Islamic Banking System in Bangladesh

1. Islamic Banking System in
Bangladesh

2. What is Islamic banking
A system of financial banking activities consistent with Sariah, based
on Islamic principles.
Two main principles:
Sharing of profit and loss
Prohibition of the collection and the payment of interest

3. History of Islamic Banks in Bangladesh
• In the twentieth century, an initiative was taken to set up and manage
interest-free banks in different areas of Bangladesh.
• In 1974 the Bangladesh government signed the IDB Charter.
• In 1978 the definition of Islamic banks was approved in the Dakar
conference of OIC member countries in Senegal.

4. History of Islamic Banks in Bangladesh
• On 16 October, 1982, decision of introducing Islamic banking was
taken by Nurul Islam, the governor of the Bangladesh Bank.
• 70% capital came from outside the country and 30% capital came
from local entrepreneurs at that time in establishment of Islamic
banks.

5. List of Islamic banks
Serial Name of Bank Year of
Incorporation
Listing
Status
Year of
Listing
1 Islami Bank
Bangladesh Limited
(IBBL)
1983 Listed 1985
2 ICB Islamic Bank
Limited (ICBIBL)
1987 Listed 1990
3 Al-Arafah Islami
Bank Limited
(AAIBL)
1995 Listed 1998
4 Social Islami Bank
Limited (SIBL)
1995 Listed 2000
5 Export Import Bank
of Bangladesh
Limited (EXIM)
1999 Listed 2004
6 First Security Islami
Bank Ltd. (FSIB)
1999 Listed 2008

6. Principles of Islamic Banking
1. Profit and Loss Sharing: It is one of the best principles of Islamic
finance where the partners will share their profit and loss according
to the part they played in the business
2. Riba:It can be regarded as the prohibition of interest.
3. Gharar: According to Islamic rules, both parties should have a
proper control over the business.

7. Principles of Islamic Banking
• Gambling: According to Islam gambling is prohibited. So, any kind of
gambling business is prohibited and bank will also not lend money or
collect money from any kind of gambling business or source.
• No Investment in Prohibited Industries: The industries that are
harmful to society or have a threat to the social responsibilities are
prohibited in Islam.

8. Principles of Islamic Banking
• Zakat: There is a property tax included in the rules of Islam that it
known as Zakat, which allows the balanced distribution of wealth.
According to the Islamic banking principles the fair amount of Zakat is
deducted from the accounts of Muslim in the holy month of
Ramadan.

9. Islamic finance products, services and
contracts
• Murabaha: It is a contract for purchase and resale and allows the
customer to make purchases without having to take out a loan and
pay interest.
• Mudarbah: It refers to an investment on behalf by a more skilled
person. it takes the form of a contract between two parties, one
provides the funds and the other who provides the expertise and who
agree to the division of any profits made in advance.

10. Islamic finance products, services and
contracts
• Takaful (Islamic Insurance): It is an alternative way of protection that
a Muslims can avail himself against the risk of loss due to uncertain
troubles.
• Ijarah: It is a form of leasing. It involves a contract where the bank
buys and then leases an item.

11. Islamic finance products, services and
contracts
• Musharakah: It means partnership. It involves the placing capital with
another person and both sharing the risk and reward with profit
sharing ratio but losses must be proportionate to the amount
invested.
• Sukuk (Islamic Bond)
• Salam
• Istisna

12. Governance Of Islamic Bank
• On August 16, 2001, a central shariah board for Islamic banks of
Bangladesh (CSBIB) has been formed under Bangladesh Bank.
• The committee gives opinion and guidelines according to the Shariah
principles in all activities of the bank.
• The committee also ensure that the Shariah principles are being
implemented.

13. Conventional Banks VS Islamic Banks
• Laws
• Interest Oriented
• Profit and risk sharing
• Product and services

14. Role of Islamic banks in Bangladesh Economy
• Comparing the overall banking industry, the combined share of Islamic banks is
21 percent in deposits and 24 percent in investment.
• Islamic Banks of Bangladesh has almost contributed in almost every aspect of
economy.
Sector Percentage (%)
Business 28.95
MSME 24.67
Industrial sector 23.11
Real estate 7.40
Agriculture 2.14
Transportation 1.51
Electricity, Gas and Water supply 0.62
Poverty reduction 0.42
others 7.70

15. Benefits of Islamic Banks
• Fairness: The main feature of the Islamic model is that it is based on a
profit-sharing principle, where the risk is shared by the bank and the
customer which contribute to a more equitable distribution of income
and wealth.
• Liquidity: Islamic Banks never face the liquidity crisis as they Follow
the profit and loss-sharing principle to organize resources.

16. Benefits of Islamic Banks
• No Fixed Obligations: Islamic banks do not have fixed obligations
such as interest payments on deposits, as the payment is associated
with the entrepreneur revenue.
• Transparent customer relationship
• Ethical and Moral Dimensions

17. Barrier and problem
• Absence of Separate law
• Scarcity of Islamic money market instruments
• Organizing Relationship with Foreign Banks

18. Barrier and problem
• Small Share of Financing in social sectors
• Absence of Role in Government Project Financing
• Paucity of Number of Islamic Insurance companies
• Scarcity of Skilled Human Resources

19. Recommendations
• Islamic Banking rules should be uniform worldwide.
• Implementing separate laws for Islamic banking system.
• Focused on the money market & investing in short-term projects too.
• Trying to create their own space in the market & remove dependency
on Islamic insurance co.
• Increase financed in social sectors.

20. Overview
• In a developing country like Bangladesh, the Islamic banking system
as a whole has a vital role to play in the process of economic
development. Islamic Banks of Bangladesh are controlled by a Central
Shariah Board for Islamic Banks of Bangladesh (CSBIB) Formed by
Bangladesh Bank.
• Islamic Banks of Bangladesh follows some similar fundamental
Principles Such as Profit and Loss Sharing, Riba, Gharar, Gambling, No
Investment in Prohibited Industries and Zakat.
• This bank has its own products, services and contracts which are
Mudarabaha, Murabaḥah, Musharakah, Takaful, Sukuk, Ijarah, Salam
and many more

21. Overview
• In Bangladesh there is a high demand for interest-free banking as it is
an Islamic country as they have some benefits like transparent
customer relationship, strong Ethical and Moral Dimensions and free
from Liquidity crisis.
• The Islamic banks of Bangladesh holds only 21 percent in deposits
and 24 percent in investment in the Banking Industry because they
have to face some barriers such as absence of separate law and role
in government project financing , scarcity of Islamic money market
instruments, scarcity of skilled human resources, insufficient
relationship with foreign Banks and many more comparing with the
conventional or commercial banks.

22. Conclusion
At last if Islamic banking industry can free themselves fromthis barriers
and problems then it can contribute in our economy more and will be
able to help in building a strong economy for Bangladesh.

23. Thank you