Islamic Monetary Policy Instruments (IMPIs)

The research project on ‘Islamic monetary policy instruments introduced by the OIC central banks’ investigates the concept and operational methodology of the instruments in line with the glorious Islamic sharia’h. The instruments of Malaysia, Sudan, Bahrain, Iran and Bangladesh have been examined carefully and modalities of two new monetary policy instruments have been suggested. The suggested instruments are a) Central Bank Mudaraba Sukuk (CBMS) and Government Murabaha Sukuk (GMS) aimed at to help Bangladesh Bank to regulate the liquidity of the Islamic banks and money supply process through the Islamic banking sector of the country. Bangladesh Bank may issue ‘Central Bank Mudaraba Sukuk’ (non-tradable CBMS) to the Islamic banks and non-bank Islamic financial institutions’ (NBIFIs) on weekly auction basis to facilitate open market operations (Islamic alternative to REPO and Reverse REPO). It is expected that channelization of the CBMS proceeds by the Islamic microfinance providers at the grassroots level, would help develop new Islamic micro entrepreneurs class, which would broadly spur income generating activities in the economy. On the other, CBMS would provide space for the Islamic banks for parking their excess liquidity. The second instrument Government Murabaha Sukuk (nontradable GMS) could be used by Bangladesh Bank as a Sharia’h-compatible monetary policy instrument in tandem with the Government Treasury Bills/Bonds to finance government imports. The GMS would provide an easy avenue to Government to raise funds to finance its imports for both food and non-food items (e.g., petroleum imports)