How ‘Islamic’ are Islamic Banks in

Bangladesh?
A Study on “Islami Bank Bangladesh Ltd”

Group 11, Section B

1
 A Reporton:
How ‘Islamic’ are Islamic Banks in Bangladesh?

A Study on Islami Bank Bangladesh Ltd.

COURSE NAME: Islamic Economics and Banking

COURSE CODE: B – 401

Submitted to:
Tasneema Khan
Assistant Professor
Department of Banking & Insurance
University of Dhaka

Submitted by:
Ashak Ahmed (05)
Mahfuzur Rahman (09)
Any Ghosh (33)
Auishee Barua (39)
Sharul Islam Shafin (141)

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Inzamam Haidar Khan (175)

Acknowledgement:
Date of submission: March 14, 2023
At First, we would like to thank the Almighty for giving us such courage to complete this Report within
due time. We are indebted to our honorable course teacher Tasneema Khan for assigning us such an
interesting topic named “How ‘Islamic’ are Islamic Banks in Bangladesh? A Study on “Islami Bank
Bangladesh Ltd”. We are also grateful to our Course Instructor for her suggestions and guidelines, which
helped us a lot in completing this Report Paper.

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Letter of Transmittal

March 14, 2023

Tasneema Khan

Assistant Professor

Department of Banking and Insurance

University of Dhaka

Dear Teacher,

With due respect, we state before you that, as per your instructions, we have successfully completed our
report on “How ‘Islamic’ are Islamic Banks in Bangladesh? A Study on “Islami Bank Bangladesh
Ltd”. – which is based on the different Financial aspects and Shariahaspectsof Islami Bank Bangladesh
Ltd. While preparing the report, we have come to learn a lot about different areas of Islamic Economics &
Bankingand related affairs to this theme.

We thank you very much for letting us have the opportunity to work on the report and hope to meet your
expectations and standards.

Yours Obediently,

Ashak Ahmed (05)

Mahfuzur Rahman Rijvi (09)

Any Ghosh (33)

Auishee Barua (39)

Sharul Islam Shafin (141)

Inzamam Haider Khan (175)

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Executive Summary

Our topic is to find out at what extent does current Islamic banking operation adhere to the ideal practice,
and how different are they from conventional banking in Bangladesh? In the report we have described the
whole Islamic banking system based in the activities of Islamic bank Bangladesh limited (IBBL). We
have described Islamic concept of deposits, Investment, of bank and how they manage and deposit and
investment of money, deposit products and we have measured the performance on El Hawary’s “Fourfold
Taxonomy” based on its four characteristics. To describe this, we have presented the necessary table,
graph and figure of bank.

In the first chapter we have shown that the background of the study, broad objective, specific objective,
scope objective, scope of study and rational study so that the main objective of our report would be clear.

The second chapter we have given the overview of Islamic bank Bangladesh limited (IBBL) which
includes mission, vision, values, commitment so that the concept of IBBL in as an Islamic banking would
be clear.

In the third and fourth chapter we have done some theoretical studies about the Islamic banking system in
Bangladesh and the history of Islamic banking together with we have given methodology which is given
us a clear view form where we have taken out data (Both qualitative and quantitative) for our analysis.

In the fifth chapter we have done the most important part of our report which is analysis. For analyzing
we have taken into account IBBL products and services (deposit products and Investment modes) and we
have also compared between conventional banking and Islamic banking. We have also measured the
performance of IBBL based on El Hawary’s “Fourfold Taxonomy” and at last we have shown the
challenges, constraints faced by IBBL and their response and the analysis of the effectiveness of the
solution.

Finally, we have given the conclusion where we have presented our outcome which we have got from the
whole analysis part which says how an Islamic bank emphasis on the viability and economic significance
of Islamic finance was made rather than a push for a religious agenda.

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Table of content

6
 Chapter: 1
Introduction

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1.1 Background of the Study:
Islamic banking is a financial system that operates according to Islamic principles and values, which
prohibit the payment or receipt of interest (riba), and emphasize profit and loss sharing, risk sharing, and
social justice. Islamic banking has gained popularity around the world in recent decades, including in
Bangladesh, where it has become an important part of the financial sector. Islamic banking in Bangladesh
started in 1983 with the establishment of Islami Bank Bangladesh Limited (IBBL), which is the largest
Islamic bank in the country and the second-largest overall.

The growth of Islamic banking in Bangladesh has been driven by several factors, including the increasing
demand for financial services that comply with Islamic principles, the government's support for the
development of the Islamic banking sector, and the increasing awareness among Muslims about the
benefits of Islamic banking.

Despite the rapid growth of Islamic banking in Bangladesh, there have been concerns about the extent to
which Islamic banks are adhering to the principles and values of Islamic finance, and whether their
practices are significantly different from those of conventional banks. Some experts argue that many
Islamic banks in Bangladesh are not practicing true Islamic finance and that they are simply rebranding
conventional banking products with Islamic terminology. This raises questions about the authenticity and
credibility of the Islamic banking sector in Bangladesh.

Therefore, the purpose of this study is to evaluate the extent to which Islamic banks in Bangladesh adhere
to the ideal practice of Islamic banking, with a particular focus on IBBL, the largest Islamic bank in the
country. The study will use El Hawary's Fourfold Taxonomy to measure the performance of IBBL in
terms of risk-sharing, materiality, avoidance of exploitation, and financing of sinful activities, and
compare it with the practices of conventional banks in Bangladesh. The findings of this study will provide
insights into the authenticity and credibility of Islamic banking in Bangladesh and help identify areas for
improvement in the practices of Islamic banks.

1.2 Objective of the Study:

1.2.1 Broad Objective:

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The broad objective of this study is to evaluate the extent to which Islamic banks in Bangladesh adhere to
the ideal practice of Islamic banking, and how different they are from conventional banks in Bangladesh.
The study will focus on Islami Bank Bangladesh Limited (IBBL), the largest Islamic bank in the country,
and use El Hawary's Fourfold Taxonomy to measure its performance in terms of risk-sharing, materiality,
avoidance of exploitation, and financing of sinful activities.

1.2.2 Specific Objectives:

In order to achieve the broad objective of the study, the following specific objectives will be pursued:

 To examine the history and development of Islamic banking in Bangladesh and its contribution to
the financial sector of the country.
 To identify and discuss the key principles and values of Islamic banking and the criteria for
evaluating the performance of Islamic banks based on El Hawary's Fourfold Taxonomy.
 To critically evaluate the practices of IBBL in relation to the ideal practices of Islamic banking,
based on El Hawary's Fourfold Taxonomy.
 To compare the practices of IBBL with those of conventional banks in Bangladesh in terms of the
Fourfold Taxonomy, and identify the similarities and differences.
 To identify the challenges and opportunities facing Islamic banking in Bangladesh, and suggest
strategies for improving the practices of Islamic banks to ensure the authenticity and credibility of
the sector.
 To contribute to the existing literature on Islamic banking in Bangladesh and provide insights for
policymakers, practitioners, and researchers interested in the development of the Islamic banking
sector.
 By achieving these specific objectives, the study will provide a comprehensive assessment of the
performance of Islamic banks in Bangladesh and contribute to a better understanding of the
challenges and opportunities facing the Islamic banking sector in the country. The findings of this
study will also be useful for policymakers, regulators, and practitioners in the financial sector
who are interested in promoting the growth and development of Islamic banking in Bangladesh.

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1.3 Scope of the Study:

Islamic banking is spreading rapidly in Bangladesh.in before Islamic banking services were provided
byonly through the Islamic banks but now a days it is maintained by other conventional banks also.
Allconventional banks maintain a branch or section that provide Islamic banking services because
people arenow concern about pls basis banking and interest which is prohibited in Islam (Arif,
2016). In Bangladesh Islamic banking can create a better business position by:

 Maintaining a reorganized financial system: Islamic banks should not be floated within
theconventional banking framework. Operational mechanism of conventional banks need
to be re-
examinedandconvertedintoplssystemconsideringbeneficialimpactofthelatterontheeconomy.
 Establishing new banking philosophy for the Islamic banks:reports, booklets, bulletins
andpostersshould beexpressedto establishactualpracticeof islamic banks.

 Creatingfuturepolicyandstrategy:
strategiesshouldbedevisedsothatpromotionoftheimageofislamic banks as pls banks can be
occurred.
 Steppingfordistributionalefficiencyandpromotionallocativeefficiency:
Inplsbasisbankingislamic banks should be selective in choosing clients for financing under
pls modes and shouldestablish direct functional relationship between the income of the
depositors and income of thebanks.
 Practicing modern banking policies and practices: islamicbanks should adapt functioning
inlinewith modern businesspracticesto survive inthegrowingbankingcompetition.
 Government and central banks responsibilities and support: as islamic banking is
importantnow a days so government should take necessary steps to ensure financial
legislation, policies andrulestoimplement asupportiveworkingenvironment sothat
islamicbankscanrunsmoothly.
 Inter-islamic bank cooperation and effective plan: All islamic bank should step up to
supportoneanother and adoptaperspective plan.

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1.4 Rationale of the Study:

The rationale for this study is to provide a comprehensive assessment of the practices of Islamic banks in
Bangladesh and their adherence to the principles and values of Islamic banking. Bangladesh is a
predominantly Muslim country, and Islamic banking has gained popularity in recent years as an
alternative to conventional banking.

Islami Bank Bangladesh Limited (IBBL) is the largest Islamic bank in Bangladesh and has been operating
in the country for more than three decades. As the pioneer and leader of Islamic banking in Bangladesh,
IBBL has played a significant role in promoting the growth and development of the sector in the country.
However, there is a need to evaluate the extent to which Islamic banks in Bangladesh adhere to the
principles and values of Islamic banking, and how different they are from conventional banks in the
country (Shahnewaz, 2016).
El Hawary's Fourfold Taxonomy is a widely accepted framework for evaluating the performance of
Islamic banks based on their adherence to the principles and values of Islamic banking. By using this
framework, the study will provide a comprehensive assessment of the practices of IBBL and compare
them with those of conventional banks in Bangladesh. The study will identify the similarities and
differences between the practices of Islamic and conventional banks in terms of risk-sharing, materiality,
avoidance of exploitation, and financing of sinful activities.

The findings of this study will be useful for policymakers, regulators, and practitioners in the financial
sector who are interested in promoting the growth and development of Islamic banking in Bangladesh.
The study will contribute to the existing literature on Islamic banking in Bangladesh and provide insights
for researchers interested in the development of the Islamic banking sector in the country.

Overall, the rationale for this study is to provide a comprehensive assessment of the practices of Islamic
banks in Bangladesh and their adherence to the principles and values of Islamic banking, using El
Hawary's Fourfold Taxonomy as a framework (Sultana, 2023). The study will contribute to the
understanding of the challenges and opportunities facing the Islamic banking sector in Bangladesh and
provide insights for policymakers, practitioners, and researchers interested in promoting the growth and
development of the sector.

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1.5 Limitations of the Study:

While this study aims to provide a comprehensive assessment of the practices of Islamic banks in
Bangladesh and their adherence to the principles and values of Islamic banking, there are several
limitations that should be considered. These limitations are as follows:

 Limited Scope: This study focuses on the practices of Islami Bank Bangladesh Limited (IBBL),
the largest Islamic bank in Bangladesh, and compares them with conventional banks in the
country. The findings and conclusions of the study may not be generalizable to other Islamic
banks in Bangladesh or other countries.
 Data Limitations: The study relies on secondary data sources such as annual reports, financial
statements, and other relevant publications of IBBL and other banks in Bangladesh. The
availability and reliability of data may be limited, and the study may not be able to capture all
relevant information about the practices of Islamic and conventional banks.
 Time Limitations: The study covers a period of five years from 2016 to 2021, which is the latest
period for which data is available. The findings and conclusions of the study may not reflect the
current practices of Islamic and conventional banks in Bangladesh.
 Subjectivity: The assessment of the practices of Islamic and conventional banks is based on El
Hawary's Fourfold Taxonomy, which is a widely accepted framework but may be subject to
interpretation and bias.
 Legal and Regulatory Issues: The study does not address any legal or regulatory issues related to
Islamic banking in Bangladesh. The findings and conclusions of the study may not reflect the
impact of legal and regulatory frameworks on the practices of Islamic and conventional banks in
the country.

Despite these limitations, this study provides valuable insights into the practices of Islamic and
conventional banks in Bangladesh and their adherence to the principles and values of Islamic banking
(Choudhury, 2020). The findings of the study may be useful for policymakers, practitioners, and
researchers interested in promoting the growth and development of the Islamic banking sector in
Bangladesh

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 Chapter: 2
Overview of
Islami Bank Bangladesh Ltd.

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Islami Bank Bangladesh Ltd.

Islami Bank Bangladesh Limited (IBBL) is the first and largest Islamic bank in Bangladesh. It was
established in 1983 with the objective of promoting Islamic banking and finance in the country. The bank
operates in accordance with the principles of Shariah, which prohibit interest-based transactions and
promote profit-sharing and risk-sharing.

IBBL has a wide network of branches and subsidiaries throughout Bangladesh and is known for its
innovative and customer-centric approach to banking. The bank offers a range of products and services,
including deposit accounts, investment accounts, trade finance, and remittance services. It also provides
financing for various sectors, including agriculture, industry, real estate, and small and medium-sized
enterprises (SMEs).

IBBL is committed to social responsibility and has a number of initiatives in place to support education,
health, and other social causes. The bank has received several awards and recognitions for its contribution
to the development of Islamic banking in Bangladesh and its commitment to social responsibility.

IBBL's success and growth in the Islamic banking sector of Bangladesh can be attributed to its strict
adherence to the principles of Shariah, as well as its commitment to ethical business practices and
customer service. The bank has established a Shariah Supervisory Committee, which ensures that all its
activities and operations are in compliance with Shariah principles (Amin, 2018).

In addition, IBBL has implemented a number of innovative products and services to cater to the diverse
needs of its customers. For instance, the bank offers a unique investment product called Mudaraba Term
Deposit, which allows customers to earn profit on their investment while ensuring the safety of their
funds. IBBL has also introduced various digital solutions, such as internet banking, mobile banking, and
online remittance services, to enhance the convenience and accessibility of its services for customers.

IBBL's focus on social responsibility is also noteworthy. The bank has established a dedicated
CSR wing that oversees various initiatives in the areas of education, healthcare, poverty alleviation, and
disaster management (Khan, 2016). IBBL also operates a charitable foundation, Islami Bank

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Foundation, which provides financial assistance and support to underprivileged individuals and
communities.

In conclusion, IBBL's commitment to Shariah compliance, innovation, customer service, and social
responsibility has helped it to establish itself as a leader in the Islamic banking industry in Bangladesh.
The bank's success and growth over the years reflect its ability to adapt to changing market conditions and
customer needs, while remaining true to its core values and principles.

Mission:

To establish Islamic Banking through the introduction of a welfare-oriented banking system and also
ensure equity and justice in the field of all economic activities, achieve balanced growth and equitable
development in through diversified investment operations particularly in the priority sectors and least
developed areas of the country. To encourage socio-economic upliftment and financial services to the
loss-income community particularly in the rural areas.

Vision:

 Their goal is to consistently outperform industry standards in terms of financial performance and
to be recognized as a premier Islamic bank.
 In order to ensure the stability of financial systems, it is their mission to establish and maintain
modern banking practices, to ensure the soundness and development of the financial system
based on Islamic principles, and to become a powerful organization with highly motivated
employees who work for the benefit of society.
 They will make an effort to promote direct investing of savings.
 They will also make an effort to promote investment, especially in initiatives that are more likely
to increase jobs.

Values:

 Have faith in Allah

 strict adherence to Islamic law highest quality of integrity, honesty, and moral welfare Banking
Justice and Equity

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  Environmental awareness
 Individualized Service
 Use of New Technologies
 Accountability, Transparency, and Appropriate Delegation

Commitments

 To Shariah
 To the Regulators
 To the Shareholders
 To the Community
 To the Customers
 To the Employees
 To other stakeholders
 To Environment

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 Chapter: 3

Theoretical Discussion

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3.1 Islamic Banking

Islamic banking refers to a financial system that carries out banking and commercial operations in
accordance with the rules and guidelines of Islamic Shari'a. It adheres to the ideals and standards of
Islamic law governing commerce and business, also known as fiqhal-muamalat or Islamic laws on
transactions. The foundation of fiqhal-muamalat (Islamic jurisprudence) is formed by the Quran, the
Sunnah, and additional sources of Islamic law such Ijma' (agreements reached by scholars of Shari'a),
Qiyas (analogy), and Ijtehad (personal reasoning).

Islamic banking stays away from all unlawful practices including riba (usury-interest), gharar
(uncertainty), and financing of haram (illegal) trades and businesses like the sale of alcohol, pornography,
and gambling, among others.

Islamic banking is fundamentally different from regular banking in that it is founded on Shari'ah
principles, whereas conventional banking is wholly man-made. As a result, every part of transactions,
including product features and commercial strategies, are based on Shari'a law, which makes them
significantly different from those of regular banks.

While being a for-profit company, the Islamic bank does not compromise on the Islamic Shari'a laws.
Islamic banking is a system of trade where goods and services are sold and capital is invested by taking
risk in order to make profits that are compliant with Shari'a, as opposed to traditional interest-based
banking, which is focused on pricing, exchanging money, and earning interest. It is based on a Quranic
edict that says that while riba is forbidden, trade is acceptable.

3.2 History of Islamic Banking

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In Pakistan, a local Islamic bank was founded in a rural location in the late 1950s, marking the first
attempt to establish an Islamic financial organization. The bank charged a nominal fee to cover operating
costs, but borrowers did not pay interest on the credit that was advanced. The failure was due to two key
problems, despite the fact that the experience was positive. Secondly, because bank deposits had to be
kept for a long time, depositors—who were primarily landlords—found that the difference between the
capital available and the amount of credit sought had grown significantly as the number of borrowers
increased(Arif, 2016). Second, the depositors expressed a great deal of interest in how their money was
used as collateral, but because the bank employees did not have complete control over the bank's
activities, they were not always able to satisfy the customers.

From 1963 and 1967, Egypt undertook the second Islamic banking experiment by establishing the
MitGhamr Savings Bank in a remote section of the Nile Delta. The same Islamic principles of charging
neither interest to depositors nor borrowers guided the bank's operations. The borrowers deposited
deposits in the bank for credit privileges, unlike the Pakistani situation (Ahmed, 2013). In order to create
a network of neighborhood savings banks, additional branches were quickly built in various regions of
Egypt based on the experiment's success.

Islamic banking began to take off after Egypt in 1963 in Malaysia and 1975 in Dubai. The awarding of a
license to an Islamic bank in Saudi Arabia was a significant advancement in Islamic banking. This bank
was founded by the 50-year-old Al-Rajhi Corporation, a business known for its currency, exchange, and
business operations and with assets worth more than $5 billion. Under the name Al-Rajhi Banking
Investment Corporation, the bank began operations in 1985. Afterwards, it actively cultivated connections
with various US corporations as well as significant European manufacturing and trading firms. The Saudi
government decided to adopt full-fledged Islamic banking as a result of Al-ability Rajhi's to do so
profitably in other parts of the world. Islamic Development Bank was established in 1975 by Muslim
nations as a transnational business to aid in the social and economic development of Muslim countries
within an Islamic framework. A member of the Islamic Development Bank is Bangladesh.

3.3 Principles of Islamic Banking

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  Based on Sharia – The Sharia, or the Islamic law, is based on the holy scripture of Islam, the
Quran. Hence, conventional banking practices, like collecting interest payments from creditors, or
Riba, are prohibited under the law.
 Profit and loss sharing – Since banks do not collect interest, their source of revenue is the profit
offered by their clients. And when the clients do not make a profit or suffer a loss, the bank
suffers too.
 Trading – Sharia restrictions on trading are comparatively lesser. However, gambling and high-
risk transactions or investments are prohibited. Speculation is also restricted in Islamic finance.
 Investing – Banks, when investing in businesses, verify their compliance with the Sharia. Hence,
they do not invest in companies participating in illegal or forbidden activities


3.4 Islamic Banking in Bangladesh

A significant public desire for interest-free financial transactions and a profit-loss sharing mechanism has
contributed to the impressive expansion of Islamic banking in the nation during the past several years. A
tremendous growth and spread of the system throughout the nation may be witnessed in the large
increases in deposits and investments made through Islamic banking throughout time. Data from the
Bangladesh Bank shows that the total amount of Islamic banking deposits increased dramatically from Tk
1,57,492 crore in 2015 to Tk 1,13,360 crore in 2013, reaching Tk 4,21,375 crore at the end of September
2022. In September 2022, Islamic banks accounted for 26.8% of all bank deposits in the nation.

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From Tk 1,35,061 crores at the end of September 2015 and Tk 97,530 crores at the end of December
2013, the total investment—loans and advances—under Islamic banking reached Tk 3,86,221 crore at the
end of September 2022.

With the founding of Islami Bank Bangladesh Limited in 1983, Bangladesh officially joined the shariah
banking period. The development of additional shariah-based banks and Islamic financial institutions in
the nation has been influenced by the IBBL's success. Out of the total 10,974 bank branches in
Bangladesh, there are currently 10 fully functional Islamic banks operating with 1,605 branches. The
banks are: Union Bank Bangladesh, Islami Bank Bangladesh, ICB Islamic Bank, Al-ArafahIslami Bank,
Social Islami Bank, Shahjalal Islami Bank Limited, Export Import Bank of Bangladesh, First Security
Islami Bank, and Islamic Bank of Bangladesh. Islamic financial services are also offered in Bangladesh
via 23 Islamic banking branches of 11 conventional commercial banks and 511 Islamic banking windows
of 13 conventional commercial banks.

Chapter: 4

Methodology

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In the report we have investigated to what extent does current Islamic banking operation adhere to the
ideal practice, and how different are they from conventional banking in Bangladesh?

In the report we conducted research on Islamic Bank Bangladesh based on their qualitative data to know
how much they are adhering to the ideal practices.

4.1 Sample:

For this report, the sample consists of Islami Bank Bangladesh Limited (IBBL), which is one of the
largest and most prominent Islamic banks in Bangladesh. The report will focus on IBBL's operations and
practices, including its adherence to the ideal practice of Islamic banking, its product offerings, and its
customer base.

4.2 Source of Data:

The data for this report will be collected from both primary and secondary sources. Primary data will be
gathered through interviews with IBBL officials and customers, as well as through site visits to IBBL

22
branches. Secondary data will be obtained through a review of relevant literature, including academic
journals, books, reports, and online sources.

4.3 Types of Data:

The data for this report will include both qualitative and quantitative information. Qualitative data will be
gathered through interviews, observations, and document analysis, while quantitative data will be
obtained through statistical analysis of financial data, such as IBBL's financial statements.

2021 2020 2019 2018

Net Profit Margin 0.003607489 0.0040752 0.005779306 0.007492972

Ratio
Return On Asset 0.002836 0.003189 0.004798 0.006323

Return On Equity 0.071857 0.072209 0.092307 0.113768

Investment To 0.930543741 0.940411505 1.00255161 1.02427842

Deposit Ratio

Table: 4.3 Financial Indicators

1.2

0.8

0.6

0.4

0.2

0
Net Pofit Margin ROA ROE Investment to deposit
ratio

2021 2020 2019 2018

Figure: 4.3 Financial Indicators

4.4 Method Used:

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The method used for this report will be a combination of descriptive and analytical research. Descriptive
research will be used to provide an overview of Islamic banking in Bangladesh, with a focus on IBBL.
Analytical research will be used to analyze IBBL's adherence to the ideal practice of Islamic banking, as
well as its product offerings and customer base. Statistical analysis will also be used to provide
quantitative data on IBBL's financial performance.

Chapter: 5

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 Analysis and Discussion

5.1 Products and Services of IBBL

Deposit Products:

Islami Bank Bangladesh Limited mobilizes deposits through different types of accounts-

Al-Wadeeah Accounts

Al-Wadeeah Current Account is operated by Islami Bank Bangladesh Ltd in accordance with Al-
Wadeeah principles. On demand of customers, the Bank agrees to return funds deposited in certain
accounts. Customers must, however, give the bank their consent before using their funds. Clients are free
to operate these Accounts as they see fit. These Accounts do not generate any profits, and the depositors
do not suffer any losses.

Mudarabah Accounts

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“Mudarabah” is a profit-sharing partnership account in which one side contributes capital and the other
contributes labor and skill. The bank is "Mudarib"(skill provider) and the clients are "Shahib Al-
Mal"(capital provider) from the perspective of these accounts(Aaman, 2017). After the closing of the
year, the Bank invests deposits made on behalf of depositors and distributes at least 65% of investment
income generated by using Mudarabah funds.

Mudarabah Savings Account (MSA)

Mudarabah Savings Accounts are primarily designed for Non-Trading clients who have some potential
for savings with a low volume of transactions. A Mudarabah savings account may be opened and used by
more than one individual. A Mudarabah Savings A/C can be opened by a guardian on behalf of a minor.
In that instance, the guardian must provide a declaration containing the minor's birthdate.

Mudarabah Term Deposit Account (MTDR)

A profit-making account based on the Mudarabah idea, the Mudarabah Term Deposit Receipt (MTDR)
offers returns in exchange for deposits made over a set length of time. These deposits are known as time
deposits or time liabilities because they can be withdrawn with a period of notice and are therefore
repayable after a certain amount of time. Withdrawals are only possible with a period of notice and not
immediately. Deposits in the amounts of Tk. 1000 and multiples of Tk. 100 can be made for terms of 3, 6,
12, 24, and 36 months.

Mudarabah Special Notice Account (MSNA)

A Mudarabah Special Notice Account (MSNA) or Mudarabah Special Notice Deposit (MSND) is a
Mudarabah deposit that offers profit and is appropriate for those who are engaged in business where
transactions are frequent but follows a pattern. It permits one to run a specific type of profitable current
account at year's end.

Mudarabah Hajj Savings Account (MHSA)

Any Muslim who plans to perform the Hajj by building up the deposit in the Hajj Saving Account
necessary for covering the costs of the Hajj will choose one of the 25 possible options based on the
duration of the period from 1 year to 25 years for building up savings by monthly installments.

Mudarabah Special Savings (Pension) Account (MSSA)

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With monthly deposits of Tk. 100.00, Tk. 200.00, Tk. 300.00, Tk. 400.00, Tk. 500.00, Tk. 600.00, Tk.
700.00, Tk. 800.00, Tk. 900.00, Tk. 1000.00 and Multiple of thousand up to Tk. 20,000.00 only,
Mudarabah Special Savings (Pension) Accounts of 5-year or 10-year terms may be opened. The account
holder will receive their initial deposit back along with any profits made at the end of the year, either all
at once or in installments.

Mudarabah Savings Bond (MSB)

Eligible buyers of these Bonds include individuals over the age of 18, educational institutions, clubs,
associations, and other non-profit socioeconomic organizations. Bonds may be purchased jointly by
guardians and minors, with the minor's age being mentioned. There will be Mudaraba Savings Bonds
available in the following denominations: Tk. 1000, Tk. 5000, Tk. 25000, Tk. 50000, Tk. 1,00,000, Tk.
5,00,000, and Tk. 10,00,000.

Mudarabah Monthly Profit Deposit Account (MMPDA)

Any person may open this account by making a five-year minimum deposit of Taka 100,000 and
multiples of that amount. If a minimum of 30 days have passed since the account's establishment, a
monthly provisional profit must be delivered to the account.

Mudarabah Muhor Savings Account (MMSA)

Any conscious husband may open account in the name of his wife for monthly installment of Tk. 500/-,
Tk. 1,000/-, Tk. 2000/-, Tk. 3,000/-, Tk. 4,000/- and Tk. 5,000/- only in 5 years and 10 years terms under
this service.

Mudarabah Waqf Cash Deposit Account (MWCDA)

Persons under this service, any conscious husband may open an account in his wife's name for monthly
installments of Tk. 500, Tk. 1,000, Tk. 2000, Tk. 3,000, Tk. 4,000, and Tk. 5,000 only in terms of 5 years
and 10 years.

Account for Mudarabah Waqf Cash Deposit (MWCDA)

This Account may create cash waqf at a time or may start with a minimum deposit of Tk. 10,000/- (Taka
ten thousand only), and the subsequent deposit shall be made by installment(s) in thousand taka or in

27
multiples of thousand taka. This Account is intended to carry out one’s noble desire for social and human
welfare.

Mudarabah NRB Savings Bond (MNSB) Account

The Mudaraba NRB Savings Bond will maintain the denomination of Tk.25,000, Tk.50,000, Tk.1,00,000,
Tk.2,00,000, Tk.5,00,000, and Tk.10,00,000 in Bangladeshi Currency for a period of 5 or 10 years term.
Non-Resident Bangladeshis (NRB) who are 18 years of age or older and have been serving abroad, as
well as their family members, will be eligible to purchase these bonds.

Foreign Currency Deposit Account in Mudaraba (MFCD)

At selected Bank Branches, a minimum deposit of US $1,000 can be made to start this account. Foreign
nationals residing in Bangladesh, as well as foreign enterprises registered abroad and operating in
Bangladesh, as well as Bangladeshi nationals living, working, and earning abroad, are all eligible to open
this account.

Students Mudaraba Savings Account (SMSA)

The Student Mudaraba Savings Account has been developed in order to develop the habit of saving
among younger students and to educate them about banking services and contemporary technology. By
presenting an identity card and making a single initial deposit of Tk. 100, any guardian may open this
account in the name of a student who is less than 18 and enrolled in any educational institution.

Mudaraba Farmers Savings Account (MFSA)

In order to develop the farmers' saving habits, it is important to involve them in banking
transactions while taking into account their contribution to financial activities. This will enable
them to accumulate large sums of money over time, strengthening their financial position during
times of dire need. Only Tk.10 can be deposited to open this account.

5.2 Investment Modes:

The Bank's Investment Policy has the unique feature of basing investments on a profit-loss sharing
structure that complies with Islamic Shariah’s concepts and principles. It places more of an emphasis on
achieving social goals and objectives, such as creating employment opportunities, than on making a
profit.

28
The following investment methods are employed:

Bai-Murabaha

Figure: 5.2 Murabaha Source:

financialislamhttp://www.financialislam.com/mur
A Bai-Murabaha is a contract between a buyer and a seller in which the seller offers the buyer certain
products (allowed by Islamic Shariah and the law of the land) for a cost plus an agreed-upon profit that is
payable in cash, in a lump payment, or in installments, at any specified future date. The profit markup can
be set as a fixed amount or as a percentage of the cost of the items.

Bai-Istijrar

"Bai-Istijrar" is referred to as such a buying and selling arrangement where a person continues to receive
supplies from a supplier part by part over time, without ever making an offer, accepting one, or
bargaining with the provider.

Bai-Muajjal

"Bai-Muajjal" is a contract between a buyer and a seller in which the seller sells to the buyer certain
specific goods that are allowed by both the law of the land and the Islamic Shari'ah for an agreed-upon
fixed price that will be paid in full at a specified future date or in fixed installments over a specified
period of time. The seller has the option to sell the things he has purchased in accordance with the buyer's
order and specifications.

29
Bai-Salam

"Bai-salam" refers to a contract between a buyer and a seller whereby the seller sells in advance to the
buyer certain commodities or products that are allowed by Islamic law and local law at an agreed-upon
price payable upon execution of the said contract, and the commodity (ies) or product(s) is/are delivered
in accordance with specification, size, quality, and quantity at a later date in a specific location

Istisna'a

Istisna'a is a contract between a manufacturer/seller and a buyer under which the manufacturer/seller sells
specific product(s) after manufacturing, permissible under Islamic law and national law after
manufacturing, at an agreed price payable in full up front or in installments over a specified time period
or on/within a specified future date based on the order placed by the buyer.

Bai-as-Sarf

An agreement to swap money for money is known as a Bai-as-sarf. Due to its ease of manipulation for the
creation of an interest-bearing loan, which is against Islamic law, this contract is subject to strict Shariah
regulations. The "Bai-as-Sarf (FDB)" and "Bai-as-Sarf (FCD)" procedures are used to provide post
shipment financing against Foreign Currency export bills and advance financing against Foreign
Currency Cheque /Draft, respectively.

Mudarabah

“Mudarabah” is a profit-sharing partnership in which one side contributes capital and the other
contributes labor and skill. "Shahib al-maal" is the name of the financier; "Mudarib" is the name
of the giver of labor and skill (Usman, H, 2015). Both parties split the profits in accordance with
the agreed-upon ratio, and any losses are paid for by Shahib al-maal, the party who provided the
funds, unless they result from misbehavior, negligence, or a violation of the terms set forth by
the Mudarib, which constitutes a breach of trust. The Mudarib is responsible for any losses
incurred as a result of the aforementioned factors.

Musharaka

30
 Figure: 5.2.1MusharakaSource: Researchgate

A contract of partnership between two or more people or entities that stipulates that all partners must
contribute capital, participate in management, share profits in proportion to their capital or according to a
pre-determined ratio, and bear losses, if any, in proportion to their capital/equity ratio is known as a
Musharaka.

In Islami Bank Bangladesh Limited (IBBL), the bank may engage in business with its client(s), where the
client(s) and bank each contribute capital in fixed proportions, participate in the management of the
business, share the profit in proportion to their respective capital ratios or at a pre-agreed ratio, and bear
the loss, if any, in proportion to their respective capital/equity ratios.

Hire Purchase under ShirkatulMeelk

Figure: 5.2.2Hire PurchaseSource: Researchgate

31
Under this approach, the bank may provide commodities, equipment, and implements on a rental
basis. The Bank and the client will share ownership of the tools, equipment, and products, with
the client's portion remaining as a mortgage on the items until the investment account is closed
(Billah, 2019). However, the client will be permitted to use the tools for a specific amount of
time. After the installments are paid in full, the client will possess the tools, commodities, and
equipment.

5.3 Conventional BankingProducts

There are Some products and services of Conventional Banking which are quite similar to The Islamic
Banking (IBBL). These are:

Current Deposit:

People in business that do a substantial proportion of payments and transactions with the Bank open
current bank accounts. Deposits, repayments, and opposing transactions have been included. It can
additionally be referred to as a Demand Deposit Account. Current accounts can be created at both
cooperative and commercial banks.

Savings Deposit:

A savings account is a simple financial instrument that allows people to deposit money and receive a
small amount of interest. These accounts are federally insured for up to $250,000 per account owner and
provide a secure location to store funds while generating interest. Savings accounts are available at banks
and credit unions. They don't need much money to start a savings account, and they will have simple
access to your money, albeit the number of times they use it each month may be limited.

Term Deposit Account:

A term deposit is a bank account kept with a commercial bank in which funds are held captive for a
certain period. Term deposits are immediate or short investments with maturities stretching over one
month too many years. Because when establishing a term deposit, the investor would appreciate that they
can retract their cash once the maturity time frame has ended. Whenever the account client provides cash
to a financial institution, the capital may be utilized to lend to other individuals or companies. In

32
exchange for being permitted to lend this cash, they will compensate the depositor with a return on the
checking account.

Loan services:

Banks prefer to make money by collecting funds from customers and repaying them with interest. Banks
will fund creditors, collecting more excellent interest rates and gaining from the interest rate margin.
Loans come in various forms, including term loans, bank overdraft facilities, letters of credit, bank
guarantees, lease finance, SME collateral-free loans, construction equipment loans, and SME credit
cards.

Deposit Pension Scheme:

DPS (Deposit Pension Scheme) is a monthly installment-based savings deposit for individual customers
—a consumer deposits money into this account for a set time. And at maturity, the consumer will be paid
the outstanding bill. At the same time, the applicant must select a tenor and a monthly deposit amount.
Pension scheme programs are classified into three types: defined benefit, defined contribution, and state
pension.

Students Savings Account:

A student savings account may allow pupils to learn about money management and achieve economic
independence. Students can create an account online or at a traditional bank; the primary distinction is
that conventional banks have branch locations. A bank can keep the bill when a student is no longer a
student, so the Bank would not close the account. In most cases, the Student can convert their account to a
standard one.

Foreign Currency Deposit Account:

A Foreign Currency Deposit Account is a bank account not structured in US dollars. Foreign Currency
Deposit Accounts enable consumers to collect, transmit, and trade in international currencies that were
already supported. Some banks will allow exchanging unspent foreign cash brought back to the United
States, although they will not be permitted to deposit foreign money into the checking or savings account.
Instead, before depositing the funds, you must exchange foreign money for US dollars. A foreign
currency account helps to save currency conversion fees and is ideal for organizing several international

33
transactions in one location. It is precious for regular travelers and firms that often conduct operations
throughout various nations.

Investment:

Investment accounts include stocks, bonds, mutual funds, and many other assets, as well as funds. An
important distinction between an investment account and a bank account is that the value of assets in an
investment account varies and can even fall. They rely on primary and secondary reserves to satisfy the
Bank's liquidity requirements. This also aids in addressing society's credit demands. These requirements
include bank-provided short-term loans.

Lease:

A financial lease is a type of capital equipment financing. It represented a contract between the Bank
(Lessor) and the Customer (Lessee) for hiring a particular property from a manufacturer/supplier of the
lessee's selection and personalized to the lessee's needs. Operating and finance leases are the two most
popular (also called capital leases). To distinguish between the two, assess how thoroughly the risks and
benefits connected with asset ownership have been shifted from the lessor to the lessee.

Those are the Conventional Banking services that help conventional banks run their banking process
properly. Traditional Banking generally helps to offer lending services to their customers and keep the
cash from their customers against interest.

5.4 Comparison between conventional banking and Islamic Banking (IBBL):

Islamic Banking mainly follows the Islamic Shariah. As a result, we see various types of differences
between Conventional Banking and Islamic Banking. The primary difference is interest (profit). Islamic
banks must provide interest-free loans. A traditional bank views money as a product and lends it in
purchase or sale for interest. Islamic banking products are often asset-backed and incorporate asset
trading, asset rental, and profit-and-loss participation.

Limitations on Operating Finance/Working Capital:

Conventional banks' running capital is obtained from loans, credit cards, agreements, home loans, drive
facilities, Letters of Credit, Bank guarantee discounting, etc. They provide loans with fixed interest and

34
many facilities to their customers. On the other hand, a maximum of 100% of net necessary working
capital or 75% of inventories and receivables, whichever is less. Nonetheless, at the moment, IBBL will
invest up to 80% of its net working capital. The risk of financing for an Islamic bank varies depending on
the way of the funding; each mode has a particular risk profile, and the nature of the customer's company
also contributes to the risk of financing for an Islamic bank. For example, in trading forms such as
Murabaha, the Islamic Bank holds the asset(s) in the transaction and takes all related risks before selling
them to the consumer. If an asset(s) undergoes a total loss while also being sold to a customer, the loss
will be paid by Islamic Bank.

Contracts or Agreements:

Here are some contracts and agreements, for instance: Letters of Credit agreements. In Letter of credit is a
document that guarantees payment to the seller by the buyer. It is issued by a bank and guarantees timely
and complete payment to the seller. If the buyer cannot make such a payment, the Bank pays the whole or
remaining sum on the buyer's behalf. In Agreement, Bank will issue a certificate for their clients with a
specific service charge. But Islamic Bank also gives guarantee paper but no particular interest for any
clients. Sometimes they charge interest to those delayed in paying the money to the Bank.

Financing Method:

IBBL maintains so many accounts for depositing money and the investment method also.Islamic Bank
Bangladesh Limited generally uses three varieties of funding: rental agreements (Ijarah), trade/sale
agreements (Murabaha, Salam, and Istisna), and partnerships (Mudarabah &Musharakah). , But
Conventional Bank has just one financing method, and that is a loan.Nonetheless, traditional banks have
devised various products for various consumer categories, including credit cards, business finance,
car/house loans, and long-term lease financing. Still, they all contribute to a loan provided by a bank to its
customer.

Relationships with the client:

Conventional Bank maintains the Debtor creditor relationship with all their customer, and Bank will be
liable for everything. Still, in Islamic Bank, when we focus on the IBBL, we find they have no specific
rules for liability. Islamic Bank doesn't provide any interest to their clients, and the Bank invest their
money as a pool.

35
Loan Contract:

Conventional banking loan contract:

 No risk
 Income through interest
 An extra charge for late payment is also income for the Bank.

Islamic Banking loan contract:

 Taking risks for assets.

 Islamic Bank earns money from sales and investments.
 Shares profit and loss.
 No extra charge for the delay.
 Islamic Bank strictly follows Islamic Shariah.

5.5 IBBL's Performance Based on El Hawary's "Fourfold Taxonomy"

(a) Risk-sharing

One of the main principles of Islamic finance is risk-sharing, where both the profit and loss are shared
between the bank and the customer. In IBBL, the bank follows this principle by offering different types of
financing, such as Musharakah, Mudarabah, and Wakalah, where the bank shares the risk with the
customers. Moreover, the bank also provides investment opportunities, such as the Mudarabah Savings
Account, where the profits are shared between the bank and the account holder based on a pre-agreed
profit-sharing ratio. Therefore, IBBL's performance regarding risk-sharing is commendable.

(b) Materiality

The materiality principle requires that transactions in Islamic finance be linked to real assets and
economic activities. IBBL complies with this principle by offering financing facilities that are asset-
backed, such as Bai-Muazzal, Bai-Salam, and Hire-Purchase under Shirkatul Melk. Additionally, the
bank also invests in sectors such as agriculture, small and medium enterprises, and renewable energy,

36
which contributes to the development of the real economy. Therefore, IBBL's performance regarding
materiality is satisfactory.

(c) No exploitation

Islamic finance prohibits any form of exploitation, such as charging interest (riba) or engaging in
speculative transactions. IBBL adheres to this principle by offering profit-based financing, such as
Mudarabah and Musharakah, and by avoiding interest-based transactions. Moreover, the bank also
provides ethical investment opportunities, such as the Mudarabah Green Saver Deposit Scheme, where
the profits are derived from environmentally friendly investments. Therefore, IBBL's performance
regarding no exploitation is impressive.

(d) No financing of sinful activities

Islamic finance also prohibits the financing of activities that are considered sinful or haram in Islam.
IBBL complies with this principle by not financing any activities that involve gambling, alcohol, tobacco,
or any other activities that go against Islamic principles. Therefore, IBBL's performance regarding no
financing of sinful activities is satisfactory.

Based on El Hawary's "Fourfold Taxonomy," IBBL's performance is commendable regarding risk-

sharing, satisfactory regarding materiality and no financing of sinful activities, and impressive regarding
no exploitation. Therefore, it can be concluded that IBBL is a reasonably Islamic bank that adheres to the
principles of Islamic finance. However, further research may be required to determine the extent to which
the bank follows Islamic finance principles, particularly with regard to corporate governance,
transparency, and social responsibility.

"Fourfold Taxonomy" by IBBL in terms of addressing challenges:

Risk Sharing:

One of the challenges faced by IBBL in adhering to the principle of risk-sharing is the lack of awareness
and understanding among customers about Islamic banking principles. To address this challenge, the bank
has taken several initiatives, such as conducting regular seminars and workshops to educate customers
about the benefits of Islamic banking and the principle of risk-sharing. Moreover, the bank has introduced

37
a dedicated Shariah Supervisory Committee (SSC) to ensure that all of its financial products are
compliant with Islamic principles, including the principle of risk-sharing.

Materiality:

The principle of materiality in Islamic banking requires banks to finance only tangible assets that have
real value. One of the challenges faced by IBBL in adhering to this principle is the shortage of quality
assets available for financing. To address this challenge, the bank has partnered with various government
agencies and private organizations to identify and finance high-quality tangible assets that align with
Islamic principles.

No exploitation:

One of the challenges faced by IBBL in adhering to the principle of no exploitation is ensuring that its
fees and rates are competitive while not being exploitative. To address this challenge, the bank has
conducted extensive market research to ensure that its rates and fees are competitive with those offered by
conventional banks. Additionally, the bank has introduced a dedicated Customer Service Department to
address any customer complaints or concerns regarding the bank's fees and rates.

No sinful activities:

The principle of no sinful activities requires that banks do not engage in any activities that are considered
sinful, such as gambling, alcohol, or tobacco. One of the challenges faced by IBBL in adhering to this
principle is identifying and avoiding investments in companies or activities that may be involved in such
activities. To address this challenge, the bank has established a dedicated Shariah Supervisory Committee
to ensure that all of its investments and financing products are free from any involvement in activities that
are considered sinful.

Overall, IBBL appears to be taking proactive measures to address the challenges it faces in adhering to
the Fourfold Taxonomy principles. The bank has introduced several initiatives, such as regular seminars
and workshops, partnerships with government agencies and private organizations, and a dedicated
Customer Service Department, to ensure that it is adhering to the principles of risk-sharing, materiality,
no exploitation, and no sinful activities. However, further research and analysis would be needed to
determine the effectiveness of these initiatives in promoting adherence to these principles.

Now, How ‘Islamic’ are Islamic Banks(IBBL) in Bangladesh?

38
 Does IBBL comply with
Regulations Islamic Shariah?

StrictlyprohibitedRibaSystem Questionable
ProfitandLossSharing(PLS)Principle Yes
ObjectiveisnotonlytoMaximiseProfit,butalsorenderingBenevolentService
Yes
sin society
Efficient CustomerEvaluationfor Quard-E-Hasana Yes
ProhibitioninBusinessdealingswithHaramandUnlawfulthings
Yes
MaintainingUniquenessandIndividualitywithJusticeinconductingBusin
Questionable
ess
PrincipleonSharingRisks Questionable
ProhibitiononAmbiguousandUncertainTransactions(Gharar)
Yes
Prohibitionon Gambling(Maisir) Yes
PrincipleofZakat Questionable
Table : 5.5 Regulations

5.6 Challenges to Adherence to Ideal Practice

There appears to be a disconnect between Islamic banking ideal and actual practice. These banks make it
clear in their reports, brochures, bulletins, and posters that they are committed to working to create a just
society free from exploitation. The current analysis demonstrates that there has been little to no progress
made in that area thus far. Although the conventional banking system's extensive influence is primarily to
blame for this failure, the proponents of Islamic banking should have been more vigilant in achieving
their goal. It's necessary to pinpoint the flaws.

In particular, it must be determined if there is room to create new pathways to stop the causes of
efficiency degradation. Points of departure must be found to redesign these banks' course of action after a
thorough examination of the strategies they have been pursuing for around ten years. Because most
individuals don't see much of a difference between Islamic banks' and their conventional counterparts'
banking operations, this is a highly important issue (Sultana, 2023). Islamic banks' current level of
reputation may quickly be eroded unless there is a swift change in policy followed by demonstrable
actions.

39
The issues facing Islamic banks are numerous. First, they haven't yet been able to come up with a way to
deposit their money on a short-term basis without paying interest. They both struggle with how to pay for
government deficits and consumer borrowing.

Second, it appears that the risk associated with profit-sharing is so great that the majority of banks have
turned to financing strategies that provide them with a guaranteed, fixed return. Because of this, there is a
lot of sincere criticism that these banks haven't actually abolished interest; instead, they've just altered the
names of their operations.

Third, Islamic banks are exposed too greater risk since they lack the legal backing of the central banks of
their individual nations.

Finally, the projects that the Islamic banks are supposed to support cannot be assessed, monitored,
evaluated, or audited since they lack the essential knowledge and skilled personnel. Hence, while having
financial liquidity, they are unable to expand.

If one considers the implementation of interest-free banking from both a macro and micro-operational
point of view, many issues and potential concerns are raised. The following is a partial list of the
problems Islamic banks face:

Challenges related to Macro Operation

 Capital and Liquidity Issues

 Bank asset valuation
 Credit development and Monetary Policy
 Financial Stability
 The ownership of banks
 Lack of Capital Market and Financial Instruments
 Lack of legal protection

Challenges related to Micro Operation

40
  High cost of information
 Control over the cost of funds
 Finance through markup
 An over reliance on the Murabaha mode
 Use of Interest Rates to Determine the Profit Margin in Murabaha Sales
 Providing Money for Social Issues
 Absence of a Positive Reaction to the Need for Government Funding

5.7 Constraints Faced by IBBL and Their Responses

 Issues regarding legal reserve requirement: Islamic banks in Bangladesh are required to have
5.5% SLR and 4% CRR of their gross deposits in reserves. CRR of 4% must be retained in cash
with Bangladesh Bank, and the SLR of 5.5% must be kept with Bangladesh Bank in either
approved securities or cash (in the event that securities present an issue). 13% of SLR reserves
are required by law for conventional banks. They must hold 4% of their assets in cash with
Bangladesh Bank, and SLR must be invested in securities that have been approved by Bangladesh
Bank. Islamic banks cannot earn interest because they are prohibited from receiving interest as a
form of compensation, although traditional banks can earn interest on their deposits with
Bangladesh Bank. Islamic banks are in a worse position than traditional banks that use interest as
their primary compensation. Yet, since 1993, Islami Bank Bangladesh Limited has been crediting
interest against its deposits with the Bangladesh Bank to its Sadaqa fund. It should be highlighted
that interest income is added to profit and is not regarded as bank revenue. The money is used for
charitable endeavors.
 Liquidity Crisis of 2022: On the final working day of 2022, Islamic banks borrowed Tk14,790
crores from the central bank to address the rapidly spreading liquidity crisis. According to
sources, this loan was disbursed by Bangladesh Bank on December 29 at an interest rate of
8.75%. Islami Bank Bangladesh took the largest sum out of the five Islamic banks.

The largest private lender in Bangladesh by deposit and credit, Islamic Bank Bangladesh, has
taken Tk8,000 crores. However, a Shariah-based bank is not supposed to borrow by offering

41
 interest. Mezbaul Haque, executive director and spokesman for Bangladesh Bank, commented on
this situation by saying, "We have offered these facilities as we have no specific instrument for
these Islamic lenders to save them." This aligns with our next two issues that is,

 Fear of a liquidity crisis and the potential for a liquidity surplus: Islamic banks must exercise
greater caution and vigilance when handling their money because they are unable to use call
money in times of emergency or fund shortages. As a result, it's possible that Islamic banks have
always had a sizable cash liquidity surplus. Traditional banks are able to borrow money from one
another even at outrageous interest rates in the form of call money.
 Lack of Interbank Money Market: Despite the existence of ten Islamic banks in Bangladesh, there
is still no interbank money market among them. With the exception of Islami Bank Bangladesh
Limited and Al-Baraka Bank Bangladesh Ltd., all other Islamic banks have only recently begun
operations, some with as few as two branches. These banks can nevertheless decide to create a
money market among themselves. This might aid in reducing their particular call money issue,
which they are currently experiencing.
 Investment issues in the capital markets: Traditional banks are allowed to put up to 30% of their
total deposits in stocks and other securities. Islamic banks encounter difficulties in this situation
since they abstain from all transactions involving interest. The examples below can be used as
examples. (A) Islamic banks do not buy stock in companies that engage in interest-based
business; (B) Islamic banks do not buy stock in companies that take out loans from commercial
banks at interest; and (C) Islamic banks are not allowed to buy stock in companies that engage in
activities that are not approved by Shariah.

The above-mentioned restricted environment in Bangladesh's capital market has significantly

reduced the investment prospects for Islamic banks and, as a result path to lawful earning. These
banks are unable to access capital market funding during times of need if there is no Islamic
money or capital market.

 Finance based on Murabaha: A heated topic of discussion has been the prevalence of Murabaha
financing in the portfolio management of investment funds by the modern Islamic banks of
Bangladesh. Using the Murabaha approach, Islami Bank Bangladesh Limited, Al Arafah Bank,
and Social Investment Bank Limited employed 54%, 76%, and 65% of their investment capital,
respectively, according to one study. Although being a Shariah-approved mode, murabaha has

42
 historically only been used in limited circumstances, according to Islamic economics. Islamic
banks in Bangladesh consider Murabaha finance to be suitable and Mudaraba and Musharaka to
be incredibly challenging to use due to the legacy of traditional banking, a lack of adequate legal
protection, and standard accounting practice in business.
 Lack of Islamic insurance companies: To safeguard bank investments against unforeseen risks
and disasters, banking and insurance must work in tandem with other aspects of commerce and
business. In the lack of Islamic insurance firms, Islamic banks must regrettably rely on interest-
based insurance companies.
 Reduction in profits: Compound interest is a way for traditional banks to cover losses brought on
by customer payback delays. Islamic banks are unable to do that. At the rate of profit, what it
accomplishes is understood. The pay, however, is credited to the Sadaqa account, which holds
funds for charitable endeavors, rather than being added to the profit stream. Islamic banks' profits
are lowered as a result. Because of this, Islamic banks might be in a less profitable position than
traditional banks. Moreover, Islamic banks are required to pay a mandatory charge equal to 2.5%
of their annual profits that is credited to a Sadaqa account, which also reduces their profitability.
It's unlikely that this applies to traditional banks.

5.8 Analysis of the effectiveness of the solutions

The effectiveness of solutions in promoting adherence to the ideal practice in core Islamic banking
concepts depends on several factors such as the bank's commitment to adhering to Islamic principles, the
quality of the Shariah supervisory board, the bank's product offerings, and the level of customer
awareness.

Shariah compliance: The effectiveness of solutions to promote adherence to Shariah compliance

depends on the quality of the Shariah supervisory board. If the board is composed of qualified scholars
with expertise in Islamic finance and has a strong commitment to ensuring Shariah compliance, it is likely
that the bank will adhere to Islamic principles.

43
Lack of human resources: Investing in training and development programs for employees can help
address the shortage of qualified personnel in Islamic banking. Such training can provide employees with
the knowledge and skills needed to promote adherence to Islamic principles.

Limited product diversity: Developing new and innovative Shariah-compliant products can help
promote adherence to Islamic principles. By offering a variety of products, banks can provide customers
with a wider range of options that adhere to Islamic principles.

Technology: Adopting modern technologies that comply with Shariah law can help promote adherence to
Islamic principles. Technology can help streamline banking operations and reduce the risk of non-
compliance with Islamic principles.

Lack of awareness: Conducting awareness campaigns can help promote adherence to Islamic principles
by educating the public on Islamic finance principles and products. Increased awareness can lead to
greater demand for Shariah-compliant products and services, which can help drive adherence to Islamic
principles.

Regulations: Compliance with regulations specific to Islamic banking can help promote adherence to
Islamic principles. By complying with regulations, banks can avoid potential legal and regulatory issues
and ensure that their operations are consistent with Islamic principles.

The effectiveness of solutions to promote adherence to ideal practice in core Islamic banking concepts
depends on several factors. Banks that prioritize Shariah compliance, invest in employee training, offer
diverse product offerings, adopt modern technologies, conduct awareness campaigns, and comply with
regulations can effectively promote adherence to Islamic principles.

44
Chapter: 6
Conclusion

45
In conclusion, Islam believes that economic activity is essential for human material and spiritual progress
and success, both in moral and social situations. Islam takes seriously those interests that go against the
fundamental principles of justice and fairness. Interest is forbidden by the Islamic economics and other
exploitational and antisocial features. This will encourage independent consent, fairness and risk-sharing
in commercial and economic transactions, private ownership, trust, and reciprocal collaboration.

The goals and operational processes of Islamic Banking Bangladesh Ltd are founded on Shariah and are a
subfield of Islamic Economics. It primarily consists of an equity scheme, which offers a more moral and
practical substitute for the traditional interest-based system (Chakraborty, 2015). This organization
conducts business using the profit-and-loss sharing mechanisms known as Mudarabah and Musharakah,
which guarantee increased risk, investment capital, innovation, and business availability and promote the
best and most sustainable economy for the benefit of the general population.

In order to assist Islamic banking, the government has either completely funded or subsidized public
awareness and outreach initiatives(Islam, 2016). By mandating Islamic transactions for all financial
transactions, the Bangladeshi government would become one of the largest consumers of Islamic banking.
Most importantly, an emphasis on the viability and economic significance of Islamic finance was made
rather than a push for a religious agenda.

46
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2.Rahim, A., & Rahman, A. (2007). Islamic Microfinance: A Missing Component in Islamic Banking.
New Age Supplements. https://doi.org/10.14989/70892

3. Arif, M.M. (2016) “Investment approval process of Islamic banking and an identical investment
process model: A case study on islamic banking in Bangladesh.”

4. Billah, M.M.S. (2019) “Islamic hire purchase (Al-Ijarah Thumma al-Bay’),” Islamic Financial
Products, pp. 255–263.

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