Islamic Banking in Bangladesh

Topics: Islamic banking, Bank, Fractional-reserve banking Pages: 10 (2372 words) Published: December 27, 2012
Islamic Banking in Bangladesh and
around the world : An Overview.


An Islamic Bank is a financial institution that operates with the objective to implement and materialize the economic and financial principles of Islam in the banking arena.

The Organisation of Islamic conference (OIC) defined an Islamic Bank as “a financial institution whose statutes, rules and procedures expressly state its commitment to the principles of Islamic Shariah and to the banning of the receipt and payment of interest on any of its operations.”

According to Islamic Banking Act 1983 of Malaysia, an Islamic Bank is a “company which carries on Islamic Banking business......., Islamic Banking business means banking business whose aims and operations do not involve any element which is not approved by the religion Islam.”

An Islamic Bank is committed to do away with disparity and establish justice in the economy, trade, commerce and industry; build socio-economic infrastructure and create employment opportunities.

Islamic Banks operate on Islamic principles of profit and loss sharing and other approved modes of Investment. It strictly avoids interest which is the root of all exploitation and is responsible for large scale inflation and unemployment.


The primary objective of establishing Islamic banks all over the world is to promote, foster and develop the application of Islamic principles in the business sector. More specifically, the objectives of Islamic banking when viewed in the context of its role in the economy are listed as follow :

1.Offer Financial Services : Basis of the financial transactions of conventional banking is riba or interest which is unlawful according to Islamic Shariah. As a substitute, the emergence of Islamic banking is clearly intended to provide for Shariah approved financial transactions.

2.Banking for Development : Islamic banking is claimed to be more development oriented than its conventional counterpart. The concept of profit sharing is a built-in development promoter since it establishes a direct relationship between the bank's return on investment and the successful operation of the business by the entrepreneurs.

3.Optimum Allocation of Resources : Another important objective of Islamic banking is the optimum allocation of scarce resources. The foundation of the Islamic banking system is that it promotes the investment of financial resources into those projects that are considered to be the most profitable and beneficial to the economy.

4.Equitable Distribution of Resources : Another important objective of Islamic banking is to ensure equitable distribution of income and resources among the participating parties : the bank, the depositors and the entrepreneurs.

From the above discussion, the main objectives of Islamic Banking may be listed as under :

❑ To conduct interest-free banking.
❑ To establish participatory banking instead of banking on debtor-creditor-creditor relationship. ❑ To invest through different modes permitted under Islamic Shariah. ❑ To accept deposits on profit-loss sharing basis.

❑ To establish a welfare-oriented banking system.
❑ To extend co-operation to the poor, the helpless and the low-income group for their economic upliftment. ❑ To play a vital role in human development and employment generation. ❑ To contribute towards balanced growth and development of the country through investment operations particularly in the less developed areas. ❑ To contribute in achieving the ultimate goal of Islamic economic system.

Genesis of Islamic Banking

A. Theoretical Exercise

Islamic banking came into reality through a long theoretical exercise of several renowned Islamic scholars and economists. As far as intellectual development of Islamic economics, banking and finance is concerned, Muslims of the Himalayan Sub-continent have been in the forefront. Muslim thinkers and...
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