One fine morning, at the end of 2011, I was overwhelmed with joy, being also grateful to the central bank as well as seven Islamic banks of the country. That was a piece of exciting news for the country's Islamic banking industry. Seven full-fledged Islamic banks and 15 dual or mixed banks, alongwith two shariah-based non-bank financial institutions, were delighted to get a solution to one of their long-felt problems.

We are mentioning here the decision about the formation of an inter-bank Islamic money market. The entire nation came to know that inter-bank Islamic money market, for the first time in Bangladesh, sailed its voyage, with effect from the last working day of the year, 2011.

National dailies published the news with due importance. This created a vibration in the economy of the country. That was a ray of great hope and aspirations, amid the cloudy days of deposit-crunch in the overall banking industry of the country. For Islamic banking, the news of the Islamic money market was, as if it were, the golden deer in their hands. It was the implementation of a dream that the industry has earnestly been cherishing for long -- for more than a couple of decades.

So my joy knew no bounds. There were bitter experiences before that, because of non-existence of an inter-bank Islamic money market. The long-awaited market was finally the outcome of a meeting of the chief executive officers and managing directors of seven Islamic banks with the Bangladesh Bank that was held on December 21, 2011. One member of Shariah Boards from each bank was present at that meeting. The outcome of that meeting was considered a milestone in the history of the Islamic banking in Bangladesh.

Whenever we look at the balance sheet of any bank, we observe that banks, by their very nature, combine short-term liabilities with long-term assets. This results at times in maturity mismatches. The banks try to minimise the potential risks resulting from such mismatches through their prudent liquidity management. This prudence is applied by the fund managers, typically through inter-bank money markets.

Since conventional inter-bank markets are interest-based ones, Islamic banks cannot participate therein. Therefore, to manage their liquidity positions, an alternative market design has for long been felt to be essential. In other words, an inter-bank Islamic money market -- certainly free from interest - has, therefore, been considered a dire need since long.

Due to absence of an inter-bank Islamic money market, Islamic banks and Islamic units of dual operators have, for a number of years, operated with no access to tradable short-term treasury instruments. As a result, they could not channelise their excess funds to the market.

This scenario obstructed some of their growth potential by forcing them to hold substantial cash, losing expected earning therefrom. Trade-offs between profitability and liquidity could not be matched well. On the other hand, in time of any deficit, the Islamic banking units particularly of conventional banks, because of their hybrid nature, used to face a greater dilemma.

As liquidity is the blood of a bank, the shortage thereof might affect any bank extremely. The conventional banks, in such extreme cases, can meet the situation only by taking recourse to high cost fund. This is because they can offer a fixed high rate interest to the depositors or fund-providers during any crisis.

But an Islamic bank cannot do so in such a manner because such a fixed rate, be it low or high, on their deposit, tantamounts to offering interest. But Islamic banking as an alternative discipline is meant for, and born for, shunning the path of interest-based operations.

Interest is unconditionally forbidden under the Islamic jurisprudence, having a direct reference to the teachings of the Quran. But such a crisis can also compel many Islamic units to indulge in, what can be formed from an Islamic point of view doubtful deals. The suggestion of Bangladesh Bank to open Mudaraba SND Accounts with each other among the Islamic banking operators, did not appear to be a proper and adequate alternative to inter-bank Islamic money market.

In the backdrop of the scenario noted above, the official circular, dated December 27, 2011, came directly from the Bangladesh Bank that was addressed to the Chief Executive Officers (CEOs) of the scheduled banks and financial institutions.

The message was clear: It was decided by then to commence an Islami inter-bank fund market (IIFM) for achieving excellence and ensuring solidarity in the matter of liquidity management of all the Shariah-based banking and leasing operators, as was already stated earlier. They would participate in the market under certain rules which, among other things, contained that:

All the parties concerned might place their respective surplus money with the Islami Bond Fund (IBF) on a daily basis. Islami Bond Fund (represented by Bangladesh Bank) would collect the fund as the custodian and provide the deficit units with fund therefrom.

Transactions would be made on Mudaraba -- a profit, sharing partnership -- basis and the profit would be distributed to the fund-providers, according to the profit sharing ratio (PSR), as determined by the IBF and agreed upon by the concerned parties. All concerned rules and regulations, as designed by the IBF, were to be adhered to, and so on.

With an earnest eagerness for participating in the Islamic money market since 'day one' of its operation and to register the name of our Bank with historic day of the nation for its Islamic banking industry, we started waiting. Time was passing; days, weeks and then months.

Then I recalled the days of my student life while studying 'market' in Economics. In Economics, market does not necessarily mean a specified place. It rather means any rendezvous of buyers and sellers -- the most essential elements alongwith the goods to deal (in).

This era of digitalization and automation has made it more practical the market players not to have any definite place or location for their transactions to take place. Luckily, the said fund market arrangement also appointed a custodian for their voluntary service. It is the regulator itself, the central bank -- Bangladesh Bank -- who will act like an escrow account-operator. It is a very good arrangement and, thus, a piece of very heartening news.

But alas! Not a single paisa's transaction appears not to have taken place in that long-awaited market until now. Why? We cannot but recall here the very common story. The gunman could not open fire because of a lot of reasons. None needs to wait to hear a series of reasons for his not opening the fire, as the non-availability of ammunition is narrated. We apprehend the similar incidence here. Money market sans money!

We cannot believe that for more than three months, there was not a single occasion when, at least, any of the aforesaid banks did not have the capacity to pour money into the market. A market must have something that attracts both buyers and sellers.

Only buyers are not at all sufficient to build a market. No single transaction taking place in the said market seems somewhat comparable to buying a cell phone's SIM against which only a single number has been provided but that site has yet not been activated. Activation is a must to make a cell phone usable. Interbank Islamic money market also needs an activation. But this is not possible without money.

As such, we would like to urge upon the regulator -- Bangladesh Bank -- as well as the giants in the Islamic banking industry who can, by themselves, bell the cat or can make it to do so. The question is very simple. There is no denying that there is demand for money during the period mentioned here. The supply has been the factor of consequence here. Someone must play the role of being the first supplier of money. This is a must to make it possible for the market to enter its operational phase.

We fear that there are some limitations on, or weaknesses about, the structure of the market. That might have kept the potential supplier of money away from it. If that is so, it should be properly looked into. The problem should be addressed, so that surplus units get confidence to play their role in the market. There must not be any reason for them to keep fund rather idle than putting in the same in the market. The modus operandi of an inter-bank Islamic money market should be well-structured; efforts here need to be accompanied by an assurance about strict supervision by Bangladesh Bank so that none can play any foul game. That may allure fund to the market.

As the formation of the market has been announced by the central bank, we would like to see it functional in a win-win situation for all concerned so that it can become operational at the earliest opportunity. Above all, it should be considered to be the saviour in the event of any liquidity crisis among the Islamic banking operators. To bell the cat in this case may even be treated as an ongoing charity (Sadqa e Zaria) as the pioneer, leading to create followers of an well-purported initiative. We must not miss the golden deer that we have otherwise been awarded with.

The operation of this market will conform to the ethical principles of the value-based Islamic banking industry and promote the interests of all those concerned, who want to see the growth of this industry, both religiously and professionally. The crisis is the right time to test our values.

As already stated, we are afraid; the absence of this market may push some Islamic banking units towards violation of Islamic norms for the sake of their employment. In today's market, every big fish asks for a pre-fixed rate of return which is not commensurate with the Mudaraba mode, the profit-bearing deposit accounts (A/Cs) of Islamic banks.

So the Islamic bankers are either coming back with an empty purse or are indulging in interest-bearing deals, deceiving themselves. The infringement on the part of a foul driver is usually shifted onto the car's brand. Any wrong step by us will defame the ideology.

The writer is the Vice President and Head of Islamic Banking of Bank Asia Limited. The opinions expressed here are those of the writer, not necessarily of the organisation he is serving.

Financial Express/Bangladesh/ 17th April 2012