Genesis of Islamic Banking in Bangladesh

Bangladesh is one of the largest Muslim countries in the world where masses are deeply committed to Islamic way of life as enshrined in the Holy Qur'an and the Sunnah. Naturally, it remains a deep cry in their hearts to fashion and design their economic lives in accordance with the precepts of Islam. With these ends in view, in Aug. 1974, Bangladesh signed the charter of Islamic Development Bank and committed itself to reorganize its economy and financial system according to Islamic Shari'ah.

In Jan. 1981, the President of the Peoples Republic of Bangladesh while addressing the 3rd Islamic Summit Conference held at Makkah and Taif suggested, "The Islamic countries should develop a separate banking system of their own in order to facilitate their trade and commerce" This statement of the President indicated favorable attitude of Bangladesh towards establishing Islamic Banks and financial institutions in the country.

Earlier in Nov. 1980, Bangladesh Bank, the country's central Bank, sent a representative to study the working systems of several Islamic Banks abroad.

In Nov. 1982, a delegation of Islamic Development Bank (1DB) visited Bangladesh and showed keen interest to participate in establishing a joint venture Islamic Bank in the private sector. They found a lot of work had already been done and Islamic banking was in a ready form for immediate introduction. Two professional bodies namely Islamic Economics Research Bureau (IERB) and Bangladesh Islamic Bankers Association (BIBA) made significant contribution towards introduction of Islamic banking in Bangladesh.

They came forward to provide training to top bankers and economists to fill-up the vacuum of leadership for the future Islamic banks in Bangladesh. They also held seminars, symposia and workshops on Islamic economics and banking throughout the country to mobilize public opinion in favor of Islamic banking. Their professional activities were reinforced by a number of Muslim entrepreneurs working under the aegis of Muslim Businessmen Society. These organizations concentrated mainly in mobilizing equity capital for the emerging Islamic Bank.

Having completed necessary preparatory work, Islamic banking in Bangladesh was introduced in 1983 with the establishment of Islami Bank Bangladesh Limited on March 30, 1983. Thereafter, three other Bangladeshi banks and one foreign bank launched banking operations in the private sector based on Islamic Shari'ah. A newly established private Bank has also set up two Islamic banking branches.

Aggregate deposits of the Islamic banks stood at Taka 30,600 million i.e. 5.40 per cent of the total deposits of the banking system in Bangladesh. Islamic banks’ share of investment to total investments (loans and advances) of the banking system was to the tune of Taka 26,480 million i.e. 5.61 per cent at the end of 1998. The deposits, investments and business of Islamic banks have been growing at a faster rate than that of the growth rates of traditional banks.

Source: Experiences in Islamic Banking: A Case Study of Islami Bank Bangladesh, Institute of Policy Studies. Republished with permission.