Islamic Finance incur losses in 2023
This marks the first time the institution has reported a financial loss. Officials attribute the primary cause of this loss to the necessity for higher provisions due to an increasing number of defaulted loans
Islamic Finance and Investment Limited, a non-bank financial institution (NBFI), incurred a loss of Tk23 crore in 2023.
This marks the first time the institution has reported a financial loss. Officials attribute the primary cause of this loss to the necessity for higher provisions due to an increasing number of defaulted loans.
As a result of the loss, the NBFI was unable to recommend dividends to its shareholders for the first time since its listing on the stock exchange.
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According to its financial statement for 2023, approved at a meeting on 30 June, the company reported a negative earnings per share of Tk1.64, compared to a positive Tk0.30 in the previous year.
Additionally, the downward trend persisted into the first quarter of the current year, with the NBFI reporting a loss of Tk22.76 crore.
At the end of the March quarter, its total accumulated loss stood at Tk45.78 crore.
Meanwhile, its share price jumped over 8% to reach Tk9 on 30 June at the Dhaka Stock Exchange (DSE).
Mohammed Mosharaf Hossain, managing director of Islamic Finance, told The Business Standard, "Due to the increase in defaulted loans, we have had to increase provisions, resulting in losses."
"We have several major clients who have not repaid their loans, and there is no collateral securing these loans. This is the primary reason they are considered willful defaulters," he added.
"However, there are no fictitious loans in our institution, and all willful defaulters are active businessmen. Therefore, we are hopeful that we can recover the debts from them," he continued.
"Currently, 34% of our total disbursements are classified," he said.
The company has disbursed loans of around Tk400 crore without any eligible security, such as a mortgage or a lien on shares, according to its independent auditor.
According to the Bangladesh Bank guidelines, collateral is an asset pledged by a borrower to a lender until a loan is paid back. If the borrower defaults, then the lender has the right to seize the collateral and sell it to pay off the loan.
The hesitation of a borrower to provide collateral could signal to the financial institution that the borrower is fully aware of the implications of making this pledge, and if he does provide collateral, then he is likely to do everything to avoid the loss of the pledged asset, it added.
