Islamic Banks Liquidity Facility (IBLF)

Islamic Banks Liquidity Facility (IBLF) 

A. Objectives To aid the liquidity management and deepen the financial system, Bangladesh Bank is hereby introducing a new financial instrument, namely, ‘Islamic Banks Liquidity Facility (IBLF)’ for shari’ah-based banking system in Bangladesh. This facility will provide short-term liquidity in the shari’ah-based banks operating in Bangladesh. These guidelines explain operating and settlement procedures for participating in the IBLF. 

B. Eligible Participants 

Shari’ah-based banks maintaining current accounts with Bangladesh Bank (BB) are eligible to participate in the IBLF. 

C. Features of the Islamic Banks Liquidity Facility (IBLF) 

The IBLF is a framework of providing liquidity facility by BB to shari’ah-based banks under the Mudarabah contract where Bangladesh Bank acts as the Investor (Rab al Mal) and banks act as the investment manager (Mudarib) under an agreed Profit Sharing Ratio (PSR). The different features of IBLF are as follows: 

1. Tenor: Tenor of the IBLF will be 14 days. 

2. Profit Rate: 03(three) months MTDR (Mudaraba Term Deposit Receipt) rate of the respective bank. 3. Day Count Convention: Actual/Actual. 

4. Eligible Securities: Unencumbered Bangladesh Govt. Investment Sukuk (BGIS). 

5. Haircut: The applicable haircut of the collateral security for IBLF shall be 5% of its face value. While providing IBLF, the entire security will be treated as a collateralized security even if a hair-cut is imposed on the face value of the eligible security at a prescribed rate. 

6. Profit in interim period: The institutions will receive interim profit (if any) from BGIS used as collateral for IBLF. 

D. Operating Procedures of Islamic Banks Liquidity Facility (IBLF) 

1. The institution may apply for IBLF on every working day through the prescribed form 

2. The applied amount of IBLF should be for a minimum amount of Taka 01(one) crore, or multiples thereof; 

3. The IBLF will be provided according to the decision of Auction Committee of BB; 

4. The decision will be disclosed within the stipulated time set by Bangladesh Bank;  

5. BGIS against which respective institutions intended to avail IBLF shall be marked as a lien in favor of BB during the IBLF period by the Motijheel Office of BB. The lien-marked securities cannot be used or traded during the IBLF period; 

6. The liquidity to be provided by the BB shall be credited to the current account of the respective institution at the close of the same business day; 

7. BB reserves full discretion to accept or reject the application or provide partial investment. 

E. Settlement of IBLF 

1. At maturity, BB will debit the current account of the institutions to recover the investment amount and the profit (as per the provisional profit rate), and release lien-marked securities to the respective institution; 

2. If IBLF matures on a holiday then the tenor of IBLF will be extended by the number of holidays and profit calculation will incorporate this extended period; 

3. At the end of the calendar year, profit will be adjusted according to the actual profit of respective institutions. 

F. Treatment regarding breach of terms of the contract 

1. At maturity, if the institution fails to maintain adequate funds in the current account for the settlement of IBLF, BB shall adjust the investment amount by disposing of lien-marked securities. 

G. BB may change/extend/add or removes policies and procedures related to IBLF as necessary.

Ref: DMD Circular No. 03 date 05/12/2022