Md. Zillur Rahaman: The rapid expansion of Islamic banking worldwide has created huge demand, interest and confidence among the people and Islamic banking has also achieved a strong growth in Bangladesh. Since its inception in 1983, the Islamic banking system has maintained strong gains and now a market share of more than 27% of the entire banking industry in Bangladesh. However, despite the proliferation of Islamic banking, there is still no specific law for conducting Islamic banking in the country. Although Islamic banking has been operating in the country since 1983, in 2009 Bangladesh Bank issued a nominal guideline.
There are objective and systematic differences between conventional banking and the Islamic banking system. The objective of the Islamic banking system is the socio-economic development and welfare of the people through equitable distribution of wealth. As a result, in addition to large industries or businesses as a whole, the SME sector and small traders are easily getting investment benefits. Islami Bank operates as a deposit on a profit-loss partner basis.
The investment activities of Islamic banks follow Shariah-compliant principles. According to recent data from the Islamic Banking Cell of the Research Department of Bangladesh Bank, there are 61 domestic and foreign scheduled banks in the country. Of these, 10 are full-fledged Islamic banks, up from 8 previously.
Standard Bank and NRB Global Bank have recently been transformed into full fledged Islami Bank. Apart from this, 8 conventional banks have 19 Islamic banking branches and 11 banks have 178 banking windows. Altogether, there are 1,558 Islamic banking branches out of 10,767 branches of the total banks in the country, which is 14.47 percent of the total branches.
| ব্যাংক, ব্যাংকার, ব্যাংকিং, অর্থনীতি ও ফাইন্যান্স বিষয়ক গুরুত্বপূর্ণ খবর, প্রতিবেদন, বিশেষ কলাম, বিনিয়োগ/ লোন, ডেবিট কার্ড, ক্রেডিট কার্ড, ফিনটেক, ব্যাংকের নিয়োগ বিজ্ঞপ্তি ও বাংলাদেশ ব্যাংকের সার্কুলারগুলোর আপডেট পেতে আমাদের অফিসিয়াল ফেসবুক পেজ 'ব্যাংকিং নিউজ', ফেসবুক গ্রুপ 'ব্যাংকিং ইনফরমেশন', 'লিংকডইন', 'টেলিগ্রাম চ্যানেল', 'ইন্সটাগ্রাম', 'টুইটার', 'ইউটিউব', 'হোয়াটসঅ্যাপ চ্যানেল' এবং 'গুগল নিউজ'-এ যুক্ত হয়ে সাথে থাকুন। |
In the end of March 2021, the total deposits in the banking sector of the country was Tk. 12,98,972 crore and out of this, the deposits of Islamic banks stood at Tk. 3,57,792 crore, which is 27 percent of the total banking sector. At the end of December 2020, it was 25 percent and the overall growth of deposits of Islamic banks was 9.75 percent.
At the same time, the growth of debt was 9.62 percent and out of the total loan of Tk 11,63,026 crore, the investment of Islamic banks was Tk 3,22,398 crore, which is 27.72 percent of the total banking sector. At the end of December 2020, it was 25.69 percent. The central bank formulated an Islamic banking policy in 2009 for the country’s Islamic banks. Now a separate law is needed for the full development of this system.
Because the policy of Bangladesh Bank is not effective in many cases as an alternative to Islamic banking law. If there is an Islamic banking law, there will be no question as to whether Islamic banking activities are being conducted in accordance with Shariah. All Islamic banks have separate Shariah committees in the country to look into Shariah issues. There is also a Central Shariah Board for all Islamic banks. However, Bangladesh Bank has a separate Islamic banking window but no specific Islamic banking department.
The Banking Companies Act was passed in 1991 to manage banking companies in Bangladesh. Shariah references have been given in various sections of this Act. But there is no specific law in the country called Islamic Banking Act. Different circulars have been said about how Islami Bank will participate in the capital market of the country and about Islamic Sukuk bonds. These markets are expanding and evolving day by day and there is a need for specific laws to address various legal complexities in these areas.
Bangladesh Bank has prepared a guideline in 2009 and Islami Bank is operated with reference from there. The bank has an Islamic banking window in Bangladesh to oversee and monitor Islamic banking in the country. It supervises the activities of Islamic Bank following the guidelines of Bangladesh Bank.
Bank officials believe that Islamic banking guidelines alone are not enough to properly monitor and evaluate a wide range of Islamic banking in the country, for which there needs to be specific laws. Bangladesh Bank has a ‘Banking Regulation and Policy Department’ to set the policy of banks in ‘unwanted situations’. But they do not give Islamic banks any guidance on Shariah issues and they do not have the Shariah experts they need.
In the opinion of many, the guideline for Islamic banks is not a specific law passed in Parliament. According to them, Islamic banks are operating in a mixed manner with rules and regulations based on Sharia and guidelines. Therefore, an effective and specific law is needed for Islamic banks, so that in case of any untoward situation, action can be taken in accordance with that law.
It is true that there are different policies for Islamic banks, but what is needed is law. Because every law has its own uniqueness, its own sense of judgment and it is acceptable everywhere in the international arena, including the courts of law. The law is binding on all citizens and those who disobey or refuse to abide by its provisions are punished. But it is not mandatory in the case of guidelines. Each Islamic bank has its own Shariah Council, but it also needs a legal framework to determine its uniform scope of work.
Moreover, distortion is taking place in the name of various services of Islamic banking these days. What is the penalty for intentionally causing distortion or distortion of Islamic banking needs to be defined by the legal framework. Moreover, if any kind of problem or undesirable situation is created then what action will be taken under any law? There can be a problem if there are no specific action instructions.
Those customers are going to Shariah based banks on the basis of trust, they are going to this bank because they are getting more confidence than the conventional bank. But in fact, if it does not have a strong legal basis, then if there is a problem, the customers will be in trouble. Then a huge crisis of confidence will be created and its impact will continue on the entire Islamic banking.
Iran is one of the pioneers of the Islamic financial system. In just four years after Ayatollah Khomeini overthrew the Shah government in 1979, the Islamic Revolutionary Government passed an interest-free banking law in 1983, forcing local banks to rebuild their businesses through Shariah-compliant products.
For almost 40 years, the Iranian banking industry has been completely regulated by Sharia law. It is by far the largest Islamic banking center in the world and its experience is a unique example in the global Islamic community. Malaysia, on the other hand, has two Shariah-compliant and conventional banking systems. The Islamic Banking Act of 1983 and the Islamic Insurance Act of 1984 were enacted specifically for the operation of Shariah-based banks. In view of the demand and time, a new law called Islamic Financial Services was made in 2013 by revising and amending the Islamic Banking Act.
In Pakistan, an ordinance dated July 1, 1981 directed all banks to collect interest-free deposits on a profit-loss basis. At the same time, the Banking Companies Ordinance of 1962 was amended to provide for investment in interest-free deposits. In addition, some other laws were amended and refined in the 1980s to streamline the Islamic financial system.
In KSA, on the other hand, the “Saudi Arabian Monetary Agency” plays the role of the central bank, which was formed as a royal decree of 1931 and was amended at various times. Although all banking activities in Saudi Arabia are governed by Shariah, there are some deviations and all these issues are resolved by the “Banking Disputes Settlement Committee” under the “Saudi Arabian Monetary Agency” before going to court.
The Finance Act 2007 has been enacted as an amendment to the Finance Act 2005, the primary law governing Islamic finance in the United Kingdom. The Finance Act 2005 identifies Islamic finance transactions as an alternative financial system and adopts a relatively simple procedure for operating Islamic finance instruments.
On the other hand, there is no specific legal framework for Islamic banking in the United States of America. However, retail Islamic finance has been well-established in the USA since 1997, when the Office of the Comptroller of the Currency (OCC) approved the lease structure for home loans because it is consistent and effective with conventional secured real estate lending.
It is learned that a year before the introduction of Islami Bank, Thailand introduced ‘Islamic Banking Act’. Although Islamic banking has been operating in Bangladesh for the last 38 years, no law has been enacted so far. However, the 2009 Bangladesh Bank guideline issued for Islamic banks was amended in 2011. In 2011, Bangladesh Bank finalized and submitted a draft law to the Parliamentary Standing Committee on Finance.
But for some unknown reason it has not yet seen the light of day. However, at a seminar on ‘Islamic Banking’ organized by the Islamic Banks Consultative Forum (IBCF) at Hotel Sonargaon on June 16, 2016, the current finance minister promised to enact a separate Islamic banking law for the development of Islamic Sharia-based banks in the country.
He added that long ago, the IBCF had demanded the government to enact Islamic banking laws, however, it was not possible for various reasons. The government is considering enacting an Islamic banking law to develop the country’s Islamic Sharia-based banks in the light of Malaysia’s Islamic banking law.
Islamic banking has grown individually in each country and it has been developed under government sponsorship in Iran, Pakistan, UAE, and Malaysia. They made the law from the very beginning. Although Islamic banking was started in Bangladesh at the same time, it has not been enacted yet. Islamic banking accounts for 30 percent of the banking sector in Malaysia and 27 percent in Bangladesh. The Shari’ah says, you do business, but do not transact money at interest.
The people of Bangladesh have kept themselves involved in Islamic banking because of their religious values. Many people want to lead an economic life based on Sharia that is why Islamic banking is spreading here. People’s faith is playing a very important role here and about 90% of the clients of Islamic banking in Bangladesh are Muslims. In Malaysia, by contrast, 75 percent of clients are non-Muslims. Because they have seen that there is transparency, there is confidence but there is no irregularity.
There is a huge demand for Islamic banks in Muslim countries. Those who want to trade and transact according to the rules of the Qur’an usually transact in Islamic banks. When it comes to banking, there are some advantages and disadvantages. They can be easily solved if there is a law. It is not that Islamic banks have benefited from the absence of separate laws, but in many cases they have been hampered. Each Islamic bank has its own Shariah supervisory committee comprising the country’s top Islamic Jurists (Ulema), Islamic researchers, economists and thinkers, whose well-thought-out decisions are based on Islamic law.
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The Central Sharia Board of Islamic banks including Bangladesh Bank is also working in this regard. But considering the growing market share of Islamic banks in the country, separate laws and comprehensive policies are now necessary. It is a system that reduces non-performing loans, discourages speculation and promotes the welfare of society, provides wealth and equity-based financial services, yet supports Islamic short-term money market for more sustainable Islamic banking at home and abroad, so it is time bound demand to enact a specific Islamic banking laws.
Writer: Md. Zillur Rahaman, Banker and Freelance Columnist.
