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Islamic Banking and Finance: Outcomes in Bangladesh

Chowdhury Mokimuddin KJ Ali & Md. Mamonor Rashid

The maturity of Islamic banking has been incomparable as ‘no other financial industry, market or
jurisdiction in the last decade has witnessed the staggering financial engineering and innovation as the Islamic finance industry. Statistically Islamic banking has had phenomenal growth, according to the Asian Banker Research Group, the world’s 100 largest Islamic banks have set an annual asset growth rate of 26.7% and the global Islamic finance industry is experiencing an average growth of 15-20% annually.

However, with the continual growth of Islamic banking in the Arab and Middle East
world, the concept has also engaged Bangladesh because it has open society, experience and
active banking and finance sector, number of reforms has initiated to the banking sector. But the most important factor, which assists Bangladesh to engage in Islamic banking, is that the majority of the population is Muslim, most of whom are keen and interest to obtain competitive financial services that meet their beliefs. Hence, the country is in a good position and ready to
adopt strong Islamic banking concept and develop it further to its full potential.

On the other hand, Islamic finance is no longer a dream for Muslim countries; rather it is a success story across the world, including some non-Muslim majority countries like, USA, UK, Philippines, Thailand, Hong Kong and Singapore. There are about 430 Islamic finance institutions and 191 conventional institutions having Islamic banking and finance windows in 70 countries. Their total assets size is around $1.6 trillion while the potential size is around $5 trillion.

Nevertheless, Islamic banking was first introduced in Bangladesh way in 1983 by foreign investors from Saudi Arabia and Kuwait. Currently, Bangladesh ranked 10th in the world in terms of Islamic banking. Sudan came first and Iran second, while Saudi Arabia stood fourth and Pakistan 13th. According to Central Bank Publication as of March 2018, 8 (eight) full-fledged Islamic banks are in operation in Bangladesh by way of 11,37 branches out of total 9973 branches of the banking industry. The banks are Islami Bank Bangladesh Limited (IBBL), Al-Arafah Islami Bank Limited, Social Islami Bank Limited, Export Import Bank of Bangladesh Limited (EXIM Bank), Shahjalal Islami Bank Limited, First Security Islami Bank Limited, ICB Islamic Bank Limited and Union Bank Limited. Moreover, 19 Islamic banking branches of nine commercial banks and 25 Islamic banking windows of eight commercial banks are also providing Islamic financial services.

In addition, in 2017 the Bangladesh Bank gave Sonali Bank the nod to open six new windows to provide Islamic banking service to its clients. The bank, however, applied for permission to open 16 such windows but got the nod for only six. However, with a workforce of 30336 people, Islamic banking covers 22.72% market share of the country’s entire banking sector in terms of deposits and investments. As of March, 2018 the total number of deposits and investments in Islamic banking was Tk215557.93 crore and Tk209147.92 crore respectively.

According to Bangladesh Bank, in 2017, Islamic banking assets increased 13.2 percent, loans and advances grew 17.5 percent and deposits 14.7 percent. In contrast, the banking industry’s deposits rose 12.8 percent last year and loans and advances 15.3 percent. As of March 2018, net profit of the Islamic banking sector increased 19.34 percent in contrast to 4.9 percent registered by the conventional banking industry. Moreover, Islamic banks enjoy regulatory facilities such as maintaining lower reserves in the form of liquid assets: 5.5 percent as opposed to 13 percent for conventional banks.

More and more banks are showing interest in converting into full-fledged Islamic banks but the central bank is not giving new licences for the expansion of the shariah-compliant finance. Three conventional banks — Standard, Jamuna and IFIC — had applied to the Bangladesh Bank several years ago to switch to Islamic banking but they did not get the green light. But the central bank is reluctant to expand Islamic banking as it does not have enough resources and manpower to regulate the Islamic banking industry.

The another reason is, till date, there is no complete Islamic banking law to control, guide and supervise this sector except the inclusion of some Islamic banking provisions in the existing Banking Companies Act. Though, the Bangladesh Bank had issued a guideline for conducting Islamic banking on November 9, 2009, which needs to be updated. Inspection and supervision of the Islamic banks are being done following the general guidelines of the Bangladesh Bank, which was actually adopted for conventional banks. The central bank does not even have a separate wing to deal with the Islamic banking. Therefore, a clear balanced law is required.

Chowdhury Mokimuddin is a Barrister-At-Law & Advocate, Supreme Court of Bangladesh. He is the Head of Chambers at CM&A LCP

M Rashid is a member of Young International Arbitration Group, LCIA, London & an Associate of CM&A LCP 







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