Islamic banking emerged in Bangladesh in the mid-1980s with the establishment of the first Islamic bank in the capital city, fostering the subsequent formation of another seven full-fledged Islamic banks (IBS).[526]
A number of private banks also operate Shari’ah-based banking parallel to their conventional interest-based transactions.[527] Founded on the core spirit of Shari’ah, IBS aimed ideologically at the advancement of a financial system based on equity and social justice.[528] Currently IBS hold ‘almost 25 per cent of the total market share in banking sector [and it] experienced a growth of 25.83 per cent compared to 20.58 percent in conventional banks’.[529]
The regulatory framework comprising Bank Companies Act 1991, Bangladesh Bank Order 1972, Securities and Exchange Commission Act 1993, the Income Tax Ordinance 1984 and the Shari’ah while guiding responsible business of IBS allows them to determine their PLS ratios and mark-ups consistent with their own policy and banking environ- ment.[530] This facilitates an independent exercise of Shari’ah principles in adopting various modes of financing and persuades IBS to be competitive with conventional banking.
Bangladesh Bank (BB) is entrusted with the legal authority to supervise IBS’ conducts and the enforcement of these laws. BB introduced an internal and Islamic economics division for managing IBS and issued a guideline in 2009 for conducting Islamic finance.[531] Even though, there is no separate Islamic banking law to regulate IBS, unlike other Asian nations, an amendment to the Banking Companies Act 1991 (Act No. 14 of 1991) incorporated a range of provisions relevant to IBS. These require IBS, inter alia, to maintain a reserve fund (Statutory Liquidity Reserve), and pursue certain Shari’ah principles in operating their business. The following discussion concentrates on the financing modes and examines whether IBS apply these in line with Shari’ah.
A.
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