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Islamic Banking in Bangladesh

The Growth of Islamic Banking in Bangladesh

Islamic banking has experienced remarkable growth in Bangladesh due to increasing demand for Shariah-compliant financial services. With a predominantly Muslim population, many customers prefer interest-free banking solutions that align with Islamic principles. Over the years, the sector has expanded significantly, with dedicated Islamic banks as well as conventional banks offering Islamic banking windows.

The First Islamic Bank in Bangladesh

The foundation of Islamic banking in Bangladesh was laid in 1983 with the establishment of Islami Bank Bangladesh Limited (IBBL). As the country’s first Islamic bank, IBBL introduced a new financial system based on Shariah law, prohibiting interest (Riba) and promoting profit-loss sharing (PLS) mechanisms. Over the years, it has maintained its position as the largest Islamic bank in Bangladesh, setting a benchmark for other banks entering the sector.

Expansion of Islamic Banking in Bangladesh

Following the success of IBBL, several other banks entered the market to cater to the growing demand for Shariah-based banking. Today, Bangladesh has a well-established network of Islamic banks, operating under strict Shariah compliance.

Islamic Shariah-Based Private Commercial Banks (PCBs)

Currently, there are 10 full-fledged Islami Shariah-based Private Commercial Banks (PCBs) in Bangladesh. These banks follow Islamic banking principles, ensuring that all transactions comply with Shariah guidelines. Some key characteristics of these banks include:

  • Profit-Loss Sharing (PLS) Model – Instead of interest-based earnings, these banks operate on PLS principles, where profits and risks are shared between banks and customers.
  • Shariah Supervisory Boards – Each bank has a dedicated board of Islamic scholars and finance experts who oversee operations and ensure compliance with Islamic principles.
  • Ethical and Asset-Backed Financing – Investments are made in permissible (Halal) industries, avoiding sectors such as alcohol, gambling, and speculation.

List of Islamic Banks in Bangladesh

Islamic banking in Bangladesh has grown significantly, offering Shariah-compliant financial services. These banks operate under Islamic principles, avoiding interest-based transactions and following profit-sharing models. Here is a list of 10 fully-fledged Islamic banks in Bangladesh:

  1. Islami Bank Bangladesh PLC
  2. ICB Islamic Bank PLC
  3. Social Islami Bank PLC
  4. Al-Arafah Islami Bank PLC
  5. Exim Bank PLC
  6. Shahjalal Islami Bank PLC
  7. First Security Islami Bank PLC
  8. Union Bank PLC
  9. Standard Bank PLC (converted to a full-fledged Islamic bank)
  10. Global Islami Bank PLC

These banks follow Shariah guidelines, offering products and services based on Islamic finance principles. Their operations align with ethical banking, risk-sharing, and transparency, contributing to Bangladesh’s growing Islamic finance sector.

Islamic Banking Divisions in Conventional Banks

In addition to full-fledged Islamic banks, several conventional banks in Bangladesh have introduced Islamic banking divisions to meet customer demand. These divisions operate separately from the conventional banking system but follow Shariah-compliant financial models. Some well-known banks offering Islamic banking services include:

  • Prime Bank Islamic Banking
  • HSBC Amanah
  • Standard Chartered Saadiq
  • AB Bank Islamic Banking

These banks have dedicated Islamic banking windows that provide services such as Mudaraba savings accounts, Murabaha financing, and Islamic credit facilities.

Factors Driving the Growth of Islamic Banking

Several factors have contributed to the rapid expansion of Islamic banking in Bangladesh:

  1. Religious Preference – A significant portion of the population prefers financial transactions that align with Islamic principles.
  2. Economic Viability – Islamic banking has proven to be a sustainable and profitable financial system, attracting investors and businesses.
  3. Regulatory Support – Bangladesh Bank has established guidelines to regulate and promote Islamic banking, ensuring transparency and compliance.
  4. Global Influence – The global rise of Islamic finance has encouraged local banks to adopt and expand their Islamic banking services.
  5. Customer Awareness – Increasing financial literacy and awareness about Shariah-compliant products have driven more people to opt for Islamic banking.

Challenges Facing Islamic Banking in Bangladesh

Despite its growth, Islamic banking faces several challenges, including:

  • Limited Availability of Islamic Financial Instruments – A lack of diverse investment opportunities hinders the sector’s expansion.
  • Shortage of Qualified Shariah Scholars – The industry requires more experts in Islamic finance and jurisprudence to oversee operations.
  • Regulatory Complexity – Managing a dual banking system (conventional and Islamic) creates regulatory and operational challenges.
  • Public Misconceptions – Some customers still lack a clear understanding of how Islamic banking differs from conventional banking.

The Future of Islamic Banking in Bangladesh

The future of Islamic banking in Bangladesh looks promising, with increasing customer demand and regulatory advancements. Some key trends shaping the future of the sector include:

  • Digital Islamic Banking – The integration of technology to provide online and mobile Islamic banking services.
  • Fintech Collaboration – Partnerships between Islamic banks and fintech companies to enhance efficiency and customer experience.
  • Expansion of Sukuk (Islamic Bonds) – Developing Islamic capital markets to provide more investment options.
  • Improved Regulatory Framework – Strengthening guidelines to support the growth of Islamic banking while maintaining compliance.

Conclusion

Islamic banking in Bangladesh has come a long way since the establishment of Islami Bank Bangladesh Limited in 1983. With the rise of full-fledged Islamic banks and Islamic banking divisions within conventional banks, the sector continues to grow steadily. Regulatory support, increasing customer awareness, and technological advancements will play a crucial role in shaping the future of Islamic banking in Bangladesh. As more people seek ethical and Shariah-compliant financial services, the industry is expected to expand further, providing innovative and sustainable banking solutions.

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