BSEC to form Shariah council to tap Islamic investors

HIGHLIGHTS

• A nine-member council will be set up
• There will be 5 Shariah scholars
• There will be 4 experts in other subjects on the capital market
• Opinions of Shariah scholars will be given priority
• Currently, about 35% of securities on DSE are Shariah compliant

The Bangladesh Securities and Exchange Commission (BSEC) will now form a Shariah council in line with a new rule formulated to make room for more Shariah-based investors in the country's stock market.

The commission expects that the move will lead to an increase in the number of Shariah-based securities in the market.

According to the BSEC, there are a large number of Shariah-compliant investors in the country. Investors from other Muslim countries also prefer Shariah-compliant securities.

A great example of this is Islami Bank Bangladesh Limited. Being Shariah compliant, it is currently the top private-sector lender in the country.

At present, conventional banks also have Islamic windows. Targeting these investors, the government also wants to raise funds by issuing Shariah-compliant securities like Sukuk, the commission also mentioned.

Last year, Beximco issued a Sukuk as the country's first private sector company and raised Tk3,000 crore from the capital market.

New Shariah-based securities such as mudaraba perpetual bonds, Sukuk bonds, and Shariah-compliant mutual funds have been issued in the stock market for the last five years.

However, since there is no central Shariah council, any controversy or dispute arising in the management of these securities could not be resolved. In view of this, the BSEC has made a new rule.

Under Shariah law, Muslims are not allowed to invest in shares of companies that are involved in conventional financial services, gambling, pornography, advertising and alcohol and tobacco business which violates Shariah principles.

The Islamic religious law also bars Muslims from investing in the media and entertainment companies and trading gold and silver as cash on a deferred basis.

BSEC spokesperson and Executive Director Rezaul Karim told The Business Standard, "There is a huge demand for Shariah-compliant securities. But the supply is much less than that. That is why the stock market is not able to capture a large part of domestic and foreign investors."

He also said the commission has made Securities Market Shariah Advisory Council Rules to increase the supply of Shariah-based securities.

According to the BSEC rule, the council shall consist of nine members comprising Shariah scholars and experts. Out of the total council members, at least five shall be Shariah scholars and the remaining members shall be experts. The chairman of the council will be elected by the members amongst local Shariah scholar members by themselves.

The council shall inform the BSEC in writing to take action against the issuer concerned in case of any deviation in compliance with Shariah principles.

Rezaul Karim said, if there is any problem in complying with the Shariah law, the solution given by the council will be considered final.

The BSEC has already formed a committee to select the members of the Shariah council headed by BSEC Chairman Shibli Rubayat-Ul-Islam.

Earlier in 2014, the Dhaka Stock Exchange (DSE) introduced the Shariah-based index – DSES – that was designed and developed by S&P Dow Jones Indices Methodology, a global leader in providing investable and benchmark indices for financial markets. DSE's aim was to meet the requirements of Islamic fund investors.

Some 100 listed companies are under the DSES index which fell 1.52 points to 1,418 points in Sunday's trade.

An investor – individual or institution – will have to pay fees to know the companies under the index, but no one can disclose the names of the companies trading in the index, according to the DSE.

Currently, around 35% of the total listed securities on the DSE are Shariah-based instruments.

DSE's acting managing director Shaifur Rahman Mazumdar said, "Companies are selected for this index under the guidance of DSE's own Shariah council. And if there is a new council set up by the BSEC, we will have more opportunities to work."