Muhammad Arif : Chairman Centre of Advisory Services for Islamic Banking and Finance (CAIF), Former Head of FSCD SBP, Former Head of Research ArifHabib Investments and Member IFSB Task Force for development of Islamic Money Market, Former Member of Access to Justice Fund Supreme Court of Pakistan

Islamic Banking in Bangladesh

Bangladesh is one of the largest Muslim countries in the world with its population closely following the Islamic way of life in accordance with the Holy Qurʾān and the Sunnah.

 In 1974, Bangladesh signed the charter of the Islamic Development Bank (IsDB) and committed to developing its economy and financial system according to the Sharīʻah. Furthermore, in accordance with the charter of the Organization of Islamic Conference (OIC), Bangladesh Bank inaugurated its Islamic Banking activities in 1983, with the establishment of Islamic Bank Bangladesh Limited, assisted by the Is DB. This was followed by the establishment of nine more Islamic banks in the country. From the first establishment to date, the Islamic banks in Bangladesh have demonstrated their soundness in fulfilling requirements of the Sharīʿah and all other concerned laws of the land. In view of their success and popularity, many conventional banks have commenced Islamic banking services by opening Islamic banking branches or windows. Due to the exponential growth of customer demand for Islamic banking, a good number of conventional banks have shown their willingness to convert their conventional banking business to Islamic banking.

Bangladesh Bank, the central bank of Bangladesh, has initiated several policies to expand the Islamic banking industry in the country. Islamic banks are expected to provide contemporary financial services in accordance with the laws set forth in the Sharīʻah governance system of each bank. As the regulator, Bangladesh Bank has issued Guidelines for Islamic Banking through BRPD Circular No. 15, dated 9th November 2009.

Bangladesh Bank became a full member of the IFSB in 2004 and Bangladesh Bank has played a very vital role at IFSB since its inception. H.E. Mr. FazleKabir, the Governor of Bangladesh Bank was the Chairman of IFSB during the year 2019 and successfully organized the 35th Council Meeting of the IFSB. Further, Bangladesh Bank has nominated its delegates to IFSBs various committees such as the Executive Committee, Technical Committee and various Task Forces etc.

The total banking system deposit of Bangladesh grew at 12.57% while the total loans grew at 10.23% from 2018 to 2019. Non-performing loans (NPLs) decreased significantly in 2019. The strenuous effort of Bangladesh Bank has made it possible to reduce the NPL level and ensure deposit and loans and advances (investment) growth of the Islamic banking industry.

Deposits of the Islamic banking industry in Bangladesh have been growing progressively since the establishment of the first Islamic bank in 1983. Total deposits of the Islamic banking industry reached BDT (Bangladesh Takka equal to1 $ = 84.7 BDT) 2,802,278.03 million at the end of December 2019, while it was BDT 2,373,669 million in December 2018 and BDT 1,630,952 million in December 2015. The Islamic banking industry in Bangladesh has experienced an 18.06% deposits growth in 2019 compared to that of 2018. The share of total deposits of Islamic banks accounted for 24.65% among all banks at the end of December 2019.

Presently, there are eight full-fledged Islamic banks which are providing Islamic banking services through 1,266 branches. Three more conventional banks recently obtained Islamic banking licenses to convert to full-fledged Islamic banks. There are currently 19 conventional banks which are providing Islamic banking services through 31 Islamic banking branches and 163 Islamic banking windows. Among them Islamic Bank Bangladesh Limited (IBBL) is the pioneer Islamic bank in Bangladesh. IBBL commenced operations in 1983 and plays a vital role in the Islamic banking industry in Bangladesh. In terms of assets, deposits and investment, IBBL remains the largest among all Islamic banks in Bangladesh.

In Bangladesh, all banks are required to follow the Bank Company Act-1991 (amended up to 2018), Bangladesh Bank circulars, BFRS (Bangladesh Financial Reporting Standard) and other related laws of the land. Notably, Bangladesh Bank is also a stakeholder of AAOIFI. In order to ensure Islamic best practices in the banking industry, Bangladesh Bank tries to follow IFSB and AAOIFI Sharīʿah standards.

In order to ensure smooth Islamic banking practices in Bangladesh, Bangladesh Bank has issued “Guidelines for conducting Islamic Banking” in 2009. Further, as a regular update process Bangladesh Bank is working to prepare a more comprehensive guideline on Islamic banking.

Bangladesh Bank has a dedicated department for on-site supervision of Islamic service providing banks. This department is entrusted with the responsibility of supervising and monitoring the performance of Islamic banks in Bangladesh. There is a dedicated division under the off-site supervision department, which is responsible for off-site supervision of Islamic banks.

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