Dr. Muhammad Tazammol Hoque and Dr. Muhammad Mostofa Hossain (Shahin) :
Islamic banking has become a significant economic force in Bangladesh’s financial landscape, making up nearly 30% of the country’s financial sector.
Its rise is closely tied to the resurgence of Islamic intellectual thoughts and the integration of value-based principles into modern financial practices.
However, the proper implementation of Shariah objectives (maqaid al-Shariah) concerning IBF lacks the necessary strength, largely due to various internal and external challenges, that hinder the overall credibility and sustainability of IBF.
To realize the primary Shariah objective in IBF—ensuring the welfare (malaa) and preventing harm (mafsadah) to all stakeholders—the industry requires a comprehensive reconciliation. Such reform should address IBF’s activities in a way that reduces confusion and controversies among its consumers.
The following policies could be considered in this regard:
Despite making a profit being permissible in Islam, the IBF industry must remember that its purpose extends to achieving various social and moral objectives to foster the holistic improvement of society beyond profit generation.
Therefore, profit maximization should not be the only goal, rather, it should be balanced with the pursuit of other broader objectives.
If the primary motivation behind Islamic banking is driven by mere commercial interests, IFI must critically reassess their approach to Shariah-compliant banking.
It is essential to prioritize the hereafter by ensuring that financial practices adhere to true Islamic principles, rather than yielding to the pressures of a sole profit-driven system.
IFIs need to truly believe in the concepts of barakah (blessings) and rizq (provision) from Allah. Realigning transactional practices with authentic Islamic values is crucial, trusting in divine provisions for true success.
Ideally, the conventional banking system should follow the principles of Islamic banking, as the latter is rooted in divine knowledge with no inherent flaws, while the former is based on human knowledge and is prone to shortcomings.
IFIs should not aim to replicate every conventional product through legal artifices (ilah) to attract customers, as this approach undermines the distinctiveness of the Islamic economic and financial system.
Rather than imitating conventional practices, IBFIs must focus on developing innovative products and services that adhere to the holistic maqaid al-Shariah, maintaining the unique identity of Islamic finance.
By prioritizing quality over quantity, IFIs can uphold the true values of the Islamic financial system without compromising on its fundamental principles.
Given that some Islamic banking practices have been deemed questionable or potentially prohibited by globally recognized bodies such as the International Islamic Fiqh Academy of the OIC and the AAOIFI in Bahrain, it is crucial for institutions to adhere to these standards.
Aligning with these guidelines can help reduce controversies and ensure that their operations remain in compliance with authentic Islamic principles.
While Shariah committee members are responsible for approving structures and documents, the actual implementation falls under the jurisdiction of the relevant authorities.
IFIs cannot rely solely on scholars’ approvals to claim full Shariah compliance, especially in market systems that may not fully align with proper Shariah standards.
Additionally, exceptional cases in the IBF industry, such as the use of tawarruq-based products as temporary remedies, should not become common practice, as this risks undermining the integrity and foundational principles of the IBF industry.
An IFI should be guided by its Shariah advisory committee, yet it is sometimes observed that the IFI, in turn, influences its Shariah committee to make decisions that favour the institution. This practice is ethically and morally disregardable, and both legally and religiously proscribed.
Therefore, any Shariah scholar serving on the advisory committee must uphold their integrity and maintain a sincere fear of Allah in all their decisions.
The primary responsibility of a Shariah advisor is to ensure the Bank’s strict Shariah compliance, and as such, they should be well-versed in Islamic banking and finance, with a solid foundation in the field.
So, if Shariah scholars lack a clear and coherent understanding of key principles within Shariah knowledge pertinent to IBF, it often leads to the misapplication and incorrect adoption of IBF concepts.
Relying solely on a scholar’s reputation should not be the primary criterion for his appointment, as it may benefit the bank’s marketing but does not ensure sound Shari?ah decision-making. Instead, Shariah scholars must possess a profound understanding of Islamic banking and finance (IBF) to make informed decisions when developing products or services.
One persistent challenge faced by IFIs is the lack of qualified Shariah talent. To address this, IFIs are strongly encouraged to invest in comprehensive Shariah talent development initiatives by allocating sufficient funds. Banks should support their employees and management in participating in knowledge enhancement programs and ensure a balanced combination of senior, junior and fresher Shariah scholars on their Shariah Advisory Committees. Additionally, Bangladesh Bank could establish a dedicated institution for Islamic banking and finance talent development, similar to how the Bangladesh Institute of Bank Management (BIBM) was established. An example of such an institution is the International Centre for Education in Islamic Finance (INCEIF University) under the Central Bank of Malaysia.
The concept of dual banking undermines the core principles of Islamic finance. Even if we temporarily consider dual banking a necessity, how can we justify operating an Islamic bank under the same umbrella as a conventional bank? This approach fundamentally contradicts the Shariah principles, much like the prohibition of worshipping dual gods in Islam. While it is understandable that a conventional bank transitioning to an Islamic model may need time to fully convert, but what justification can there be for institutions operating both systems side by side for years with no intention of becoming fully Islamic? This issue requires serious attention to ensure a principle-driven, authentic Islamic banking system.
Although four decades have passed since the inception of IBF in Bangladesh, there is still no formal Islamic Banking Guideline. For the IBF industry to function effectively and ensure its sustainability and growth, it is imperative that Bangladesh Bank promptly takes the necessary steps to establish a comprehensive guideline that supports the development of this promising sector.
(Dr. Muhammad Mostofa Hossain (Shahin) PhD, Universiti Malaya, Malaysia, Researcher & Shariah Consultant
Dr. Muhammad Tazammol Hoque
Professor, Jagannath University & member, SSC, AB Bank PLC.)