An Empirical Study of Performance of
Islamic Banks in Bangladesh with special
reference to Islami Bank Bangladesh Ltd
Shah Abdul Hannan,
Former Secretary, Ministry of Finance, Government of Bangladesh and
M. Fariduddin Ahmad
Deputy Executive President
Islami Bank Bangladesh Limited
SECTION – I
Banking Scenario in Bangladesh
When Bangladesh came into existence on the 16th December, 1971, the banking sector of Bangladesh was in a total disarray. With the exception of two local banks incorporated in then East Pakistan, all the bigger local banks became inoperational.. Starting with such a humble condition, the Banking Sector of Bangladesh has grown to a great extent.
At present there are 49 Banks in Bangladesh. The structure of Banking in Bangladesh is as under:
1. Nationalized Commercial Banks--- 4
2. Specialized Banks--- 5
3.Private Sector Commercial Banks :
a) Conventional Banks---25
b) Islamic Banks--- 5
4.Foreign Commercial Banks
a) Conventional Banks--- 9
b) Islamic Banks--- 1
SECTION – II
Genesis of Islamic Banking in Bangladesh
In August 1974, Bangladesh signed the Charter of Islamic Development Bank and committed itself to reorganize its economic and financial system as per Islamic Shariah.
In January 1981, the then President of People’s Republic of Bangladesh while addressing the 3rd Islamic Summit Conference held at Makkah and Taif suggested, “The Islamic countries should develop a separate banking system of their own in order to facilitate their trade and commerce.”
This statement of the President indicated favourable attitude of the Government of the People’s Republic of Bangladesh towards establishing Islamic banks and financial institutions in the country.
Earlier in November 1980, Bangladesh Bank, the country’s Central Bank, sent a representative to study the working of several Islamic banks abroad.
In November 1982, a delegation of IDB visited Bangladesh and showed keen interest to participate in establishing a joint venture Islamic Bank in the private sector. They found a lot of work had already been done and Islamic banking was in a ready form for immediate introduction. Two professional bodies Islamic Economics Research Bureau (IERB) and Bangladesh Islamic Bankers Association (BIBA) made significant contributions towards introduction of Islamic banking in the country.
They came forward to provide training on Islamic banking to top bankers and economists to fill-up the vacuum of leadership for the future Islamic banks in Bangladesh. They also held seminars, symposia and workshops on Islamic economics and banking throughout the country to mobilise public opinion in favour of Islamic banking.
Their professional activities were reinforced by a number of Muslim entrepreneurs working under the aegis of then Muslim Businessmen Society (now reorganised as Industrialist & Businessmen Association). The body concentrated mainly in mobilising equity capital for the emerging Islamic bank.
At last, the long drawn struggle to establish an Islamic bank in Bangladesh became a reality and Islami Bank Bangladesh Limited was established on 30th March, 1983 in which 19 Bangladeshi national, 4 Bangladeshi institutions and 11 banks, financial institutions and government bodies of the Middle East and Europe including IDB and two eminent personalities of the Kingdom of Saudi Arabia joined hands to make the dream a reality.
Later, other 5 Islamic Banks were established in the country. 7 conventional banks have so far established Islamic Banking branches in some major cities.
SECTION – III
Comparative Position of Islamic Banking and Conventional Banking in Bangladesh.