Dr. Muhammad Tazammol Hoque and Dr. Muhammad Mostofa Hossain :
Islamic banking has become a significant economic force in Bangladesh’s financial landscape, making up nearly 30 per cent 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 Shari?ah objectives (maqa?id al-Shari?ah) concerning Islamic banking and finance (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 Shari?ah objective in IBF – ensuring the welfare (ma?la?a?) 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.
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, but 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, Islamic Financial Institution (IFI) must critically reassess their approach to Shari?ah-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 maqa?id al-Shari?ah, 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 Shari?ah 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 Shari?ah compliance, especially in market systems that may not fully align with proper Shari?ah 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.
The primary responsibility of a Shari?ah advisor is to ensure the Bank’s strict Shari?ah compliance, and as such, they should be well-versed in Islamic banking and finance, with a solid foundation in the field. So, if Shari?ah scholars lack a clear and coherent understanding of key principles within Shari?ah 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, Shari?ah scholars must possess a profound understanding of IBF to make informed decisions when developing products or services.
One persistent challenge faced by IFIs is the lack of qualified Shari?ah talent. To address this, IFIs are strongly encouraged to invest in comprehensive Shari?ah 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 Shari?ah scholars on their Shari?ah 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 Shari?ah 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. Tazammol Hoque is Professor, Jagannath University and member, SSC, AB Bank, Bangladesh and Dr. Mostofa Hossain, PhD is researcher and shariah consultant, Universiti Malaya, Malaysia).
