Islamic insurers depositing funds with conventional banks

Jasim Uddin Haroon

A number of Islamic insurance companies have reportedly been depositing their funds with the country's conventional banking system in violation of the spirit of Islamic values, central bank officials said.

They said insurers based on Islamic principles have been depositing their funds with the conventional banking system mainly with a view to earning more profits.

The country's Islamic banks generally offer 1.0 to 2.0 per cent less profit on the deposits than that of conventional banks, sources familiar with the issue told the FE.

The central bank officials said earning 'interests' through such investment of funds mobilised as premium earnings from policyholders by the insurance companies is completely against the spirit of Islamic principles.

According to Bangladesh Bank rules, Islamic banks or Islamic windows of conventional banks cannot divert their funds to conventional banks.

Golam Rabbani, managing director of Padma Islami Life Insurance Company, said there are some places in the country where availability of Islamic banking facility is limited adding: "In such cases, we're keeping our funds with the conventional banks."

Mr Rabbani said: "Many traditional insurance companies have Islamic windows, they might deposit their funds with the conventional banks."

According to Insurance Act of 2010, life insurance companies could use both options: Islamic and traditional insurance system.

But non-life insurers, under the act, are strictly restricted to operating in either of the systems.

The Padma Islami Life chief executive said: "We're however maintaining a separate account for keeping the money earned as interest from the conventional banks and use the same for helping the poor and the destitute."

Sheikh Kabir Hossain, chairman of Bangladesh Insurance Association, that represents a group of 60 life and non-life insurers, said: "I know that they (Shariah-based insurers) do not deposit their funds with the conventional banks."

Mr Kabir, also chairman of the leading non-life insurer -- Sonar Bangla -- said many conventional banks have both the facilities: Islamic windows and traditional banking.

"I think it makes many of us confused that Islamic insurance companies are depositing money with the Islamic window of traditional banks."

"Actually, they're depositing funds with the Islamic windows," he added.

Insurance Development and Regulatory Authority (IDRA) Chairman M Shefaque Ahmed said: "Islamic insurers are depositing their funds mainly due to the absence of rules concerned."

However, Bangladesh has now six full-pledged Shariah-based insurance companies -- three life and three non-life.

Apart from these, many life insurance companies have Islamic windows in operation.