DMD Circular No. 05: Circular regarding Bangladesh Govt. Islami Bond (Islami Bond) Rules-2004 (Amended-2014)

Bangladesh Bank Website: www.bb.org.bd Head Office Debt Management Department P.O. Box No. 325 Dhaka.

DMD Circular No. 05 Date: 17 Bhadra, 1421 Bang 01 September, 2014

Chief Executive/Managing Directors All Scheduled Banks and Financial Institutions in Bangladesh

Dear Sir,

Regarding the Government of Bangladesh Islami Investment Bond (Islami Bond) Policy-2004 (Amended-2014).

The Government of the People's Republic of Bangladesh has issued the "Government of Bangladesh Islami Investment Bond (Islami Bond) Policy-2004 (Amended-2014)" through Notification No. 08.036.014.00.003.2004-128 dated 18 August 2014, under the powers conferred by Section 28 of The Public Debt Act 1944 (Act No. XVIII of 1944).

A copy of the notification issued by the Ministry of Finance regarding the same is enclosed herewith for your information and necessary action.

Please acknowledge receipt.

Enclosure: As described.

Yours faithfully, (Bishnu Pada Saha) General Manager Phone: 9530131 Email: bishnu.saha@bb.org.bd

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(For publication in the subsequent Government Extraordinary Gazette) Government of the People's Republic of Bangladesh Ministry of Finance Internal Resources Division Savings and Planning Branch.

Notification Date, 03 Bhadra, 1421 Bangabda / 18 August, 2014 AD.

No. 08.036.014.00.003.2004-128 The Government of the People's Republic of Bangladesh, under the powers conferred by Section 28 of The Public Debt Act 1944 (Act No. XVIII Of 1944), hereby formulates the following policy:

1. Short Title, Application and Implementation: (a) This policy shall be known as the "Government of Bangladesh Islami Investment Bond (Islami Bond) Policy-2004 (Amended-2014)" and shall apply to the following: (1) Institutions and individuals who purchase or hold Islami Bonds, including banks and financial institutions operated according to Islamic Shariah and banks/financial institutions having Islamic Banking branches. (2) The Government of Bangladesh and Bangladesh Bank, along with government-appointed institutions, who receive and invest the proceeds from the sale of Islami Bonds. (3) Institutions, including banks and financial institutions operated according to Islamic Shariah and banks/financial institutions having Islamic Banking branches, that use the proceeds from the sale of Islami Bonds. (b) This policy shall come into force immediately.

2. Definitions: Unless the context or subject otherwise requires, in this policy: (a) "Islami Bond" means the Government of Bangladesh Islami Investment Bond, which shall be introduced in accordance with Islamic Shariah. "In accordance with Islamic Shariah" is used in the same sense as it is used in the Bank Company Act 1991. (b) "Government" means the Government of the People's Republic of Bangladesh. (c) "Holder" means an institution or individual who holds the Islami Bond as a purchaser or transferee. (d) "User Office" means the Government, banks and financial institutions operated according to Islamic Shariah, banks/financial institutions having Islamic Banking branches, and other institutions declared eligible according to Islamic Shariah, which can use the proceeds from the sale of Islami Bonds. (e) "Issuer Office" means the office of Bangladesh Bank from which the Islami Bond is issued. (f) "Paying Office" means the office of Bangladesh Bank that pays the cash value and profit of the Islami Bond.

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3. (a) Eligibility to purchase Islami Bond: (1) Resident institutions and individuals of Bangladesh who agree to accept profit/loss according to Islamic Shariah shall be eligible to purchase this bond under this policy. (2) If any non-resident individual or institution agrees to accept profit/loss under the conditions mentioned in 3(a)(1) above, they shall be considered eligible to purchase this bond. However, the condition is that in this case, the purchase price of the bond shall be paid from the Non-Resident Currency Account held in any bank in Bangladesh in the name of the non-resident individual or institution.

(b) Eligibility to participate in auction: Only banks and financial institutions operated according to Islamic Shariah and banks/financial institutions having Islamic Banking branches shall be considered eligible to participate in the bond auction. Other institutions or individuals mentioned in 3(a)(1) and (b) shall participate in the auction through the aforementioned Islamic banks and financial institutions.

4. Features of Islami Bond: (a) (1) Islami Bonds shall be sold with a face value of 1 Lakh Taka or multiples thereof, with tenors of 3 months and 6 months. (2) Islami Bonds shall be issued through open auction based on Profit Sharing Ratio (PSR), and the rules of auction shall be determined from time to time by Bangladesh Bank. (3) The government may issue various tenor Islamic bonds based on specific sectors or assets (Restricted) approved by Shariah through open auction based on Profit Sharing Ratio (PSR), and the rules of auction shall be determined from time to time by Bangladesh Bank. (4) Institutions and individuals who purchase Islami Bonds may transfer these bonds among themselves, and the bonds may be pledged as security against investment after proper identification of transfer and endorsement in the records of the Issuing Office. The Issuing Office shall identify the transfer and endorsement on the back of the Islami Bond script. In the case of transfer and endorsement of Islami Bonds kept in Book Entry Form without script according to Rule 5(b), the Issuing Office shall record it in the relevant Subsidiary General Ledger (SGL). (b) Islami Bonds shall be considered Statutory Liquidity Requirement (SLR) eligible assets for banks and financial institutions to meet the mandatory liquidity reserve requirement. (c) Subject to tax deduction as applicable under the relevant law, the profit of the Islami Bond shall be paid along with the cash value of the face value upon maturity. (d) According to Rule 7(b), the holder of the Islami Bond shall be paid interim profit at a periodic rate. At the time of interim profit payment, the average monthly interim profit rate earned by the Islami Bond in the previous or current (as applicable) calendar year (January-December) up to the previous month of the bond's maturity shall be considered.

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e) Banks and financial institutions operated according to Islamic Shariah and banks/financial institutions having Islamic Banking branches may repo the Islami Bonds held by them with each other or with the Islami Bond Fund, following Shariah-compliant policies determined by Bangladesh Bank.

5. Method of Issuance of Islami Bond: (a) Islami Bonds shall be issued through auction. Bangladesh Bank shall issue the auction notice at least 10 (ten) days prior to the auction ceremony and send it along with the bid forms to all concerned parties. Eligible banks/financial institutions shall submit the bid form at the relevant office of Bangladesh Bank on the specified date of the auction. The purchase price (face value) of the bond shall be collected by adjusting the current account of the banks and financial institutions declared successful in the auction. In this case, the bid submitted for the purchase of the bond shall be considered as the Authority to adjust the current account operated with Bangladesh Bank by the submitting bank/financial institution. (b) Scripts shall be issued according to the sample of Islami Bond Form-1. The bond script shall be delivered after submission of interim receipts and acknowledgment of receipt on the back of the bid. Banks and financial institutions that maintain accounts with Bangladesh Bank to meet their Cash Reserve Requirement (CRR) may optionally have Islami Bonds recorded in the Book Entry Form in the Subsidiary General Ledger (SGL) of the Motijheel office of Bangladesh Bank instead of paper scripts, similar to Government Treasury Bills/Bonds. (c) The proceeds from the sale of Islami Bonds shall be deposited in the Special Islami Bond Fund Account opened in the name of the Government in the books of Bangladesh Bank.

6. Method of Payment upon Maturity: (a) Upon maturity, the Islami Bond script shall be presented to the office, and its face value and the profit earned thereon shall be paid to the holder by debiting the Special Islami Bond Fund Account kept in the name of the Government. (b) In the case of scriptless Islami Bonds, the face value and the profit earned thereon shall be credited to the holder's current account maintained with Bangladesh Bank. (c) In all cases of adjusted loss, the remaining value shall be paid to the bond holder by debiting the Special Islami Bond Fund Account after adjusting the loss. (d) Upon the request of the bond holder who is a non-resident individual or institution, the converted value of the bond and an amount equal to the profit earned thereon may be credited in foreign currency and as a foreign currency account of the non-resident bond holder mentioned in clause (b) at the prevailing exchange rate. However, in the case of adjusted loss, the adjusted amount of foreign currency of the bond shall not be creditable as a foreign currency account of the bond holder.

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7. Investment Method of Islami Bond Fund: (a) From the proceeds of the Islami Bond: (1) Demand Promissory (DP) Notes signed by the Chief Executive of the relevant institution for a period not exceeding 180 (one hundred eighty) days shall be accepted from Islamic banks/financial institutions operated according to Islamic Shariah; (2) Other user institutions shall be provided funds in accordance with Islamic Shariah financing/investment, subject to the direction of the Government; (b) The user Islamic bank or financial institution shall pay profit upon maturity in the following manner according to the declared profit rate of its own institution (at the time of fund acceptance) on the money taken from the Islami Bond fund: (1) 3 months: Equal to the declared profit rate of the 3-month fixed deposit of the relevant bank. (2) 6 months: Equal to the declared profit rate of the 6-month fixed deposit of the relevant bank. If there is no fixed deposit of the same tenor at the relevant bank, the rate of the nearest higher tenor fixed deposit shall be applicable. (b) (a) The interim profit provided against the money taken from the Islami Bond Fund in this manner shall be adjusted at the end of the current calendar year (January-December) according to the final declared profit rate by the relevant bank or financial institution. In the case of Islamic banks, Islamic Banking branches of conventional banks, and financial institutions that finalize profit on a monthly basis, the declared profit rate of the relevant month shall be considered. (b) (b) To fulfill the purpose of sub-clause (b)(a), any bank or financial institution accepting funds from the Islami Bond Fund shall inform the Islami Bond Fund in writing by the middle of February of the following year about the final rate of profit of various tenor deposits of its own institution. Otherwise, the calculation shall be done considering the higher of the interim profit rate declared by the said bank or financial institution in December and the existing profit rate at the time of fund acceptance as the final. (c) The profit received in this manner shall be distributed between the holder of the Islami Bond and the Islami Bond Fund according to the Profit Sharing Ratio (PSR) of the relevant bond. By March 1 of the next calendar year, the above accounting shall be completed at Bangladesh Bank, finalizing the profit/loss rate, and finally adjusted with the account of the bond holder. The retained portion of the profit of the Islami Bond Fund shall be used for fund management expenses, covering incurred losses, and reinvestment. (d) Banks and financial institutions operated according to Islamic Shariah and banks/financial institutions having Islamic Banking branches, and other financial institutions declared eligible according to Islamic Shariah shall apply in the form determined by Bangladesh Bank to receive money from the Islami Bond Fund. The applied money shall be approved subject to: (1) Providing Demand Promissory Notes signed by the Chief Executive of banks and financial institutions operated according to Islamic Shariah and banks/financial institutions having Islamic Banking branches; (2) Properly signing the contract document prepared by Bangladesh Bank; and (3) Compliance with conditions imposed from time to time by Bangladesh Bank. If the money taken from the Islami Bond Fund remains unpaid upon maturity, the applicant shall not be approved for new money.

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(5) If the necessary documents are provided according to Rule-7(b), the approved money shall be debited from the Special Islami Bond Fund Account in the books of Bangladesh Bank, credited to the current account of the relevant Islamic bank and financial institution, and they shall be informed. (e) The money collected from Islamic banks and financial institutions for the payment of money taken from the Islami Bond Fund and the profit thereon shall be credited to the Special Islami Bond Fund Account of the Government in the books of Bangladesh Bank, and they shall be informed.

8. Damaged and Distorted Bonds: If any bond is damaged, distorted, destroyed, lost, or stolen, the Issuer Office shall issue a duplicate bond to the holder with the same number, date, and other details mentioned in the original bond, subject to compliance with the rules and procedures determined by Bangladesh Bank.

Signed/- (Md. Golam Hossain) Secretary

No. 08.036.014.00.003.2004-129 Date: 21 August, 2014 AD 06 Bhadra, 1421 Bang

Copies are sent with due respect for information and necessary action to (in order of seniority): 01. Governor, Bangladesh Bank, Dhaka. 02. Senior Secretary, Finance Division, Ministry of Finance, Bangladesh Secretariat, Dhaka. 03. Secretary, Banking and Financial Institutions Division, Ministry of Finance, Bangladesh Secretariat, Dhaka. 04. Director General, National Savings Directorate, Dhaka. 05. Private Secretary to the Honorable Finance Minister, Ministry of Finance, Bangladesh Secretariat, Dhaka. 06. General Manager, Debt Management Department, Bangladesh Bank, Head Office, Motijheel, Dhaka. 07. Deputy Director, Bangladesh Government Forms and Publications Office, Tejgaon, Dhaka. It is requested to ensure that 500 (five hundred) copies of the published Gazette are sent to this department upon subsequent publication in the Extraordinary Government Gazette. 08. Private Secretary to the Secretary, Internal Resources Division, Ministry of Finance, Bangladesh Secretariat, Dhaka. 09. Office Copy.

(Md. Abdul Jabbar) Assistant Secretary Phone: 9540208