An Evaluation of Islamic Monetary Policy Instruments Introduced in Some Selected OIC Member Countries

This paper investigates the concepts and operational methodologies of the monetary policy instruments introduced by the OIC central banks’ to manage their monetary affairs in line with Islamic Sharī‘ah. The Islamic monetary policy instruments of Malaysia, Sudan, Bahrain, Iran and Bangladesh have been examined and modalities of two new monetary policy instruments have been suggested. The suggested instruments are a) Central Bank Muḍārabah Ṣukūk (CBMS) and Government Murābaḥah Ṣukūk (GMS). The analysis is in the context of Bangladesh, therefore the instruments are aimed 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 Muḍārabah Ṣukūk’ (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 Murābaḥah Ṣukūk (non-tradable GMS) could be used by Bangladesh Bank as a Sharī‘ah-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).