Legal and Practical Constraints: Bangladesh

Despite wide-spread popular support and spectacular success in terms of mobilization of deposit and distribution of profit, Islamic banking in Bangladesh is yet to achieve the desired level of success. The main reason being the absence of appropriate legal framework for carrying out Shari'ah-based operations in the country. All the government-approved securities are interest bearing. Besides, Islamic Money Market is yet to be developed in Bangladesh. As a result, the Islamic banks, which are committed to avoid interest, cannot invest the permissible part of their statutory liquidity reserve and short term liquidity surplus in those securities.

There are other problems too, such as:

  1. Shortage of professionals conversant with Islamic banking;
  2. Lack of familiarity with the Islamic Products by the international financial and non-financial sectors;
  3. Severe competition in the financial sector;
  4. Economic recession and unstable political situation of the country;
  5. Inadequate track record of Islamic banking;
  6. Absence of infrastructure for Islamic trade financing;
  7. Income tax laws and structure not conducive to Musharaka mode of financing;
  8. The existing process of recovery laws being lengthy, cumbersome, and not appropriate for recovery of investments made under Islamic modes.

Islamic banking has performed remarkably well by proving the interest-free financing feasible and bringing in those depositors and entrepreneurs who were reluctant in participating the interest-based banking. Still there is a lot of room for improvement to fully exploit the existing potential, if the above cited limitations are properly addressed. To mention a few, following steps are suggested:

  1. Islamic bank investment portfolios may be diversified and extended for long term financing under Musharaka and Mudaraba;
  2. A general orientation of the trading and industrial community to equip them with knowledge of Islamic banking through series of seminars and symposia;
  3. Development of unanimous Shari'ah Manual or guidelines for day to day consultation and clientele motivation;
  4. Expanding the Islamic banks’ network in the rural areas of Bangladesh;
  5. The research and development for Islamic economics, banking and finance needs be geared up;
  6. Co-operation among Islamic banks should be extended throughout the world;
  7. Muslim countries need fully involve with international trade on Islamic principles that would contribute to grow international transactions under interest-free system. This will also help developing an Islamic Common Market;
  8. The central banks of the Muslim countries can help in creation of environment for Islamic banking with extended responsibilities;
  9. Uniform accounting systems and standards need be developed for providing consistency in accounting treatment of various operations and products of Islamic banks;
  10. New and ‘innovative’ products need be designed for financing on Profit and Loss sharing basis.


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