Shari'ah Governance in Bangladesh - Case study

1. Shari’ah Governance Practices in Bangladesh
M. Kabir Hassan, Ph.D.
2016 IDB Laureate in Islamic Banking and Finance
Professor of Finance and
Hibernia Professor of Economics and Finance and
Bank One Professor in Business
Department of Economics and Finance
University of New Orleans
New Orleans, LA 70148
Office Email: mhassan@uno.edu
Alternate Email: KabirHassan63@gmail.com
Office Phone: 504-280-6163
Cell Phone: 610-529-1247
Md. Hafij Ullah
School of Business, Faculty of Arts, Business, and Law
The University of the Sunshine Coast, Australia
and
Department of Business Administration
International Islamic University Chittagong, Bangladesh
Office Email: mullah@usc.edu.au
Alternate Email: hafij_1980@yahoo.com
Cell Phone: +61470449084
Ruma Khanam
Senior Officer, Islami Bank Bangladesh Limited
CDA Avenue Branch, Muradpur, Chittagong, Bangladesh
Email: ruma_hafij@yahoo.com
Cell Phone: +61410750139
DRAFT: June 6, 2017
Citation: Hassan, M. K., Ullah, M. H., and Khanam, R. (Forthcoming), Shariah Governance
Practices in Bangladesh, Chapter in Shariah Governance Systems and Practices in a Globalized
World, Edited by Nazim Ali, 2017.
OR
Citation: Hassan, M. K., Ullah, M. H., Khanam, R. (2017), Case Studies of Shariah Governance
Practices in Bangladesh, HBKU-QFC Roundtable on Islamic Finance - Shariah Governance in a
Globalized World, Doha, Qatar, October 3 - 5, 2017.

2. Shari`ah Governance Practices in Bangladesh
1. Shari`ah and Shari`ah governance
Shari`ah is the Arabic word meaning Islamic law, also recognized as the Law of Allah. The term
Shari`ah itself derives from the verb Shara`a, which according to Dictionary of the Holy Qur'an
connects to the idea of ‘spiritual law’ (Qur'an, 5:48) and ‘system of divine law; way of belief and
practice’ (Qur'an, 45:18) in the Qur’an (Omar, 2010). Shari`ah has certain laws which are
regarded as divinely ordained, concrete and timeless for all relevant situations (Ullah, 2014).
There are four sources of Islamic Shari`ah: (i) Explanations of the Qur'an (The Holy Book of the
Muslims consisting of the revelations made by Allah (SWT) to the Prophet Muhammad (pbuh)
during his Prophethood of about 23 years); (ii) Explanations of the Sunnah/Hadith (After the
Qur’an, the Sunnah is the most important source of the Islamic faith and refers essentially to the
Prophet’s example as indicated by his practice of the faith); (iii) Ijma meaning the consensus
amongst scholars (Consensus of the jurists on any issue of fiqh after the death of the Prophet
(pbuh)/collective reasoning); and (iv) Qiyas/Ijtihad meaning the analogical deduction (individual
reasoning).
Shari`ah governance can be defined as the way of governing Islamic States or Organizations
according to the principles of Islamic Shari`ah law. It ensures that all financial transactions are
legally allowed under the Islamic legal framework. In practices it validates transactions that do
not have riba (interest), gharar (undisclosed risk), maisir (risk bordering that of gambling). While
parts of the Shari’ah law define valid transactions, it also defines a set of rules designed to frame
good business practices. Furthermore, Shari’ah governance must uphold the basic principles of
Islam: fairness and justice.
Currently, because of the renaissance of the Islamic finance and banking throughout the world,
Shari`ah governance specifically means governing the Islamic financial institutions according to
the precepts of the Islamic Shari`ah. Furthermore, Shari’ah governance directly serves the
purpose of Islamic financial institutions. IFIs are meant to offer an alternative financial system.
They must therefore differentiate themselves from conventional institutions through Shari’ah
governance. Indeed the literature finds that Shari’ah governance or religion is the single most

3. important factor that makes Islamic banks favourable to the customers (Ahmad and Haron, 2002;
Naser et al., 1999; Metawa and Almossawi, 1998; Rashid et al., 2014 and Archer and Karim,
2002).
Shari’ah governance is enforced through Shari’ah boards. Shari’ah boards are an independent
source of control and oversight. They not only audit products must every activities of the
institution. The boards must provide opinions and ruling to ensure compliance and customer
satisfaction. In order to be favourable to its customers, banks or non-banking financial
institutions must set-up Shari’ah boards that are fully independent, competent and transparent.
As a practical matter, these three aspects of boards are challenging.
Weak corporate governance has often been cited by researchers as one of the main case for
financial crises. Islamic financial institutions are no different in this regard. Ali (2007) directly
links weak Shari’ah governance to failures of Islamic banks in Turkey, Egypt and South Africa.
Several aspects of governance are said to have failed: amongst them lack of compliance
enforcement and lack of competency and knowledge in Shari’ah law and Islamic financial law.
Shari’ah governance studies in Malaysia showed that members of the Shari’ah boards and
committees must possess knowledge, experience and skills in muamalat (financial laws), fiqh
(Islamic jurisprudence) and usul fiqh (interpretation) in order to properly enforce Shari’ah law
and offer compliant products and practices.
2. Shari`ah governance in Bangladesh
Bangladesh, a Muslim-majority country, attracted the attention of the globe for Islamic banking
renaissance. Bangladesh is the only country in southeast Asia where Islamic banking started in
1983 with the establishment of Islami Bank Bangladesh Limited. Islamic insurance started in
1999, and Islamic finance and investment companies started operations in 2001. At present
Islamic banking is a dominant part of the financial markets of Bangladesh. Up to 2014, Islamic
banking comprises eight full-fledged Islamic banks, 19 Islamic banking branches of eight
conventional commercial banks and 25 Islamic banking windows of seven conventional
commercial banks is providing Islamic Shari`ah based banking services (IBBL, 2015). It totals
934 branches including 890 of the eight Islamic banks, 19 branches of the traditional banks and
25 Islamic Banking Windows of the seven conventional banks. A large number of employees
totalling 27,202 including 26,660 in the Islamic banks and remaining in the Islamic banking

4. branches and windows of the traditional banks have been working in this niche of banking
(IBBL, 2015). Totalling BDT 1417.3 billion (USD 18.25) as of 2014, Islamic banks and Islamic
banking branches account for 20.3% of total banking deposits. Islamic banks and Islamic
banking branches account for 22.2% of the total credit: BDT 1195.4 or USD 15.4 billion. Similar
scenarios are also prevailing in case of eight Islamic insurance companies and 13 conventional
insurance companies providing Islamic insurance services. Islamic Non-bank financial
institutions are also present on the Bangladesh market since 2001.
Islamic banking has been performing well, achieving significant growth compared to the
traditional banks, and contributing to the country’s economy. Hence, the government and
relevant regulatory bodies have been taking the necessary steps to support this segment. The
market share of the Islamic Banks was around 15 percent of the total assets of all banks as of end
2013 in terms of total assets and these banks achieved around 15 percent asset growth compared
to 14 % of the conventional banks (IBBL, 2015 and Alamgir, 2016). In support of this sector, the
government amended the Banking Companies Act, 1991 and Bangladesh Bank, the central bank
of Bangladesh, issued guidelines for conducting Islamic banking via a circular on November 09,
2009. This guideline includes, among others, the criteria for establishing Islamic banks,
converting conventional banks to Islamic banks, Islamic deposits and investments approach,
responsibility for Shari`ah compliance, and qualities of the Muraqibs.
Table 1: Islamic Finance Industry in Bangladesh
Islamic banks and Financial Institutions Islamic Insurance Companies
Full-fledged Islamic Banks
1. Islami Bank Bangladesh Limited
2. Al-Arafah Islami Bank Limited
3. Social Islami Bank Limited
4. Export Import Bank of Bangladesh Limited
5. Shahjalal Islami Bank Limited
6. ICB Islami Bank Limited
7. First Security Islami Bank Limited
8. Union Bank Limited
Traditional Banks: Islamic Banking Branches
1. AB Bank Limited
2. Bank Alfalah Limited
3. City Bank Limited
4. Dhaka Bank Limited
5. Jamuna Bank Limited
6. Premier Bank Limited
7. Prime Bank Limited
8. Southeast Bank Limited
Traditional Banks: Islamic Banking Windows
Islamic Insurance Companies
1. Alpha Islami Life Insurance Co. Ltd.
2. Prime Islami Life Insurance Limited
3. Fareast Islami Life Insurance Co. Ltd.
4. Padma Islami Life Insurance Co. Ltd.
5. Islami Commercial Insurance Company
Limited
6. Islami Insurance Bangladesh Limited
7. Takaful Islami Insurance Limited.
8. Trust Islami Life Insurance Co. Ltd.
Traditional Insurance Companies with Islamic
services:
1. Meghna Islami Life Insurance Co. Ltd.
2. Homeland Life Insurance Co. Ltd.
3. National Life Insurance Co. Ltd.
4. Popular Life Insurance Co. Ltd.
5. Pragati Life Insurance Co. Ltd.
6. Progressive Life Insurance Co. Ltd.
7. Rupali Life Insurance Co. Ltd.

5. 1. Agrani Bank Limited
2. Bank Asia Limited
3. Pubali Bank Limited
4. Sonali Bank Limited
5. Standard Bank Limited
6. Standard Chartered Bank
7. Trust Bank Limited
8. Sunflower Life Insurance Co. Ltd.
9. Sunlife Life Insurance Co. Ltd.
10. Sandhani Life Insurance Co. Ltd.
Other Islamic Financial Institutions:
11. Islamic Finance and Investment Ltd.
Source: Developed by Authors
The Bangladeshi microfinance is a booming sector of the country’s finance industry. The
microfinance sector can boast more than 33 million clients totaling, BDT 403 billion (USD 5.19
billion) worth of outstanding loans, and BDT 237 billion (USD 3.05 billion) worth of savings as
of 2014. Furthermore, the Microfinance Regulatory Authority (MRA) licensed 700 microfinance
institutions with another 300 in the process of registering.
Bangladesh is also home of two stock markets: the Dhaka Stock Exchange (DSE) and
Chittagong Stock Exchange (CSE). In 2014, both markets launched their own Shari’ah Index. 77
Shari’ah compliant companies were listed on the indexes. Furthermore, Islamic mutual funds as
well as one perpetual Islamic bond can be traded in the Bangladeshi stock markets.
This case study chapter explores the Shari`ah governance of Bangladesh for achieving two
objectives: (a) to illustrate how Shari`ah governance works in practice in Bangladesh; and (b) to
highlight the uniqueness of Shari`ah governance in Bangladesh. The remainder of the chapter
includes the evolution of Shari`ah governance in Bangladesh, factors influencing Shari`ah
governance in Bangladesh, the current landscape of Shari`ah governance in Bangladesh, Shari`ah
compliance scenario: the outcome of Shari`ah governance in Bangladesh, and finally uniqueness
of the Shari`ah governance practices in Bangladesh.
3. Evolution of Shari`ah governance in Bangladesh
Islamic Shari`ah governance started through the inception of Islam in the Indian subcontinent in
the 7th
A.D. Islam initiated in part of the through the trade relationships where Arabian traders
used to come for business. People of this area became happy with their Islamic behavior and
business dealings and reverted to Islam. In the 8th
Century, Sindh (Pakistan) was conquered by
Muhammad bin Qasim. a large number of Peers and scholars played a vital role in spreading
Islam in this area including Bangladesh. Shah Jalal (R) reached Sylhet (Bangladesh) in 1303.
Then Shah Paran (R), Shah Makhdum (R), and Haji Shariatullah (R) acted dominantly for
preaching Islam in Bangladesh. Shah Abdul Jabbar (R) actively worked in establishing the first

6. Islamic bank in southeast Asia and Chaired the Shari`ah board of this bank for long. In 1947
Pakistan, including Bangladesh as East Pakistan, achieved independence from greater India
based on the Muslim majority. Then Bangladesh got its independence from Pakistan in 1971 as a
Muslim majority country.
Figure 1: Evolution of Islam and Islamic Shari`ah governance in Bangladesh
Source: Developed by Authors
Apart from the preachers of Islam, educational institutions including schools, colleges, and
madrashas played a significant role in retaining the Islam alive in this part. Philanthropists like
Haji Mohammad Mohsin donated their wealth for establishing these institutions. Particularly, the
role of both Alia and Qoumi madrashas are prominent. Currently, around 2.0 million students are
studying in Alia Madrashas and around 1.5 million students in Qoumi Madrashas. The
Government of Bangladesh has recognized the Qoumi madrashas degree recently. Specifically,
the Iftah Division has been issuing Shari`ah rulings (Fatwa) in different day to day personal,
family and social issues. Various Islamic political parties have been working for establishing
Islamic law in Bangladesh starting before the independence of the country. Political parties like
Bangladesh Jamat-e-Islami, Nizam-e-Islam Party, Islami Andolon Bangladesh, Khelafat Majlis
have been playing a pioneer role in Bangladesh. Like-minded people established Islami Bank
Islam in
Bangladesh
• Trade relation between Arabian and Indian subcontinent initiated Islam in this region in 630 AD.
• In 8th Century, Sindh (Pakistan) was conquered by Muhammad bin Qasim.
• Bangladesh got its independence from Pakistan in 1971 as a Muslim majority country.
Scholars/
Peer
• Large number of Peers and scholars played vital role in spreading Islam in this area including Bangladesh.
• Shah Jalal (R) reached Sylhet (Bangladesh) in 1303. Then Shah Poran (R), Shah Makhdum (R), Haji Shariatullah (R)
and Shah Abdul Jabbar (R) acted dominantly for preching Islam in Bangladesh.
School,
College and
Madrashas
• Philanthropists like Haji Mohammad Mohsin donated their wealth for establishing Schools, colleges, and Madrashas
that played significant contribution for developing Islamic scholars.
• Currently 2.0 million students studying in Alia Madrashas and 1.5 million students in Qoumi Madrashas.
Islamic
Political
Parties
• Various Islamic political parties has been working for establishing Islamic law in Bangladesh.
•Political parties such as Bangladesh Jamat-e-Islami, Nezame Islam Party, Islami Andolon Bangladesh, Khelafat
Majlis have been playing pioneer role in Bangladesh.
Establismen
t of Islamic
Banks
• Islami Bank Bangladesh Limited, the 1st Islamic Bank in South East Asia, started its journey with 3 branches in 1983.
• Then Al-Baraka Bank Ltd. (Now ICB Islamic Bank Limited) established in 1987. Islami Insurance Bangladesh Ltd. and
Takaful Islami Insurance Ltd were established in 1999.
• Gradually eight full-fledged Islamic Banks and eight insurance companies were established until 2013.

7. Bangladesh Limited (IBBL), and gradually other people followed IBBL example to establish
other Islamic banks.
4. Factors influencing Shari`ah governance practices in Bangladesh
The context of the Muslim majority Bangladesh is different from other Muslim and the Islamic
States. There a number of factors that influenced shariah governance in Bangladesh, which we
discuss in details below.
4.1 Historical factors
Though 92% of the population of this country is Muslim, however, as a part of the Indian
subcontinent, it was under the British Colony for around two-hundred years. After independence,
Bangladesh inherited an interest based banking system right from the British Colonial period,
and employment of the Muslims in banks was more or less restricted (Kabir et al., 2012). During
the period 1947-1971 when the country was a part of Pakistan, banking, of course, came under
Muslim control, but the system did not change (Sarker 2000).
4.2 Political factors
Muslim majority Bangladesh was never ruled by Islamic political parties following Islamic
Shari`ah. Therefore, ‘Islam as a complete code of life’ was not patronized though the ruling
parties facilitated and took advantage of their material benefits. As Islamic banks are governed
based on traditional laws that are why sometimes Islamic banks cannot comply a few Shari'ah
rulings due to economic and external regulatory reasons (Ullah & Khanam, Forthcoming).
Ahmad and Hassan (2007) also identified the lack of separate law for Islamic banks as an
impediment to the effective functioning and Shari`ah compliance. The study of Ullah (2014)
found that 82.04% of the respondents blamed Government rules and regulations and 88.02%
respondents blamed interest based economy of Bangladesh as major impediments to Shari`ah
compliance.
4.3 Economic factors
Bangladesh is a one of the most densely populated developing country where 31.5% of the
people live below the national poverty line (ADB, 2014). As a result, sometimes corruption is an
endemic problem in Bangladesh at all levels of society (McDevitt, (2015). In most of the cases
poor people do not have access to fund, and therefore, they try to get money without considering

8. Shari`ah issues. Even practicing Muslims sometimes are compelled to be involved with Riba as
do not have an alternative source of fund to meet their emergency needs.
4.4 Education and Knowledge
Bangladesh has been facing challenges in quality educations and also learning outcomes (ADB,
2015). Though literacy rate has been gradually increasing at the same time concern about the
quality has also been increasing. Islamic education is not beyond that scenario. Even educated
people on Islamic courses people do not understand what they are learning and do not practice
what they learned. The study of Ullah (2014) pointed out that 26.64% of the employees of
Islamic banks thought that they are not sufficiently knowledgeable in Islamic banking and
28.14% of the employees opined that higher authorities do not arrange sufficient programs for
making employees more knowledgeable in Shari`ah. Other studies (Malik, et al., 2011 and Grais
& Pellegrini, 2006) also observed that Islamic banking has been facing the problem of qualified
professionals at all levels that have the knowledge of both conventional banking & Islamic laws.
Bangladesh bank, the country’s central bank, is well aware of this issue. Indeed, for the first
time, it introduced a 5-year strategic plan (2010-2014). The goal of said plan was to transform
the financial sector and increase its resilience to shocks. A major step in the plan was to
emphasize training to produce skilled human capital. The second strategic plan (2015-2019)
followed in the same direction, putting even more emphasis on human resources training.
Each bank in Bangladesh has its own training institute in addition to the main institutions
providing training such as Bangladesh Bank Training Academy (BBTA), The Institute of
Bankers Bangladesh (IBB) or Bangladesh Institute of Bank Management (BIBM). It is worth
noting that the institutions have undergone significant changes to go beyond their traditional
activities. Both conventional and Islamic banks follow training programs from these institutions.
However, an Islamic banking training institute does not exist as of yet. Aware of this,
Bangladesh bank has recommended that the “Islamic Banks Consultative Forum” create a
structure that would provide training and research. As a good example, Islami Bank Bangladesh
Limited quarterly publishes a research journal: “Journal of Islamic Economics, Banking and
Finance”. Bangladesh bank does support talent developing initiatives such as domestic or abroad
training programs, and recognizes human capital to be a key component to the development of
all aspects of the financial system.

9. 5. Existing landscape of Shari`ah governance in Bangladesh
The landscape of the Shari`ah governance of Bangladesh is influenced by the relevant acts, rules,
regulations, and the relevant regulatory bodies. Bangladesh does not have a separate set of law,
acts or regulations for Islamic Banking or the Islamic Financial industry. It is however regulated
by clauses and provisions added to the pre-existing acts and laws relating to the conventional
financial industry.
Different studies observed that Islamic banks in Bangladesh required following more laws and
regulations than conventional banks because they are following regulations applied for
traditional banks and standards like AAOIFI and IFSB that are applicable for Islamic banks
(Hossain, 2012 and Ullah, 2013). Banking companies in Bangladesh comply with, among others,
the Banking Companies Act 1991, the Companies Act 1994, and IFRS. The Banking Companies
Act 1991 was later amended in 2003. The Bangladeshi financial markets are regulated by The
Securities and Exchange Commission Act 1993. It was later amended in 2012.
It is true that the Bangladeshi central bank has not driven the development shari’ah governance
infrastructure, but it did develop a 6-point program in 1997. The 6 points are illustrated below.
Out of those 6 goals, the Islamic Banking industry performed well on developing an Inter-Bank
Islamic Money Market and establishing a Central Shari’ah Supervisory Board.
1. Develop an Inter-Bank Islamic Money Market;
2. Form a Central Shari’ah Supervisory Board;
3. Prepare a draft of the Islamic Banking Act;
4. Establish Islamic Insurance Companies;
5. Develop a new Shari’ah compliant financial products;
6. Create a Consortium/Syndicate by the Islamic banks for large financing.
In some cases, these conventional rules contradict the philosophy of Islamic banking and restrict
the full-Shari`ah compliance of the Islamic banks in Bangladesh. In support of the needs of the
Islamic banks, Bangladesh Bank, the central bank of Bangladesh, issued Islamic banking
guidelines in 2009. The remaining part of this section depicts the Shari`ah governance landscape
of Bangladesh.
Table 2: Current Shari`ah governance practices in Bangladesh

10. A. Landscape of Banking Companies B. Landscape of Insurance Companies
5.1 Ministry of Finance and Bangladesh Bank
5.2 Islamic Banks Consultative Forum
5.3 Central Shari`ah Board of Islamic Banks
of Bangladesh
5.4 Shari`ah Board of the Individual Banking
Company
5.5 Ministry of Commerce and Bangladesh
Insurance Academy
5.6 Central Shari`ah Council for Islamic
Insurance of Bangladesh
5.7 Shari`ah Board of the Individual Insurance
Company
Source: Developed by Authors
A. Landscape of Banking Companies
5.1 Ministry of Finance and Bangladesh Bank
The finance and capital market of Bangladesh is governed by the ministry of finance under
which Bangladesh Bank, the guardian of the banking industry in Bangladesh, work. As a
regulator of the Islamic banks, the Shari`ah implementation role of Bangladesh Bank is very
minimum because it only evaluates the reports of the Shari`ah board/ council of the Islamic
banks in Bangladesh (Alamgir, 2016 and Habib et al. 2013). To ensure Shari`ah compliance of
the Islamic banks, the central bank set criteria that all the activities of these banks are conducted
as per the principles of Islamic Shari`ah, and the promoters of the bank got sufficient expertise
and other necessary facilities for this purpose before setting up the bank (Bangladesh Bank,
2009). In terms of the responsibility of Shari`ah compliance, Bangladesh Bank directed that
board of director – (a) will ensure the Shari`ah compliance in all activities and products; (b) will
be formed with people having sufficient knowledge and expertise in Shari`ah; (c) may constitute
a Shari`ah supervisory board (SSB) with people having comprehensive knowledge and
experience in Islamic jurisprudence; and (d) will responsible for any lapse in this regard
(Bangladesh Bank, 2009). However, there is no separate department in Bangladesh Bank to
supervise and control this important sector; central bank treats the Islamic banks with the same
inspection guidelines that are used for the traditional banks; and formation of the SSB, according
to their guidelines seems to be optional (Islam, n.d.).
5.2 Islamic Banks Consultative Forum
Islamic Banks Consultative Forum (IBCF) is a common platform for the Islamic banking
services providers in Bangladesh. IBFC, comprising of the Chairman and CEOs or Managing
Directors of the Islamic banking services providers, started functioning on 11th
October 1995.
One member from the central bank also represents in IBFC. The forum can be considered to be

11. successful in pursuing the common goal of the Islamic bankers, dealing with the problems and
issues development of the industry, formulating strategies in achieving common goals. IBFC
successfully achieved almost all of its goals, and all member banks and overall banking industry
has been getting benefits from these projects. The successful projects include setting up a Central
Shari`ah Board for Islamic Banks of Bangladesh, initiating Bangladesh Government Islamic
Investment Bond, Islamic Insurance Companies, innovating new Islamic financial products, and
syndicate investment. In 2016 IBFC launched ‘IBFC Research Training Academy’ that aimed to
develop human capitals and leaders for the further development of the Islamic banking industry.
5.3 Central Shari`ah Board of Islamic Banks of Bangladesh
Central Shari`ah Board for Islamic Banks of Bangladesh (CSBIBB), an apex forum for ensuring
uniform Shari`ah governance in the banking industry in Bangladesh, was established in 2002.
CSBIBB was aimed to supervise and support Islamic banks and banks with Islamic branches or
windows in implementing Shari`ah principles in all of their Islamic banking operations.
Moreover, CSBIBB also cooperates and assists the government, Bangladesh Bank, other
regulators and all member banks in pursuing Shari`ah objectives in Islamic banking in
Bangladesh. In support of the member banks, CSBIBB organizes training programs for the Faqih
Members and Muraqibs of the member banks, view exchange programs for highlighting the
importance of Shari`ah banking and finance. Eminent Islamic banking and finance scholar
Principle Syed Kamaluddin Zafree has been elected Chairman of CSBIBB for the year 2015-
2019.
5.4 Shari`ah Board of the Individual bank
According to the Islamic banking guidelines of the central bank, each of the Islamic banks in
Bangladesh created an SSB to support the board of directors in their task to insure the banks
observe the principles of Islamic Shari`ah. Under the section on Responsibility for Shariah
Compliance in Bangladesh Bank (2009), the board of directors is responsible for appointing the
members of the SSB. However, the Bangladesh Bank does provide strict criteria that individuals
wishing to be appointed must meet. Indeed, members of the SSB are selected on relevant
educational, qualifications, experience and exposure, track record, solvency and financial
integrity, integrity, honesty and reputation.

12. As there is a scarcity of Shari`ah scholars (Malik et al., 2011, Islam, n.d.), a few scholars
dominate the Chairmanship or member of almost all of the SSBs of the Islamic banks and
Islamic insurance companies in Bangladesh. Moreover, some members of the SSBs have no
formal educational background in Islamic Shari`ah, and in most of the SSBs in Bangladesh, a
few members are chosen from the board of directors or management.
5.5 Rating Agencies, Transparency, and Disclosure Requirements
The Bangladesh Securities & Exchange Commission (BSEC) authorizes 8 ratings agencies. If
institutions have international dealings, they usually use ratings from major international ratings
agencies. Both conventional and Islamic Banking are subject to the same ratings methods.
Furthermore, Bangladesh Bank has created new guidelines for credit ratings under the Basel III
accords. It is however interesting to know that out of the 8 rating agencies in Bangladesh, one
has started rating Islamic financial institutions using criteria specific to Islamic banking.
Islamic institutions are required by the Bangladesh Bank Guidelines for Conducting Islamic
Banking to keep financials that can be easily reviewed and evaluated. The central bank provides
guidelines to ensure that Islamic banks report their financials as per the current standards. While
these guidelines provide some information on the transparency and disclosure standards, not all
aspects of Shari’ah are covered. Each institution must therefore report to their Shari’ah
Supervisory Boards for all that is not covered by the guidelines. In other words, Islamic banks
are subject to the same disclosure standards as conventional banks as well as the standards
imposed by their individual SSB.
5.6 Consumer Protection
Bangladesh Bank recognized that consumer protection is a key driver of development and good
governance. In 2009, it created the Consumer Rights Protection Act, 2009 (Act No. 26 of 2009).
Much like educating employees of the financial industry was paramount to development so is
educating consumers. Under the 2015 5-year strategic plan, Bangladesh Bank initiated
educational programs aimed towards consumers. The successful initiatives, Cross Country Road
Shows, SME Fairs, MSME credit programs, have helped the large Bangladeshi consumer base.
Interestingly, Islamic Banks (through individual branches) organized seminars and workshops to
increase customer awareness. However, Bangladesh Bank still encourages Islamic banks to
increase their financial inclusion by improving the financial literacy of their customers.

13. To increase customer protection, Bangladesh Bank also set up a department completely
dedicated to customer service and complaint management. The country’s central bank also
issued guidelines for customer service. It highlights the minimum standards both conventional
and Islamic banks are required to maintain. In a similar initiative, Bangladesh Bank created a
deposit insurance system. While the system increases customer protection and confidence in the
conventional financial industry, it had no effect on Islamic banks. Indeed, there is no Shari’ah
compliant equivalent to the deposit insurance system.
A. Landscape of Insurance Companies
5.6 Ministry of Commerce and Bangladesh Insurance Academy
The insurance companies including both Islamic and non-Islamic insurance is regulated by the
Ministry of Commerce in Bangladesh and training, and research operations are conducted under
Bangladesh Insurance Academy. The academy started operation in 1973 through a Government
resolution. The Academy set the following objectives to achieve: (a) to give professional
education in insurance; (b) to conduct research on the insurance industry; (c) to perform in-
service training for the private and public sector insurance companies; (d) to publish research
works and books on insurance, and (e) to establish and maintain close contact with local and
international counterparts.
5.7 Central Shari`ah Council for Islamic Insurance of Bangladesh
Starting with Islamic Insurance Bangladesh Limited as the full-fledged Islamic insurance in
1999, Islamic insurance industry in Bangladesh placed itself in the very prestigious position
currently having eight full-fledged Islamic insurance companies and 13 others providing Islamic
insurance services through Islamic windows (Kalil, 2011; TJCSCIIB, 2012; and Khan et al.
2016). To develop and provide uniform Islamic insurance services by eliminating the
discrepancies, Shari`ah board members and owners and promoters of all of the Islamic insurance
companies agreed in 2002 (ARCSCIIB, 2010) and established the Central Shari`ah Council for
Islamic Insurance of Bangladesh (CSCIIB) which has been registered in 2008 (ARCSCIIB,
2011). To achieve complete Shari`ah compliant insurances, the major objectives and functions of
CSCIIB, among others, include suggest the Insurance Development & Regulatory Authority
Bangladesh, propose necessary measures and implement full Shari`ah rules in all companies,

14. provide training to employees and officers, develop new products, arrange conferences and
seminars and instigate welfare activities through the companies (Khan, et al. 2016).
The development of the takaful industry has been small relative to the Islamic Banking Industry.
As a remedy, the Central Shari’ah Board of Islamic Insurance Companies of Bangladesh has
created a Shari’ah framework specific to the takaful industry. This framework is intended to
level the playing field as takaful institutions operate today at a disadvantage.
5.8 Shari`ah Board of the Individual Insurance Company
Each Islamic insurance company and the conventional insurance company with Islamic windows
has a Shari`ah board/council to guide the operations in line with the tenets of Islamic Shari`ah
(Khan et al. 2016). As like as the Islamic banks, Islamic insurance companies in Bangladesh has
also been facing the scarcity of Shari`ah scholars. Shari`ah governance of the Islamic insurance
is severely influenced by the conventional Insurance Act 1938. As there is no separate law for
Islamic insurance and initiatives were taken in 2007 for a separate Islamic insurance act results
in no significant outcome. However, new Insurance Act 2010 provides no material guidance to
the Islamic insurance industry except mentioning the rules for investment assets.
6. Status of SSBs and Shari`ah Compliance Scenario in Bangladesh
In Muslim-majority Bangladesh, Shari`ah compliance is comparatively easier (Ullah, 2014).
Importantly, promoters of the Islamic banks and employees prefer Shari`ah compliance than the
profit of the banks. However, the level of Shari`ah compliance of all the Islamic banks is not
same though they are working in the same regulatory and economic environment (Ullah, 2014).
Some Islamic banks always remain vigilant for Shari`ah compliance and some seem to be a bit of
reluctant in this regard. As Ullah and Khanam (forthcoming) observed that Shari`ah is not the
only instinct but profit motives and some other factors also influence Shari`ah compliance. The
following section highlights a short view of the status and activities of the SSBs of the Islamic
banks and Islamic insurance companies in Bangladesh.
6.1 Shari`ah Board of the Islamic Banks and their performance during 2015
Though the formation of Shari`ah Board of individual bank seems to be optional, according to
Bangladesh Bank guidelines, it is a matter of pleasure that each Islamic bank and Islamic
Finance and Investment Limited (IFIL) has an independent Shari`ah board. As there is no

15. direction from the central bank, some board members differ from 4 to 12 in the Islamic banks
and financial institutions in Bangladesh. Though majority of the SSB members has an
educational background in Islamic Shari`ah (58.97%), a significant minorty (41.02%) has
degrees in general education including lawyers and economists. Scholarly background of the
members of SSBs is one of the important factors that influence the independence (Hassan, 2012).
Importantly, 55.56% (5 out of 9) Islamic financial institutions (IFIs) have got 50% or more
members from general educationist than Shari`ah scholars. Particularly, the SSB of EXIM Bank
Limited consists of around 60% non-Shari`ah scholars and 40% Shari`ah scholars. However, the
overall scenario proves the claims of Malik et al. (2011) and Islam (n.d.) that there is a scarcity
of Shari`ah scholars in Bangladesh.
Table 3: Status of the Shari`ah Board/Councils of the Islamic banks in Bangladesh
Sl Islamic
banks
Year of
Incorpo-
ration
No. of
Shari`ah
Board
Member
No. of
Islamic/
Shari`ah
Scholars in
the Board
No. of
general
educated
scholars
No. of
Members
from the
Management
Shari`ah
Meetings
held in
2015
Shari`ah
Inspections
of the
Branches in
2015
1 IBBL 1983 12 11
(91.67%)
1
(8.33%)
0
(0.00%)
12 294
(96.71%)
2 AIBL 1995 7 4
(57.14%)
3
(42.86%)
2
(28.57%)
Unspecified 129
(100%)
3 SIBL 1995 10 5
(50.00%)
5
(50.00%)
0
(0.00%)
6 Unspecified
4 EXIMBL 1999 12 5
(41.67%)
7
(58.33%)
7
(58.33%)
Unspecified Unspecified
5 SJIBL 2001 9 4
(44.44%)
5
(55.56%)
2
(22.22%)
5 Unspecified
6 ICBIBL 1987 4 2
(50.00%)
2
(50.00%)
0
(0.00%)
Unspecified Unspecified
7 FSIBL 1999 8 4
(50.00%)
4
(50.00%)
3
(37.50%)
Necessary Sufficient
Branch
8 UBL 2013 9 6
(66.67%)
3
(33.33%)
3
(33.33%)
Unspecified Unspecified
9 IFIL 2001 7 5
(71.43%)
2
(28.57%)
1
(14.29%)
Unspecified Unspecified
Total
Average
Percentage
78
8.67
(100%)
46
5.11
(58.97%)
32
3.55
(41.02%)
18
2
(23.07%)
- -
Source: Developed by Authors
As one of the most sensitive boards in the IFIs, SSB expect to work independently, that is, no
member of the board should be involved in the management. According to the standards of
AAOIFI (2010) and IFSB (2009), Shari`ah board members or their family members should not
be a part of management, senior executives or substantial shareholders. Independence of the

16. SSBs is obvious for producing an unbiased Shari`ah report on the activities of the IFIs (Bhambra,
2002). Unfortunately, 66.67% (6 out of 9) of the SSBs of the IFIs of Bangladesh consists of 1 to
7 members from the directors or management. On an average 23.07% of the SSBs members are
from management and this position seems to influence the activities of SSBs during 2015.
In terms of the activities of the SSBs during 2015, only three banks including IBBL, SIBL and
SJIBL mentioned the number of meetings they held and SSB of FSIBL stated that they had
necessary meetings. Only two banks including IBBL and AIBL indicated the number of the
branch they inspected during the last financial year and FSIBL mentioned that they audited
sufficient branches. That is only IBBL provided both the number of meeting and number of
branches audited. The study of Ullah and Khanam (Forthcoming) also observed, based on the
interview opinion, that Shari`ah be the only disposition that makes IBBL unique. Importantly,
55.56% of the IFIs did not provide anything about their meetings, and 66.67% of them disclosed
nothing about the inspections or audit of the branches. Ullah (2014) also found that existing
Shari`ah audit system is not sufficient in ensuring compliance of Shari`ah at all levels of the
Islamic banks. Ullah (2014) also identified the reasons for poor inspection including a shortage
of knowledgeable Shari`ah auditors, lack of full-time Muraqibs, lack of logistics, and
misunderstanding among the Muraqibs and the Officials.
6.2 Shari`ah Board of the Islamic Insurances and their performance during 2015
Similar to the Islamic banks and financial institutions, all the Islamic insurance companies also
have SSBs except three in which case we did not find information on the websites of the
companies. In the case of Padma Islami Life Insurance, we found the annual report, but the page
containing the SSB report is missing there. Table 4 reveals that, on an average, there are 10 SSB
members and most of the members have Islamic educational background except for Fareast and
Prime Life Insurance companies. Among the five Islamic insurance companies, SSBs of three
companies consists of members from management.

17. Table 4: Status of the Shari`ah Board/Councils of the Islamic insurances in Bangladesh
Sl Islamic
Insurances
Year of
Incorpo-
ration
No. of
Shari`ah
Board
Member
No. of
Islamic/
Shari`ah
Scholars
in the
Board
No. of
general
educated
scholars
No. of
Members
from the
Management
Shari`ah
Meetings
held in
2015
Shari`ah
Inspections
of the
Branches in
2015
1 Islami Ins. BD
Ltd.
1999 9 8
(88.89%)
1
(11.11%)
1
(11.11%)
Unspecified Unspecified
2 Takaful Islami 1999 5 5
(100%)
0
(0.00%)
0
(0.00%)
4 Unspecified
3 Islami Comm.
Ins.
2000 N/A N/A N/A N/A N/A N/A
4 Padma Islami
Life
2000 8 7
(87.50%)
1
(12.50%)
0
(0.00%)
SSB Report
missing
SSB Report
missing
5 Fareast Islami
Life
2000 13 6
(46.15%)
7
(53.85%)
3
(23.07%)
4 Unspecified
6 Prime Islami
Life
2002 15 9
(60.00%)
6
(40.00%)
4
(26.67%)
14 64
14.19%
7 Alpha Islami
Life
2013 N/A N/A N/A N/A N/A N/A
8 Trust Islami
Life
2013 N/A N/A N/A N/A N/A N/A
Total
Average
Percentage
50
10
(100%)
35
7
(70.00%)
15
3
(30.00%)
8
1.60
(16.00%)
- -
Source: Developed by Authors
Regarding the activities, four companies disclosed information on a number of meetings they
met during 2015 and only Prime Islami Life Insurance Company provided information on the
number of branches audited. However, they only audited 14.19% (64 out of 451) of the branches
of the company. Overall, Shari`ah governance of the insurance companies appears to be
inadequate to ensure the Shari`ah compliance in all operations.
7. Uniqueness of Shari`ah Governance in Bangladesh
Though there are some similarities, however, Shari`ah governance of each and every country is
unique based on the legal and regulatory context. Compared with other countries like Malaysia,
Sudan, Bahrain, Indonesia, and Saudi Arabia, Shari`ah governance of Bangladesh can be said to
be unique. In most of the countries having Islamic finance and banking, Shari`ah governance
mechanisms have been created and imposed by the respective government. On the other hand,
Shari`ah governance mechanisms in Bangladesh are the outcome of the efforts of the people
involved in the Islamic banking and finance, that is, it can be presented in a pyramid structure as
below.

18. Figure 2: Unique Shari`ah governance mechanism of Bangladesh
Source: Developed by Authors
Most of the people of the Muslim-majority Bangladesh love Islam and Islamic way of life, which
led to the development of Islamic financial sector in Bangladesh. Though SSBs look after the
Shari`ah issues of the Islamic banks, however, Bangladesh Bank provided the responsibility to
the Board of Directors to ensure Shari`ah compliance in all operations of the banks. For
uniformity of Shari`ah issues and to help each other, Directors and CEOs of the Islamic banks
formed Islamic Banks Consultative Forum. which created Central Shari`ah Board for Islamic
Banks of Bangladesh (CSBIBB), a private non-regulatory forum. Currently, CSBIBB oversees
the activities of the SSB of the Islamic banks in Bangladesh. As a regulator, Bangladesh Bank
issued Islamic banking guidelines in 2009 and examines the yearly SSB reports only.
Shari`ah governance mechanisms are usually expected to be initiated by the government and
regulator like the central bank and these mechanisms ought to be implemented as laws, rules, and
regulators. Bangladesh does not have its own Islamic banking law, and Islamic banks are not
bound to follow the AAOIFI or IFSB standards. Bangladesh Bank, in their guidelines, only
encouraged Islamic banks to follow AAOIFI accounting standards. Therefore, the Shari`ah
governance mechanisms in Bangladesh seems to be much flexible as these mechanisms
developed by the users themselves. Members of CSBIBB are expected to follow the decisions of
CSBIBB but these are not regulatory obligations. The SSB reports of the Islamic banks and
insurance companies depict that SSB members have no responsibility regarding Shari`ah
Bangladesh
Government
Bangladesh Bank
Central Shari`ah Board for
Islamic Banks of Bangladesh
Islamic Banks Consultative Forum
Borad of Directors of the Islami Banks
Shari`ah Board of the Indivisual Islami Bank
Islamic Banks in Bangladesh
Demand of the Islamic Banks among General Public

19. compliance. However, they are assumed to prefer to shift the responsibility to the board of
directors taking advantage of the provisions of the Islamic banking guidelines of the Bangladesh
Bank. On the other hand, Board of Directors seems to use the SSB as a showcase to do their
business and to achieve their ultimate target of earning profit in the name of Islamic banking.
Conclusion:
Shari`ah governance is the prerequisite for implementing Shari`ah principles in Islamic finance,
banking, insurance, investments, other organizations, society, States, and Governments. For
effective Shari`ah governance, well-developed governance mechanisms including specific rules,
regulations, laws, acts, regulatory bodies, and overall control of a central body over these
mechanisms are obvious. Shari`ah governance of Bangladesh does not have any recognized
Shari`ah governance mechanisms. In this regard, among others, we propose the following policy
guideline.
(a) Developing, enacting and amending necessary laws, rules, and regulations including
Islamic banking, Islamic insurance, Companies Act, Banking Companies Act, corporate
governance, accounting, and reporting.
(b) Developing well-structured regulatory bodies or making significant changes in the
existing structure by incorporating some divisions dedicated to the Shari`ah governance.
(c) Adopting international standards, best practices, harmonizing the national standards with
the international benchmarks like the Accounting and Auditing Organization for Islamic
Financial Institutions (AAOIFI) and the Islamic Financial Services Board (IFSB).
(d) For an effective and harmonized Shari`ah governance, Bangladesh Bank may form a
Central Shari`ah Board or empower and regulate the existing CSBIBB and CSCIIB.
Importantly, there should have a mechanism for ensuring the accountability of the
CSBIBB and CSCIIB as they are not only being used as a showcase.
(e) For effective implementation of Shari`ah principles, organizational level of SSBs should
play an active role. Bangladesh Bank should provide uniform instructions for the
structure, tenure, size, powers, responsibilities, accountabilities and ensure the
independence of the SSBs. Central bank also needs to provide a structure of SSB report
that , among others, may include activities they performed, number of meetings held,
number of branches inspected, areas of Shari`ah violations, actions taken to ensure

20. Shari`ah compliance in those areas, sources of prohibited incomes, uses of these incomes,
and payment of zakat.
(f) Bangladesh Government, Bangladesh Bank, Universities, Madrashas, Islamic banks and
insurance companies should take necessary action programs to develop necessary human
resources for effective Shari`ah governance in Bangladesh. Moreover, necessary training
programs are obvious for improving the Shari`ah knowledge and commitment to Shari`ah
compliance of all level of executives and employees.
Muslim-majority Bangladesh is a very fertile land for nourishing Islam, Islamic values, Shari`ah
compliance, and Shari`ah governance. If required actions can be taken in time, Bangladesh can
be a model for the Shari`ah governance practices in the world.

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