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Areas of Research

Bangladesh is the third largest Muslim nations of the world. It is the reason behind the existence
of several Islamic banks in here. These Islamic banks follow the traditional Islamic finance
system. As the INTEREST system is not allowed in the Islamic finance system, the Islamic
banks are not allowed to invest in the traditional money markets. Because the whole concept of
traditional money market is deeply related to the interest system. Since there is absence of
Islamic money market in Bangladesh, it is not being possible for the Islamic banks authority to
make the proper use of the excess liquidity that they have. Such a large amount of money can be
used in affecting a great impact on the liquidity problem of capital market in Bangladesh through
promoting Islamic bonds called SUKUK. These bonds are different in nature than conventional
bonds as they offer ownership & agreement to share the profit/loss to the investors.
According to Bangladesh Bank statistics & other non-official sources, Islamic banks account for
around 18.42 percent or TK 86,707 crore of the total deposits at all the banks & the approximate
amount of idle money in the Islamic banks of Bangladesh is 30000-40000 million TK.
It has become a challenge for the Islamic banks authorities to make sure the proper utilization of
this huge amount & to provide the investors with the maximum possible outcome.

Introduction & Background


The Areas of such an important research is very wide. The need for realizing the importance of
promoting SUKUK in Bangladesh demands the answers of some questions. The questions &
their answers have been provided below:
Why it is important to promote SUKUK in Bangladesh?
The capital market of Bangladesh is facing the liquidity problem. The promotion of such an
Islamic bond SUKUK where a certain portion of ownership & share of profit is provided, it can
play the role of a very liquid Islamic instrument. The attractive nature of the bond will make sure
the liquidity.
How SUKUK will help both the issuers & investors of Bangladesh?
It is the main WOW factor of SUKUK over conventional bonds that are available in
Bangladesh. From the issuers perspective, SUKUK is very attractive as it lets the issuers to
share their risks with the investors rather than shifting their risk through portfolio management.
On the other hand, there will always be more demands for SUKUK than any other kinds of
conventional bonds because it considers the investors as a partial owner & shares portion of
positive/ negative outcome from the investment.
How people of Bangladesh will accept the launching of such a bond?
It is a very important factor to know that how people in Bangladesh will treat the bond. As we
have said before, Bangladesh is the third largest Muslim nation in the world & it is for sure that
they will really be interested when they get the assurance of a high return on their investment
Areas of Research

along with ownership just being within the boundaries of religious allowances. It will create a
sense into them that they are not only making a very profitable investment but also maintaining
their religious duties as followers of Islam.
How SUKUK will deal with the traditional problems of capital
SUKUK can be used both by the corporate sectors & the state governments to finance for long-
term project financing. One of the main traditional problems in Bangladesh is the improper
evaluation of projects & underlying assets by bondholders. As SUKUK offers ownership &
portion of profit to the holders, it will encourage them to be more careful about the evaluation of
the projects.
How SUKUK will maximize the outcome?
We already know that the Islamic banks in Bangladesh are accounted for around 18.42% of the
total deposits at all the banks. These Islamic banks have idle money of about 30000-40000
million TK that they cannot make any use of. If the banks use this very large amount of idle
money in SUKUK, the authority will receive a way more revenue from this. It will ensure the
maximization of profit for the banks & also create a sense of satisfaction among the depositors as
their portion of profit will be higher than before.
How the ethical factor will affect the investors of Bangladesh?
The Sharia compliant manner of SUKUK will attract those investors who are not willing to
invest in traditional capital market because of the interest factor. The concept of sharing profit/
loss will seem to be more ethical & reasonable to them than the traditional system.


The capital market of Bangladesh has always been facing the liquidity problem. The main reason
behind it is the nature of the investors of Bangladesh. Most of the investors are not willing to
hold the bonds until the maturity. They rather emphasize on the HPR (Holding Period Return).
As a factor of profit/ loss sharing is involved in the SUKUK, the actual outcome of the projects
will not be realized until the end. It will encourage the investors to involve in long-term
investments specially who are expecting a positive return out of the investment. As the investors
will hold the bonds for a long period, there will always be a ready demand for the bonds in the
market. It will help the SUKUK to establish a stable liquidity in the capital market.
We can expect that the Islamic banks of Bangladesh will initially invest 50% of their idle money
which is 15000-20000 million TK. in this conceptually new type of Islamic bonds. As an
agreement of profit/ loss sharing exists between the issuers & the investors, the investors will be
encouraged to help to evaluate the actual outcome of the investors. The bank authority will also
get to realize that what type of projects attracts the investors more & they will involve in those
types of projects. If the bank authorities get able to prove its effectiveness, there is no confusion
that the investors of Bangladesh will accept this new system as the future of Bangladeshi capital



Primary Data:
The primary data for this research was collected through discussing the factors with the Top
level management & Middle level management employees of Islamic banks of Bangladesh.
Their opinions about the current capital market & suggestions have been used to conduct the
Secondary Data:
The secondary data for this research was collected from the internet. Journals, articles & research
papers that are available on the concept of SUKUK have been used to conduct the research. The
available reports on the implementation of SUKUK in Malaysia & Indonesia & the impact has
been also been gone through to realize the actual effectiveness of this important Islamic financial



As SUKUK has not been promoted in Bangladesh yet, it has not been possible for us to analyze
the data based on Bangladesh. We are analyzing the impact of SUKUK in Malaysian capital
market to provide the readers with a perception that how it may affect the capital market of
Right now, the Malaysian capital market is dominated by SUKUK with the help of a strong
support from the government. SUKUK is expected to catch up with the conventional bonds very
soon in terms of volume of transactions & number of SUKUK issuances. The authority has been
able to detect some determinants that are helping SUKUK to grow so fast. These are- Capital
budget, Firm size, Return on asset, Market to book ratio, Past SUKUK issuance experience &
past bonds issuance experience.
Malaysia is the largest SUKUK market of the world, accounting for USD 47 Billion or two-third
of the total SUKUK outstanding throughout the world. Only within 10-12 years of launching,
SUKUK became so popular in Malaysia that now it plays the most important role in the
Malaysian economy. It has also established stability in the Malaysian capital market & has
accelerated the growth which is quite impressive.
We will conduct a hypothetical analysis of how the idle funds can be used to greatly influence
the liquidity of the banks and also the economy.
The current coupon rate offered by Malaysian sukuk bonds are 4.71%. Using this we can
estimate an opportunity cost of wasted income incurred due to the idle funds and the affect they
Data Analysis

could have had if invested in sukuk bonds. Investing $15000 million would earn $706.5 million
in coupon (PLS rate).


It is true that SUKUK is not free of drawbacks. But the drawbacks are really a very little in
comparison to the positive possibilities. One of the main drawbacks is that it is very important
for the investors to have a good knowledge that how a project should be evaluated whereas most
of the investors of capital market in Bangladesh does not have much knowledge of that. It may
cause the investors to overrate an investment & expect more than the actual return. It also may
cause them to fail to realize the possible negative outcomes of the project.
As SUKUK is followed mainly by the Islamic banks, it is expected that they will not be unfair to
the investors. But there is a possibility that they may overrate the underlying assets of the project
through accounting system charismas & publish a reduced profit to take more of the profit than
they are allowed to have.



At this point, the economy of Bangladesh really needs a push from behind by the capital market
authority to step ahead. It has already been proven that the current system of conventional bonds
have been totally failing to do what it should. The support of Government through the central
bank authority is very much needed to introduce this fastest growing Islamic financing
instrument in Bangladesh. They need to make people realize that SUKUK is the future of
Bangladeshi capital market & all the possibilities that it provides to its investors. Otherwise, we
will never get to utilize such an effective instrument when all other Muslim nation countries
along with western countries are using it to develop. Unless we want to be left behind, we should
launch SUKUK as early as possible in Bangladesh & catch up with all those countries who are
stepping ahead towards development.