ISLAMIC BANKING

BANKING AND FINANCE – FIN401 - SEC1

GROUP MEMBERS:

NAME ID CONTRIBUTION
ASHIQUE BIN MUSA 1821741 Islamic banking practice in Iran,
shariah frame works, Compare the
shariah banking exercise of IRAN
and Bangladesh.
NAHIN IBN ZAMAN 1731384 Islamic banking in general, Compare
the shariah banking exercise of IRAN
and Bangladesh.
TAUHIDUR RAHMAN ONONNO 1711037 Shariah governance frame work in
general, Recommendation.
MD. RISATUL ISLAM 1821989 Limitation in context of BD.
ASHNAN NAVEED 1730512 Factor affecting to select Islamic
CHOWDHURY banking by the customer.
ABDULLAH AL NOMAN 1731525 Reality(practice) check in context of
BD, Recommendation.

TEAM NAME: THE CASH COWS

COURSE TITLE: BANKING AND FINANCE

COURSE ID: FIN401 SECTION: 01

SEMESTER: SPRING 2020

INDEPENDENT UNIVERSITY, BANGLADESH.

DATE OF SUBMISSION: 15th September 2020.

LETTER OF TRANSMITTAL

Mr. Anwar Zahid

Lecturer
Independent University, Bangladesh
Bashundhara R/A
Dhaka, Bangladesh

Date: 15th September 2020.

Subject: Report on Islamic Baking.

Dear Sir,
It is our pleasure to have this opportunity to present you with our report on Islamic Banking, we
have all given our best effort throughout this entire report and we have provided all the relevant
information that is necessary regarding this report. We believe that our report will provide a clear
concept of Islamic banking.
We all gave our best to accumulate the required information and we will be more than happy to
answer any question to clarify it fully to your understanding. Thank you for all your help and
support throughout this entire semester.

Sincerely yours,
Team: The Cash Cow
ACKNOWLEDGEMENT

First and foremost, we would like to express our sincere gratitude to our instructor MR. Anwar
Zahid for his continuous support, patience, and motivation. His guidance has helped us all in the
time of planning and writing of this report. We could not have completed this report without his
constant support throughout the entire semester.

Besides our instructor, I would also like to thank my fellow mates for accumulating all the data
necessary and contributing in every other way possible.

Last but not the least; we would like to thank our friends for supporting us spiritually throughout
this report.

Thank you.
TABLE OF CONTENTS

EXECUTIVE SUMMARY.....................................................................................................................1
Islamic Banking................................................................................................................................2
Mudharaba..................................................................................................................................3
Murabaha.....................................................................................................................................3
Musharakah.................................................................................................................................3
Ijarah............................................................................................................................................4
Musawamah................................................................................................................................4
Wadiah.........................................................................................................................................4
Factors affecting to select Islamic Banking by the customers........................................................5
Shariah Governance Framework.....................................................................................................6
Shariah Governance Mechanisms:..............................................................................................7
Reality/Practices Check-in Bangladesh...........................................................................................9
Islamic Banking History in Bangladesh:.......................................................................................9
Shariah Governance Framework in Bangladesh:.......................................................................10
Reality or Practices Check-in the Context of Bangladesh:.........................................................12
Getting Riba or Interest from Bangladesh Bank:.......................................................................12
Insurance with Non-Islamic Insurance Companies and Getting Riba or Interest:.....................13
Not Giving out Enough Loan According to Shariah Law:...........................................................13
Using Flexible Shariah Laws:......................................................................................................13
Islamic Banking practice in Iran.....................................................................................................13
Islamic Banking History and Shariah laws in Iran:.....................................................................13
The practice of Islamic banking in Iran:.....................................................................................14
Difference between Bangladesh and Iran’s shariah banking exercise:.....................................17
Limitations.....................................................................................................................................19
Recommendations.........................................................................................................................20
References.....................................................................................................................................22
EXECUTIVE SUMMARY

The following report is prepared on the overview of Islamic Banking. The following report contains, our
brief research on Shariah governance, Banking practices of both Bangladesh and Iran. We will also show
limitations in terms of Bangladesh.

The first part starts with an introduction which includes a brief description of Islamic banking. Later we
start with the analysis of the Shariah governance framework. After describing the framework, we will
move ahead to show our analyze on the real practice of Islamic banking in Bangladesh. We will also
provide brief descriptive information about Iran the negative reason, then we will compare both
Bangladesh and Iran in terms of their banking practices.
In the end, we will conclude our report with our own recommendation based on our analysis. We tried our
best to implement all the knowledge that we gained throughout the course to complete this report.

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Islamic Banking

Islamic banking is known as Islamic Finance or Islamic-Shariah based Finance which refers to Banking
activities that have been complied with the principles of Shariah also called Islamic Law (Investopedia,
2020). In the Islamic Banking system, Shariah prohibits the acceptance or payment of Riba which is an
interest charge in any kind of lending and accepting of money. Though Islamic Banks are formed for
Muslims although these are not restricted to Muslims. Islamic Laws or Shariah have commonly accepted
principles all over the world. Every Islamic bank operates according to the Fiqh Al-Muamalat which is
Islamic rules on Transaction. Islamic Banking is based on the concepts of Mudharaba and Murabaha
Which is Profit and Loss Sharing (PLS)[ CITATION IIB17 \l 1033 ].

Principle Sources of Islamic Banking

The principal source of Shariah is followed by:
1. The Quran
2. The Hadith or Sunnah (Recorded of Saying and Actions of Prophet Mohammad (S:)
3. Ijma (Agreement and recommendations of community-based Islamic scholars on a point of
Islamic law)
4. Qiyas (Independent analogical reasoning process which includes comparison teaching of
hadith and the Quran)
Throughout the middle ages, Islamic Banking was practiced in the Muslim World. In that time, Islamic
merchants were very important middlemen for trading activities in Spain, the Mediterranean, and the
Baltic States. But later many European financiers adopted those concepts, techniques, and instruments of
Islamic Banking. But nowadays all over the world, several Islamic banks offer various range of
competitive offers and services to their customers maintaining an interest-free system. Islamic Banking
and Finance institutions are also competing with other interest-based banking systems with a good
reputation. They do not involve in interest payment regarding the fee of trade-financing, and lending
operations[ CITATION Aud17 \l 1033 ].

Services of Islamic Banking and Islamic Finance

Islamic Banking and Islamic Finance services also include:
1. Checking Accounts
2. Foreign Exchange Transaction
3. Fund Transfer
4. Letter of Credit
5. Travelers Cheque
6. Safe Deposit Boxes
7. Securities Safekeeping Investment Management And other normal services of modern
banking.

Prohibition in Shariah Law

According to Islamic Shariah Law, there is a prohibition in all transactions where there are presences of
specific few elements. These elements are explained below:

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 1. Riba: Riba means interest credited from loan or deposit. If any return on money is
predetermined in amount or percentage.
2. Gharar: Gharar means a prohibition on the sale on any commodity or service whose
characteristics and existence are questionable and which’s contractual terms are unclear.
3. Maisir: Maisir is strictly forbidden in Islam. Maisir is a transaction or agreement based on
unethical persuasion which is that they will gain by no consideration for the chance of any kind of
loss.
4. Haram: Haram relates to those activities and trade of commodity which are prohibited by
Islam. Those activities are such as: related to Alcohol, Pork, Gambling services, etc.

Modes of Financing in Islamic Banking

There are various modes of financing in Islamic Banking which are completely Interest-free. Those are
explained below:

Mudharaba
The basic concept of Mudharaba is an agreement between two-party, where one party gives his property
to another party to operate a business. The profit to be shared between them according to terms such as
one-half, one-third, etc. It’s a simple system of partnership. Bank will take deposits from the customers
both for safekeeping and profit-sharing purposes. The major portion of the deposit will be utilized to fill
up the credit requirements of the business and industries. Then Islamic Bank will distribute the half-yearly
profits to the account holders/customers who are the shareholder[ CITATION Isl13 \l 1033 ].
In Mudharaba there will be two associate one is the financier and the other one is his agent who is known
as Mudharib. The financier will invest his capital and the Mudharib will invest his skills and expertise.
Capital will be handled by Mudharib solely. If there is any loss, the financier alone will bear it. On the
other side, Mudharib will lose his skills or job. Mudharib has no risk of losing any material loss.
Islamic Banks will offer credit facilities and operates all of the functions like commercial banks. They
will be a partner in a business, then they will supervise the progress of work. The chance of loss will be
minimized under the careful observation of bank staff. The principle of profit-sharing will give incentives
to their depositors, who invested their money in the bank. The partners in the Islamic banks may have a
mutual gain or a mutual loss. The Mudharaba is more than a creditor-debtor relationship.

Murabaha
Murabaha means cost-plus financing. It’s a Shariah financing structure where the seller and buyer agreed
on the cost and markup an asset. It’s an alternative method of Qardh Ribawi means interest-bearing loan.
In this mode, a client request to the bank to purchase specified goods from a third party. Immediately the
transfer of ownership bank sells these goods to the client at cost plus an agreed profit margin. Then the
client takes those goods and pays the price of those goods either in installments or lump sum.
In a few cases, customers as an agent of the bank purchase the commodities. Then they again purchase
those commodities from the bank with cost plus profit which paid at a mutually agreed date. It is highly
appreciated that to meet the Shariah requirement in Murabaha, a transaction of trading is being transferred
into a mode of finance. Where the bank purchases any commodity only when the customer has agreed to
buy that commodity at a profit. But in very rare cases Islamic Banks use Murabaha when the price of the
commodity is paid by customers immediately. In that case, Islamic Banks will be playing their role as
middleman or broker agents and there would be no financing[ CITATION Isl131 \l 1033 ].

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Musharakah
Musharakah means a joint enterprise or partnership. It’s a Shariah financing structure where partners
share their profits and losses. In the Islamic framework, the alternative method of interest on loans is
financing on Profit and Loss Sharing (PLS). It is a shift from debt transaction to investment transaction.
PLS system or Equity Participation system ensure a flourishing financial portfolio. In Musharakah losses
are distributed among the financier and entrepreneur into a previously agreed ratio of their capitals
(Islamic Finance News, 2014).
Musharakah is used in the purchase of the real estate, property, investment projects, and large financial
purchases, etc. There are different partnership arrangements in Musharakah. Those are:
1. Shirkah al-inan Partnership
In this partnership, partners act as an agent and they never serve as a guarantor of other partners.
2. Shirkah al-mufawadah Partnership
In this partnership, each partner has an equal, unlimited, and unrestricted partnership. Where every partner
will contribute the same amount of capital, sharing the same profit or loss and they also have the same
rights.

Ijarah
Ijara is a term of fiqh which is a contract of exchange. Ijarah is a popular mode in Islamic banking
because its similar to a conventional lease. In the Ijara contract, one party purchases and lease out the
instrument needed by the customer for a payment. The length of the fee and the required amount of fee
are dealt in advance but the ownership of that asset remains with the property owner[ CITATION Fin14 \l
1033 ].
An Ijara contract can be used as Sukuk. Sukuk involving a direct asset ownership interest. It represents an
undivided share of ownership in a tangible asset that can be used for project or investment activity.

Musawamah
Musawamah is a type of transaction in Islamic Banking, where the customer does not know the price paid
by the seller to obtain the commodity or service being provided. These types of transactions are usually
regulated by Islamic Law. In Musawamah transactions, there are some certain conditions and obligations
to qualify[ CITATION Ija17 \l 1033 ]. Those conditions are:
1. Musawamah transactions should be spot transactions which means exchange should have
to take place immediately.
2. The commodity and service must be a tangible asset such as Consumable assets etc.
3. Musawamah transaction’s products and services have to exist at the time of sale.

Wadiah
In Islamic Banking, Wadiah means a deposit of funds or any asset by a customer. Islamic Banks charges a
maintenance fee for the safekeeping of customers' funds in as per the terms of the agreement. A deposit in
a Wadiah account is a non-profit product. Also, the bank may invest the money by taking permission from
the depositor. Bank can share the profit from the investment with depositors as per the management
decision
There are two types of Wadiah[ CITATION Isl121 \l 1033 ]. Those are:

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 1. Wadiah yad Amanah: When a property is deposited in the Islamic bank as a trust.
2. Wadiah yad Dhamanah: It’s a saving for safekeeping in the bank.

Factors affecting to select Islamic Banking by the customers

Islamic banking, also known as Islamic finance or Shariah-compliant finance, refers to Shariah-compliant
finance or banking practices (Islamic Law). Banking under Islamic Law is simply just that — banks
operate their operations according to Islamic Law. There are certain aspects of the Muslim system of
belief which prohibit certain things. Investing, for example, in some businesses or markets, such as pork
processing or bars. There is another major aspect, too: Islamic banking forbids interest earned on loans.
Looking nice to start? That's why it gets so famous there[CITATION Emi \l 1033 ].
While Islamic banking is, of course, traditionally associated with countries with a Muslim majority, it is
becoming increasingly common in other countries and regions of the world. The main reason for this is
that banks that abide by Islamic law tend to be more stable, particularly in economically turbulent
stretches. That's because the banks are fundamentally non-speculative, and when things get crazy, they
can handle the storm better than a bank that has a lot of money tied up in the markets [ CITATION
Inv20 \l 1033 ].
Overall, however, for some key factors, most people are drawn to Islamic banks. The key factors will be
discussed below:
1) Prohibition of Interest: There is a fascinating link to Islamic culture. It is forbidden. It is related to the
definition of "Riba," which translates into the exploitative profits produced by trade. Most people consider
interest to come under the umbrella of "Riba," and therefore, exclude it from the equation of the banking.
This has certain clear advantages for creditors and consumers, which is one of the reasons why the system
gains momentum in the West.
Islamic banks use equity participation schemes to raise money without the typical practice of charging
interest. Participation inequity means that if a bank lends money to a company, the business will repay the
loan without interest but instead will give the bank a share of its income. If the company defaults or fails
to make a profit, then the bank will not gain either.

2) This is Non-Speculative: Speculative transactions are causes of volatility, and the misallocation of
capital by default. Islamic banks are forbidden from carrying out such operations to foster socio-economic
justice while concentrating on the deployment of capital into the real economy. For example, Islamic
banks are essentially not making bets with deposits from people. That was, in part, the genesis of the 2008
and 2009 housing bubble and financial crisis. And of the dot-com bubble before that. Islamic banks are
risk-averse in that they hold away from companies that can fall prey to economic bubbles.

3) Ethical and Moral Factor: The strong ethical and moral aspects of doing business and choosing the
business practices to be funded play an important role in encouraging socially responsible investment and
better individual or corporate behavior.

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For example, any investments involving products or things that are illegal in the Qur'an – including
alcohol, gambling, pork – are also forbidden. Islamic banking may thus be considered a type of ethical
investment which is culturally distinct[ CITATION Yam17 \l 1033 ].

4) Speeding up Economic Growth: Islamic banking and financial firms certainly have as their goals
profit development and growth. They want to invest in companies for what, based on their growth and
success potential. In the Islamic banking industry, therefore, each bank will invest in promising business
projects and try to outperform its competitors to gain more funds from its depositors. This will potentially
lead to a high return on investment for both the bank and the depositors. In a traditional bank, where
depositors reinvest returns on their deposits based on a fixed interest rate, this is impossible[CITATION
Adv \l 1033 ].

5) Financial Justice Theory: Financial justice is a prerequisite that makes sharia-compliant Islamic
finance products work. The Western financial system looks at profit-making by interest payments and
makes the receiver responsible for any harm. Islamic finance paves the way for the equal sharing of
profit/loss and associated risk.
Financial justice is a fundamental prerequisite for Islamic Finance products to work. Western or
conventional financing looks forward to benefiting from interest payments and makes the borrower
entirely responsible for any harm. Contrary to this, Islamic financing paves the way for the distribution of
net profit/loss and liability between the investor and the beneficiary in a proportional manner. Therefore,
if a financier claims a project's income, he/she must also bear a proportionate share of the project's loss.

6) Transparency: Transparency is the primary element that ensures consumer protection and financial
literacy. Market awareness and financial literacy are important components when consumer safety is at
stake. Shariah values and definitions alone cannot shield Islamic finance consumers. Regulation alone
cannot guarantee that consumers are safe or that IFIs are implementing consumer protection guidelines to
ensure fair and equitable transactions[CITATION Rad17 \l 1033 ].
Customers cannot be completely aware of the full implications of their financial transactions, without
transparency. Without transparency, consumer financial awareness cannot dramatically increase to the
degree that it prevents consumers from further falling into debt. Transparency offers all relevant
information, perspectives, policy decisions, and goods and services transparently and openly for
consumers and the general public. It offers successful disclosure to customers of relevant details required
to make an informed decision. It helps clients learn financial literacy and make financial choices that
avoid more debt and damages.
7) Banking for Everyone: Islamic banking, while based on Shariah values, is not limited to Muslims
alone, and is also open to non-Muslims.

Shariah Governance Framework

Islamic Banks have their own set of rules based on principles of Shariah, and Shariah governance is a
distinctive structure that is concerned with whether Islamic Banks are abode by the rules of Shariah or

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not. Shariah governance system ensures Islamic Financial Institutions (IFI) are not allowing activities like
Riba, Gharar, Maisir, etc. in their every venture and transaction which are prohibited by the Shariah. It is
an adequate system that inspects how the operations and transactions of IFI’s are maintaining the
guidelines of Shariah [ CITATION Joh10 \l 1033 ] There is no specific Shariah governance system for
which it contains both the elements of typical corporate governance and a mixture of Shariah principles
(The Quran, The Hadis, Izumi, Qiyas). So, the shariah governance system is uncommonly exclusive,
unique and antipode of typical corporate governance[CITATION Dus11 \l 1033 ].
IFSB [ CITATION Ham06 \l 1033 ] standard defined corporate governance as “a set relationship between
a company’s management, its BOD, its shareholders and other stakeholders which provides the structure
through which the objectives of the company are set; and the means of attaining those objectives and
monitoring performance are determined”.
Mizushima[ CITATION TMi13 \l 1033 ] research on sharia law and corporate law partnerships reveals
that Western capitalism is designed to realize social justice and welfare, though these are no primary
purpose. On the other hand, Shariah governance focuses primarily on compliance with Shariah, and its
function at financial institutions looks passive. Shariah governance focuses largely on conformity with
Shariah and its role at financial institutions seems passive. The Shariah Committee or Shariah Board has a
crucial role to play in safeguarding IFIs to conform with the Shariah rule and following the IFIs principle
in the service, business, and processes to comply with Shariah requirements.
Banks appoint Shariah Supervisory Board (SSB) whose responsibilities are administering and monitor the
activities of the banks in ex-ante and post ante basis which is done by Shariah scholars who have
competent education and practical experience of usul al-fiqh and fiqh al-muamalat[ CITATION MFA17 \l
1033 ].
The significance of Shariah supervision is derivative of five separate resources, they are
1. religious,
2. social,
3. economic,
4. legal and
5. governance resources.
The social capital of Shariah oversight gives stakeholders trust about the legality of IFI’s transactions and
activities. The Shariah supervision's economic influence can be observed from the assumption that an
Islamic financial institution's profitability relies on the success of Shariah scholars. As regards legal
authority, it is obtained from several sources including regulators from the respective
countries[ CITATION SMi13 \l 1033 ].
Without a comprehensive SGF, infringement of Shariah may occur which may lead to economic and non-
economic danger.   The application of Islamic principles in Islamic banks places a strong emphasis on the
stable framework and standards of corporate governance, accountability, disclosure, and sound
implementation of Sharia principles. SGF’s main aim is to refine the quality of Shariah Compliance,
shariah governance procedure, liability and independence of the stakeholders, and decision
making[CITATION Ban101 \l 1033 ]. A proper SGF model would bring additional value to Shariah
implementations such as accountability, openness, disclosure, and independence. The hierarchical status
of Shariah oversight under Islamic financial institutions' shareholders reinforces its dominance over other

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governance bodies, thus granting them the power to determine their internal policies including duties,
obligations, and relationships with other government bodies within Islamic financial institutions.
Shariah Governance Mechanisms:
Shariah governance is composed of various internal bodies, namely BOD, SSB, management, the officers
of Islamic banks within the Shariah department. Also, Islamic banks need to have an additional collection
of organizational arrangements in organizations such as an SSB, an internal or external Shariah analysis,
and an internal Shariah enforcement unit to comply with Shariah's religious duty across all aspects of their
business transactions and operations. In the Shariah governance system, SSB's hierarchical structure
differentiates sharia governance from traditional corporate governance. The parties of Islamic banks have
to establish compliance with the laws of Shariah within the organization. BOD is responsible for
enforcing SSB guidelines and overseeing the organizations' corporate practices in compliance with
Shariah values and satisfying the requirements of all stakeholders[CITATION Ham06 \l 1033 ]
[CITATION Ban13 \l 1033 ]. Also, the management needs to provide BOD with the Shariah Compliance
Summary of all activities of the Islamic Bank. [CITATION Ham06 \l 1033 ][CITATION Ban13 \l 1033 ]
Organizations rely on SSB for handling Shariah related issues and receive an opinion on Shariah issues
along with an overall compliance report on the activities [ CITATION JAZ08 \l 1033 ] Shariah officers
and their positions in Islamic Shariah governance structures are highly significant. They support the SSB
to fulfill its duties. SSB shares its view on the ex-post Shariah practices based on the findings of the
Shariah officer. Shariah officers need to qualify for Shariah background the same as SSB[CITATION Gui
\l 1033 ]. SSB should focus on its Shariah advisory role where its duty is Shariah compliance review and
give a Shariah compliance report to the external shariah auditor for the betterment of the shariah
compliance[ CITATION MMH12 \l 1033 ]. The Shariah review assisted by the internal audit unit
addresses the Shariah Compliance issues of products offered and this process requires a sound Shariah
internal control system. This process needs an internal auditor to recheck every step of the Shariah
governance process which includes the conception of the product, product design, product documentation,
product testing, product execution, and product evaluation. Individual SSB’s can resolve matters like the
disputes or conflict of opinion between management and Shariah auditors. [ CITATION AAO10 \l 1033 ]
described shariah review to be a vital part to ensure all the activities are abode by the rules and regulations
of Shariah as reflected in guidelines, fatwa, and pronouncement issued by the SSB. The review process
will be reported as guidelines for the management of IFIs for further action in the form of proper working
papers. Shariah Audit results should be submitted to the SSB at least once in a year which promotes the
harmonization of Shariah practice and minimizes the non-compliance risk of Shariah. (Rahman, 2008;
Shahwan et al., 2010; Uddin et al., 2013) [13,14,15] AAOIFI suggests Shariah review to be made by the
Shariah officer or Shariah committee for the shareholders and to be read at AGM (Annual General
Meeting) along with reporting it in the annual report. [CITATION Sha \l 1033 ] disclosed that the Shariah
review officer compels the process flow to be reviewed along with reviewing incidents of non-
compliance. Shariah review officer will inspect both divisions and division and conduct appropriate
checks, and in the event, if the Shariah review role discovers some instances of non-compliance, they will
provide recommendations and ask the respective branch or section to rectify the mistake. It is more
internal-consultative than audit results, which are prone to reproach or penalize the non-compliant. So, the
whole governance process can be divided into four pillars; which are management and supervision,
shariah compliance and review, Shariah advisory board, and finally transparency and
disclosure[CITATION IMi12 \l 1033 ].

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 This is how the shariah governance system works, in general, to ensure Shariah law enforcement
throughout the Islamic banks.

Reality/Practices Check-in Bangladesh

Islamic Banking History in Bangladesh:

August 1974 first time Bangladesh signed

the charter of the Islamic Development
Bank and dedicated them to transform
their financial and economic system
according to the Islamic system. In 1981
January the late president Ziaur Rahman in
the 3rd Islamic summit said that “All the
Islamic countries should have separate
banking systems for their business and
trading. This indicates a further favorable
attitude in establishing the Islamic
Banking system in Bangladesh. In 1993
after a long time trying the wait came to an end and the first Islamic bank of Bangladesh was established.
Islami Bank Bangladesh Limited was the first Bangladeshi Islamic bank.

Bangladesh is the third-largest Muslim country in the world. Their 90 percent population is Muslim.
They realized as a Muslim majority they should have their Islamic financial system. Currently, there are 8
full-fledged Islamic banks in Bangladesh, 19 Islamic banking branches of 9 conventional banks, and 25
Islamic banking windows of 8 conventional banks.

Bangladesh Islami Banking Guidelines: Though there is no specific act or law in Bangladesh for
Islamic banking there are certain guidelines by Bangladesh bank how to manage Islami Banking in
Bangladesh. Bangladesh Bank has created a long list of criteria on how to set up an Islami bank and
manage it. Here are the rules for Islami banks in Bangladesh on how to obtain their assets and how to
invest them according to Bangladesh Bank.
Deposit Guidelines for Bangladesh Islami Banks: There are two ways in Bangladesh for Islamic Bank
how they can earn deposits and they are
1-Al-Wadeeah Principle: It means a deposit of funds or any asset by a customer. Islamic Banks charges
a maintenance fee for the safekeeping of customers' funds in as per the terms of the agreement. A deposit
in a Wadiah account is a non-profit product.
There are two types of Wadiah. Those are:
1. Wadiah yad Amanah: When a property is deposited in the Islamic bank as a trust.
2. Wadiah yad Dhamanah: It’s a saving for safekeeping in the bank.

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2-Mudharaba Principle: Mudhraba means partnership or partner’s labor and capital. In Mudaraba one
partner will provide capital while other partners will manage the business. The Mudaraba deposits have
mainly 3 types of deposits.
 Mudaraba Savings Deposits (MSD)

 Mudaraba Short Notice Deposits (MSND)

 Mudaraba Term Deposits (MTD).

A lot of different Islami Bank may have determined a lot of different schemes based on this principle.
Some of them are one-time deposit based term saving schemes, Hajj Schemes, Marriage schemes, etc.
Investment Guidelines by Bangladesh Bank for Islami Banks: There are some guidelines for the
Islami Banks too by Bangladesh Bank here some of them.
 Mudaraba

 Musharaka

 Bai-Murabaha (Murabaha to the purchase orders)

 Bai-Muajjal

 Salam and parallel Salam

 Istisna and parallel Istisna

 Ijara

 Ijarah Muntahia Bittamleek (Hire Purchase)

 Hire Purchase Musharaka Mutanaqisa (HPMM)

 Direct Investment

 Investment Auctioning etc.

 Quard

 Quard Hassan etc. (From Bangladesh Bank Website)

Shariah Governance Framework in Bangladesh:

In Bangladesh, Islamic banks are regulated by themselves rather than regulated by the central bank
(Bangladesh Bank). So, it becomes a liability for the BOD and SSB to ensure the implementation of
Shariah law in Islamic banks. Despite the drawbacks of being self-regulated, it can make Islamic banks
more successful in their business endeavors.
Some problems created by the lack of a comprehensive SGF are described below,

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 1. Not properly developed accounting principles and processes
2. Cacophony rather than a proper harmony in the Islamic Financial Practices.
3. Corruption
4. Disorganized Shariah councils resulting in an unsatisfactory follow-up of the status of the Shariah
Law implementation.
5. Imperfect presentation of the SSB report might lead to creating misinformation for the
stakeholders.
6. Disrupts the effective and smooth practice of Islamic Banking.
[ CITATION AAS12 \l 1033 ][CITATION MAh14 \l 1033 ][CITATION AUF14 \l 1033 ]
Along with the Bangladesh Bank’s guideline, Islamic banks follow AAOIFI guidelines to monitor their
banking activities. Every Islamic bank has a separate SSB containing Islamic scholars. SSB is also known
as the Shariah committee, Shariah Supervisory Committee, and Shariah board in Bangladesh. Many of the
19 Islamic banks have a position of SSB in their structure of the organization. Same as full-fledged
Islamic banks, conventional bank windows, and Islamic banking brunches have SSB with prominent
scholars as well. SSB is comprised of a chairperson, vice-chairman, member secretary, and few other
general members. Islamic banks in Bangladesh need to bring a new product concept to the SSB to
examine the product whether it abides by the laws of Shariah or not and after the approval from SSB, they
can further develop the product.
As per the rules of Bangladesh Bank, it is mandatory for the conventional banks’ Islamic Banking
branches/windows to have Islamic Banking division in their head offices, and for the foreign banks, it
should be in the country office situated in Bangladesh. Conventional banks’ Islamic banking divisions
need to coordinate their Islamic banking activities with BB to guarantee proper compliance with the
required rules and regulations. Islamic banking branches/windows also have SSB to monitor Shariah
compliance, and to support SSB, each of the banks needs to have a specified Shariah department or
Shariah secretariat who engages itself to prepare, preserve, and presenting the documents. This is also
known as the Shariah inspection and compliance division. Not all the Islamic banks, Islamic banking
branches/windows have direct communication with the Shariah department, which makes current
practices to become unable to guarantee accountability, independence, and supervising Shariah activities
properly.
In Bangladesh, the SSB monitors Islamic bank activities, Shariah audit review, and Shariah compliance
review and then provide their comments on the banking activities which later on published in their annual
report and then submit it to the BB[ CITATION MFA17 \l 1033 ]. The Islamic banks' individual SSB also
assesses officials' performance in respect of their Shariah enforcement and conducts Shariah inspection to
ensure that the Shariah principles are applied[ CITATION MAl16 \l 1033 ]. Usually, SSB conducts an
audit of the banking activities once or twice a year. But in addition to the full-fledged Islamic banks,
Islamic banking branches and commercial bank windows also have different Shariah audit department
with few officers. This division's officers also known as Muraqib, and they perform the Shariah audit
in most of the cases. The responsibility of the Shariah auditors is to report the SSB by the Shariah
compliance unit[CITATION MFA171 \l 1033 ]. Islamic banking branches/windows’ Shariah auditors
need to report to the SSB and Board Audit Committee. They also separately publish the Shariah audit

11 | P a g e
report along with the traditional report in their annual report. To ensure compliance with Shariah, Islamic
banks perform internal Shariah reviews of activities during and after the operation, closely attributed to
SSB supervision, monitoring, and control. Lastly, Shariah officers contact with the SSB for further
guidelines.

This is how Shariah Governance works in Bangladesh.

Fig: Shariah governance structure in Islamic

banks of Bangladesh[ CITATION MFA171 \l
1033 ].

Reality or Practices Check-in the Context of

Bangladesh:
Until now we talked about the guidelines that
are imposed by Bangladesh Bank. But are the
banks in Bangladesh are abiding by the
guidelines or are they just becoming Islamic bank to get favored by govt guidelines?
Here if we look at the reality of Bangladesh Islamic bank, we can see that Islamic Banking in
Bangladesh is growing at a great pace. But this is happening with practice partial of shariah
because there is no law or exact framework or even if there is any there is a lack of a regulatory

12 | P a g e
body and proper regulatory framework in Bangladesh. It imposes a great threat to the religious
belief of customers. Here are some reality practice checks for Islamic Banks in Bangladesh.
Getting Riba or Interest from Bangladesh Bank:
The first and basics law of Islamic Bank is avoiding Riba or Interest. In Bangladesh Islamic Bank
has to only keep 10% as a reserve of which 5% is cash with Bangladesh bank and the other 5%
can be Bangladesh Bank approved Securities or cash. Traditional Banks Can Earn interest rate on
those deposits But Islamic bank can’t. But still, the biggest Islamic Bank of Bangladesh Islamic
Bank Bangladesh is earning interest From Bangladesh Bank Since 1993. This is completely
against the Shariah Law. Though their excuse is that they donate the interest rate to the Sadaqah
fund[ CITATION Isl201 \l 1033 ].
Insurance with Non-Islamic Insurance Companies and Getting Riba or Interest:
For uncertainty or for any unforeseeable disaster or any financial disaster every bank has to have
insurance. But in Bangladesh, there is no Islamic Insurance company. As a result, they have to deal with
interest beard non-Islamic insurance companies which are completely against Islamic
Shariah[ CITATION Isl201 \l 1033 ].
Not Giving out Enough Loan According to Shariah Law:
Countries total Eight Islamic Bank and other Conventional Banks Islamic windows have just
given out only 2% of their total lending portfolio according to various researchers. Most of the
time they violet shariah Law. Yasin Ali the past professor of the Bangladesh Institute of Bank
Management quoted that Islamic Banks mostly sets a provisional profit rate before getting
deposits and giving out loans. After giving out loans they hardly ever change the rate. He also
stated that those Islamic lenders had confessed this statement after he brought out the topic. He
also stated that those Islamic lenders are fooling their customers in the name of religious belief.
Mr. Ali also was a former executive director at Bangladesh Bank. It shows that they just fix the
profit Rate like any other conventional bank fixes their interest rate [ CITATION Ban20 \l 1033 ].
Using Flexible Shariah Laws:
Another Professor of Bangladesh Institute of Bank Management Md. Alamgir who also conducted
several types of research on Bangladesh Islamic banking sector agreed with Yasin Ali and added
that Islamic banks in Bangladesh are functioning based on flexible shariah law instead of true
shariah law. He pointed out that if a bank follows truly the shariah law they must lend or finance
businesses even if there is a risk. These transactions include Mudharaba and Musharaka principle
it mainly deals with financing based on equity. During its first period, Islami Bank Bangladesh
Limited used to abide by these rules but they started incurring losses. Then they realized this way
they can’t incur profit so they started using flexible shariah rules. Instead of sharing risk, they
started a new method cost plus profit-sharing model. In this mode, the bank will purchase the
goods on behalf of the client, and then they will sell it to the client with added profit. In this
method, they disclose the profit margin and the cost of the purchase to the client which
completely against the shariah law. Furthermore, he observed their process and stated that Islamic
banks going against shariah rules and deceiving their client are inacceptable. They are harming
people’s religious beliefs. The researcher also stated that most of the Islamic banks aren’t even
flowing Bangladesh bank's Guidelines[ CITATION Dha17 \l 1033 ].

13 | P a g e
Islamic Banking practice in Iran
Islamic Banking History and Shariah laws in Iran:
Iran’s modern banking sector has a 95-year history. Foreign banks in Iran dominated the banking sectors
up to the late 1920s, the foreign banks, despite their initial contribution to the introduction of several
financial developments did nothing to encourage indigenous economic growth evolution. In 1960 the
central bank of Iran was established. Thereafter Its powers and obligations were further established by
legislation. The Bank Legislation limited the foreign interest to 40 percent in any bank operating in Iran
(except for the soviet bank, which was established much earlier). The Central Bank subsequently
restricted foreign ownership of new banks to 35 percent.
After the Iranian Islamic Revolution in 1979, all banks along with other financial and industrial
establishments was nationalized, and the central bank governor was established. Today, Iran claims its
banking system is 100% compliant with Sharia law (the highest in any country), far exceeding than any of
Saudi Arabia, Kuwait, and Brunei, all of which are less than 50%.
The Law for Usury (Interest) Free Banking was approved by the council of protectors in September 1983,
which was approved for a variety of reasons including a range of goals and duties applicable to Iran's
banking system, including adherence to Islamic jurisprudence and interest-free lending. That applies to all
lending types, regardless of the currency in which the loan is made.
The Free Banking Act (Interest) also empowers the Central Bank to intervene and monitor monetary and
banking activities in Iran through the following mechanisms:
 Fixing a minimum or maximum ratio of profit for banks in their joint venture and Modarabah
activities (these ratios may vary for different fields of activity).
 Designation of various fields for investment and partnership within the framework of the approved
economic policies, and the fixing of a minimum prospective rate of profit for the various
investment and partnership projects. The minimum prospective rate of profit may vary concerning
different branches of activity.
 Fixing a minimum and maximum margin of profit, proportionate to the cost price of the goods
transacted, for banks in installment and hire-purchase transactions.
 Determination of the types, and the minimum and maximum amounts, of commissions for banking
services and the fees charged for putting to use the deposits received by banks.
 Determination of the minimum and maximum ratios in the joint venture, Modarabah, investment,
hire-purchase, installment transactions, buying or selling on credit, forward deals, and customer
deposits concerning various fields of activity, and fixing the maximum facility that can be granted
to each customer[ CITATION Ham16 \l 1033 ].

Shariah Boards exist in all Islamic countries except the Islamic Republic of Iran, where the central
bank guarantees and monitors compliance of the whole banking system with Shariah law.[CITATION
VHI08 \l 1033 ]. Therefore, one can say that Iran doesn’t follow the Islamic shariah framework properly.
The practice of Islamic banking in Iran:
Several questions arise regarding the practice of Islamic banking which involves - bank activities, the
process of money (deposit) creation, international banking relations, government lending and borrowing

14 | P a g e
from financial institutions, the monetary policy of the central bank, and how capital the capital market
works in Iran. All the questions will be answered.
Like all the normal commercial banks, Islamic banks aren’t allowed to accept demand deposits the same
way, they accept deposits without paying any interest on them. Using Islamic terminology, this is called
Qard al-Hasanah, It means the borrower only repays the principal amount. Because the Quran forbids
paying or receiving interest, a borrower may as a token of appreciation choose to pay an extra amount to
the lender, which is over the amount they borrowed, but this is not something they must do. Qarz of-
Hashanah is the only permissible loan in Islamic finance.
In Iran, there are various modes of financing in Islamic Banking which are completely Interest-free. These
are, Mudarabah, Mosharekat, Installment Sale, Lease (Purchase contracts), Mozareh, Mosaqat,
Jo'aleh, and Direct Investment. All of them will be mentioned below:
Mudarabah already has been explained in above, we now will look at how the Mudarabah works in Iran.
The estimated rate of profit (Shabani and Farzinvash 2003, pp. 74–108)1 is not known but The Central
Bank (Bank Markazi Iran) however does set the minimum estimated profit rate for policy and resource
allocation purposes. This form of agreement is used for any commercial operation in the short term except
for imports which are currently prohibited. The estimated benefit rates set for such activities by Bank
Markazi Iran are 12 percent for domestic trade and imports (when legal), and 8 percent for export
agreements. Setting the estimated profit rates for imports and exports would allow the potential use of
Modarabah agreements for imports and exports if the government chooses to lift the aforementioned ban.
The maximum amount for a contract between a bank and an individual engaged in the business is Rls. 50
million; Rls is the limit for a banking contract with an incorporated. 500 million (Hassan & Nasrin 2003,
pp. 42–46; Zangeneh 2004, pp. 127). Setting the expected profit rates for imports and exports will allow
future use of Modarabah agreements for imports and exports, whenever the government decides to relax
the previously mentioned prohibition. The maximum amount for a contract between a bank and a person
engaged in commercial activities. 50 million Rls and the maximum for a banking contract with a
corporation 500 million Rls [CITATION ZHa03 \l 1033 ].
Musharakah (Mosharekat) is a partnership arrangement between the bank and an individual or a firm to
start a new line of business. Currently, the rates are 6% for agricultural projects; 8% for mining and
industrial projects; 10% for housing and construction; 12% for commerce and services. Besides the
minimum required profit rates that can be manipulated by the Central Bank for policy purposes (setting
the country’s priorities), the maximum amount of the bank’s share in a project can also be used as a policy
variable. Currently, the maximum amounts are one billion rials for agriculture, one billion rials for
mining, 500 million rials for services, and 500 million rials for commerce[ CITATION Cen20 \l 1033 ].
Under the partnership contract, there is also Legal partnership (The bank provides funds for the
customer who co-invests in cash or kind, for a specific economic activity and the profit is shared between
the two parties) and Civil partnership (The bank provides part of a new company's capital or buys the
company's shares. Companies are eligible to receive legal partnership facilities if operative in fields of
construction, manufacturing, commerce, and service industry)
Installment sales are another type of service a bank can offer to its customers. A bank can buy and resell
tools, raw materials, machinery, houses, or any business inventory on an installment basis, and thus earn a
profit. Currently, banks are not allowed to fund installment sustainable consumer goods. Currently, the
profit rate for installment sales of equipment and replacement parts is 4% and the profit rate of equipment
is 8% for agriculture and mining, respectively. The maximum amount of installment loans is Rls. 50

15 | P a g e
million and Rls. 3 billion, for individuals and corporations, respectively. In the service sector, the rate of
return on machines acquired on an installment basis is 10%. Currently, Iranian banks require a 10% down
payment for agricultural machinery, 15% for mining and industrial machinery, and 20% down payment
for machinery used in the service sector[CITATION NMa03 \l 1033 ].
Home financing involves more than other forms of installment sales. As regards housing construction,
the applicant can borrow up to 80 percent of the cost of the project to complete a building project. When
the project is complete which shouldn’t be more than 10 years, then the bank will charge a maximum of
10% profit yearly to the money that was borrowed during the construction period. The contractor will pay
the full sum at that time and the bank will unlock the mortgaged loan. If the borrower decides to repay the
borrowed money over a long period, i.e. on an installment basis, the bank will add to the borrowed money
6 or 10 percent profit per year (6 percent for those with a savings account and 10 percent for others), and
the property will remain mortgaged until all the debt is fully repaid [ CITATION Ehs08 \l 1033 ].
The Lease-Purchase contract (Hire Purchase) is a system that allows a bank to purchase and lease
premises, machinery, and equipment. The lessor (the bank) shall move the property (moving or
immovable property) to the lessee at the end of the lease term. The profit rate currently stands at 6–8
percent for agriculture, 8–10 percent for mining and manufacturing, and 10–12 percent for service. The
maximum amount of a contract in the industry is Rls. 100 million and Rls. 50 million for the service
sector. The maximum contracted amounts are Rls. 500 million for the service sector and Rls. 3 billion for
the industrial sector. There is a 20% down payment requirement for these contracts.
Jo’aleh is a service contract according to which one party (Ja’el) purchases another party’s (Amel or
contractor) services for a specified commission (Jo’al). The bank may function as either Ja’el or Amel
depending on the situation and the need of the customer.
Direct Investment is another way that a bank can engage in whatever activities it deems desirable for
economic development, or in response to a social concern. Direct investment, however, occurs only as
long as the project is not designed to produce luxury and/or unnecessary goods and services. The
minimum profit rate required to justify direct investment is set by the Currency and Credit Council of
Iran.
In Iran, Banks also issue bond/debt but not the way normal commercial banks do, In Iran, they issue
Sukuk, it is an Islamic financial stamp, equivalent to a Western finance bond, which is compliant with
Islamic religious law generally known as sharia. Since the conventional Western interest-paying bond
arrangement is not acceptable, a Sukuk issuer effectively sells a certificate to an investor group, and then
uses the proceeds to buy an asset in which the investor group has a direct partial ownership interest.
Sukuk is a very famous instrument in Iran, according to Press Tv, Iran allows $1.12bn of Sukuk bonds to
be sold under the current budget. That’s is an insignificant amount of money and that clearly shows how
popular the Islamic bonds are in Iran[ CITATION Pos20 \l 1033 ].

16 | P a g e
 METHODS IN
PERCENT
LEASE-PURCHASE 9.5
INSTALLMENT SALE 18.4
CIVIL PARTNERSHIP 17.5
Table:
MUDARABAH 19
JO’ALAH 6.6
LEGAL PARTNERSHIP 8.7
DEBT PURCHASING (SUKUK AND OTHER 11.2
ISLAMIC BONDS)
OTHERS 9.1
TOTAL 100

Methods for providing financial resources to individuals and businesses (Source:

Iranian central bank report)

Difference between Bangladesh and Iran’s shariah banking exercise:

Both in Iran and Bangladesh, they follow many similar types of financing methods but having said that,
there are major differences between the two countries regarding how they imply them. Some of the
difference will be mentioned below:
1. They have five additional modes in Iran in the category of profit loss, they are a civil partnership,
legal partnership, direct investment, mozaarah, and mosaqat. While civil partnership, legal
partnership, and direct investment deal with the legal aspects of new venture development, both
mozaarah and mosaqat are agricultural financing methods. While none of those financing modes
are widely available in Bangladesh.
2. In Iran, debt purchasing also knows as Sukuk is a very famous financing instrument. The Iranian
government has a huge percent of budget very year on issuing Sukuk. The same can’t be said for
Bangladesh as only a limited amount of short-term government Islamic bonds are being issued so
the full potential of Sukuk in Bangladesh is yet to be unlocked [ CITATION The19 \l 1033 ].
3. Iran has a Riba-Free Banking act for all the banks which was established in 1983, under this act all
the banks has to maintain a certain amount of principle, whereas in Bangladesh there is no such
action has been imposed till this date, though Bangladesh Bank has created a long list of criteria
how to set up Islamic bank and manage it. Though the criteria are not sufficient enough to produce
good Islamic banking practices. (In the limitations and recommendation part there will be more
discussion regarding it)
4. In Bangladesh Islamic banks' investment modes are strongly biased toward marked-up and rental-
based financing modes (Murabaha, bai-muajjal, and ijara), which account for over 90 percent of
total investment. In Iran’s case, they use various sorts of modes. Which we already have discussed
above.
17 | P a g e
 Others Musharaka Mudaraba
Ijara 4.27% 1.47% 0.05%
6.06%
HPSM
17.00%

Bai-IsYsnaa
0.14%
Bai-Muajjal Bai-Murabaha
24.90% 44.06%

Figure: Mode-wise Investment (June 2014) [ CITATION Res14 \l 1033 ]

5. Iranian banks involve all sorts of trading, commodity finance, real estate development, and
leasing. The main financial instruments used are Murabahah, Mudarabah, Musharakah,
Muqaradah, Ijarah, Salam, and Istisna.
6. In Iran, all the banks have to maintain a certain level of laws to use the financial instruments, for
example: For saving accounts here are short-term investment deposits requiring depositors to leave
their resources at the bank for at least three months and requiring a minimum deposit of 2,000
Rials. For those persons with more money available for deposit at least 50,000 Rials, these are
long-term investment accounts that are willing to part with their money for at least one year. In
Bangladesh, there are no such specific rules, the central bank changes the rates quite frequently.
7. According to ILIA, 20 Iranian banks have been listed on the Tehran Stock Exchange in Iran and In
Bangladesh, till now there is no Islamic bank that has issued equity in the stock exchange.
[ CITATION Isl202 \l 1033 ].

18 | P a g e
Limitations
1. Banking Philosophy: There seems to be a huge gap between ideologies and actual practices
differences in the Bangladesh Islamic banking system. All the current research shows that there is no
progress happening in this regard. Though this is mainly happening because of the influence of
conventional banks. It is a very crucial issue because now a day’s people at the mass level finds hardly
any differences between operations of conventional banking and Islami Banking. If this continues for a
longer period Islami Banks will lose all the credibility they earned throughout the years.
2. They Gets Interested from Bangladesh Bank On their Reserves: Islami Banks Has to maintain
certain levels of their deposit as reserves. 5% of those reserves are cash with Bangladesh Bank and rest
5% are either cash or Bangladesh bank approved securities. They get interested in these reserves.
3. Islamic Insurance Company: According to Bangladesh bank every bank has to have insurance against
the uncertainty of the financial market or financial hazards. In other Islamic countries, there are Islamic
Insurance Companies. Because there is no Islamic Insurance Company in Bangladesh Islami Banks has to
deal with conventional interest-based Insurance Companies.
4. Regulatory Problems: There is no proper corporate governance and legal framework for Islamic
banks. [ CITATION AUF14 \l 1033 ]Bangladeshi Islamic banks are not able to use their high
capitalization to increase profitability because of smaller sized banks, low efficiency, lack of specific
regulatory framework. There is also no proper guideline by BB to specify a required Shariah compliance
with the purposes of SSB. Also, BB doesn’t formally recognize Central Shariah Board for Islamic Banks
for Bangladesh (CSBIB), thus Islamic banks don’t abide by the resolutions of CSBIB.
There is a lack of qualified Shariah scholars in Bangladesh, thus making it more difficult for SSB to
conduct its duty.
5. Practical Problems: From the SSB annual reports, it can be observed that SSB’s were dissatisfied by
the lack of Shariah implementation in the activities of the bank as both owners and the management are
not abode by the Shariah principles [ CITATION AUF14 \l 1033 ] Islamic banks in Bangladesh don’t
fully follow the Shariah, which makes the overall Islamic banking system less impactful. Management of
the banks is not proactive about Shariah law. SSB’s are not positioned in a good manner resulting in low
monitoring quality of Shariah compliance.
6. Shariah Audit: Shariah audit differentiates Islamic banks from the conventional banks, but none of
the Bangladeshi Islamic banks are not properly compliant with the AAOIFI’s Shariah governance system
as none of them is comprised of audit and governance committee in their corporate governance level.
There is a lack of sincerity in these banks, thus making an audit less useful[CITATION JUl14 \l 1033 ].
Shariah auditors in Bangladesh perform both Shariah review and risk management, so full-fledged
Shariah Audit remains absent in the Islamic banking scenario in Bangladesh.

19 | P a g e
Recommendations

1: To tackle the banking philosophy issues the first thing they should do is improve their image of Islamic
banks through promotion. The right strategy should be chosen carefully so that their Islamic characteristic
and bank works are promoted at the same time. To improve their situation, they can follow these methods.

a. They can start new innovative schemes based on profit-loss sharing mode in some selected areas.
This strategy will serve them as a reference to the public that they are ready to be transformed. It
will help boost their image to the public and they will gain experience from this and learn what
caviar is there on profit-loss sharing mode.
b. They should boldly show the public through their actions that their motives are truly guided by the
profitability, not on interest-based function.

2: The first and most important rule of Islamic bank is excluding Riba or Interest from their activity. But
if we look at some of the Islamic Banks like Bangladesh Islamic Bank Bangladesh Limited they are
getting interested in their reserves from Bangladesh Bank since 1993. They claim that they don’t add it to
their profit and donates this interest rate to the Sadaqah fund. But still, they should stop getting involved
in these types of activities which raises questions about their motives.
3: There should be a separate independent operating system for Islamic Banks in the economy. Or else
whenever it will try to operate under the existing framework of conventional banks problems like lack of
an Islamic Insurance Company will arise. As a result, they will lose their efficiency. So, if Govt wants to
reduce these types of problems in the future then they should revise the existing framework and make it
suitable for the Islamic Banks.
4. Bangladesh's Government should enact independent and detailed laws to run and enhance Islamic
banking as well as provide Islamic banks with proper guidelines regarding Shariah corporate governance.
A separate section should be opened in BB to regulate operations of Islamic banks, thus creating a
Centralized Shariah Supervisory Board (CSSB). BB should also recognize CSBIB to make its resolutions
mandatory for all Islamic banks.
5. The BOD, SSB, Management in Islamic banks should be more active in the implementation of shariah
rules to enhance current Shariah compliance. A proper system of monitoring and supervision can enhance
the quality of Shariah compliance. More essential, in this situation, is SSB's freedom. The responsibility
of the relevant parties will improve the excellence of SGF.
6. The Centralized Shariah Governance Framework (CSGF) will strengthen the Sharia monitoring system,
the Shariah risk management system, and the Shariah examination system and guarantee that all
necessary information is reported to the Shariah non-compliance unit. The central bank will implement an
external Shariah audit and examination system to improve the trust of investors, depositors, lenders, and
the general public and to protect the high quality of the SG process by giving the authority to the CSSB or
a privately sanctioned body in time.
7. There is no separate act regarding Islamic banking in Bangladesh, The Bank of Bangladesh exercises
authority over Islamic banks as central bank under certain clauses incorporated in the Bank Company Act
of 1991 (last amended in 2013) which are used for the control and supervision of traditional banks based
on interest. Moreover, Islamic banks' operations based on the principle of profit and loss sharing (PLS) do
not in fact come under full jurisdiction under existing civil laws. As a result, the civil courts are not

20 | P a g e
equipped to handle disputes arising from Islamic Banking operations in Bangladesh. with a sperate a act
the Islamic banking will be more efficient.

21 | P a g e
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