessary.
Furthermore, in case of capital loss of the Sahib-ul-Maal, necessary measures shall be taken in accordance with subsequent instructions. Additionally, if the capital of the Sahib-ul-Maal is lost due to the negligence, misconduct, or breach of any term of the contract by the Mudarib, compensation shall be recovered from the Mudarib.
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Other regulations and instructions contained in the aforementioned circulars shall remain unchanged.
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This directive is issued under the powers conferred by Section 45 of the Bank Company Act, 1991 and Section 18 of the Financial Institutions Act, 1993. This directive shall come into force immediately.
Yours faithfully, (Maksuda Begum) Director (BRPD) Phone: 9530252