Roundtable Calls for Structural Reforms to Strengthen Islamic Banking and Finance in Bangladesh

Against a backdrop of impressive growth, regulatory evolution, and recent crises in several full-fledged Islamic banks, leading scholars, regulators, bankers, policymakers, and industry practitioners convened in Dhaka on 28 February for a high-level roundtable discussion on the state and future of Islamic banking and finance in Bangladesh.

The event was organised by IBFC–Thrive with Shari'ah in collaboration with IDLC Finance PLC through its Islamic finance window, IDLC Islamic. The programme brought together stakeholders representing banking, capital markets, Takaful, academia, accounting, and regulatory bodies. The roundtable aimed to facilitate informed, forward-looking, and policy-oriented dialogue within Bangladesh's Islamic finance ecosystem. The event also marked the formal unveiling of the second edition of Islamic Banking and Finance in Bangladesh: Annual Review 2025 (IBFBD 2025).

A Sector of Systemic Importance

In his welcome address, Asif Saad Bin Shams, Additional Managing Director and Chief Risk Officer of IDLC Finance PLC, emphasised that Islamic finance in Bangladesh has moved beyond niche positioning and now carries systemic significance. He highlighted IDLC Islamic's governance-driven Shari'ah-compliant initiatives and called for collaborative, reform-oriented efforts to ensure sustainable growth and institutional integrity.

The session was moderated by Dr. Mohammad Omar Farooq, Professor and Head of the Department of Economics, United International University, who started by emphasizing the importance of systems thinking in Islamic finance rather than limiting compliance to transactional technicalities.

Speakers noted that Islamic banking now represents roughly one-quarter of Bangladesh's overall banking industry in terms of assets and investments. Several conventional banks and finance companies have opened Islamic windows or branches, reflecting growing consumer demand for Shari'ah-compliant financial services.

However, participants agreed that qualitative improvements in governance, regulatory frameworks, and market infrastructure have not always kept pace with the industry's quantitative growth. The discussion therefore focused not only on achievements but also on structural weaknesses and reform priorities.

Analytical Overview and Strategic Recommendations

The keynote presentation was delivered by Dr. Md. Mahabbat Hossain, Associate Professor at the Bangladesh Institute of Bank Management (BIBM). He provided an analytical overview of global Islamic finance trends, domestic developments, and strategic recommendations to enhance Bangladesh's competitive position.

Dr. Hossain underscored the importance of aligning regulatory reform with global best practices while adapting them to local realities. He stressed that Bangladesh possesses immense potential, given its large Muslim population, strong remittance flows, vibrant SME sector, and growing demand for ethical financial solutions, to emerge as a regional leader in Islamic finance. Yet such potential must be supported by policy clarity, robust governance, and institutional capacity.

Operationalising Shari'ah Compliance

A recurring theme throughout the session was the need to embed Shari'ah compliance at the operational level rather than confining it to documentation.

Md. Farid Uddin Ahmed, former Chairman of Union Bank PLC, and Mohammad Abul Hashem, Administrator of Union Bank PLC and Executive Director of Bangladesh Bank, jointly observed that in certain crisis-affected institutions currently undergoing merger processes, Shari'ah governance has not been sufficiently integrated into operational practices.

They emphasised that genuine compliance requires institutional culture, internal control systems, risk management discipline, and board-level oversight, not merely contractual formalities. The discussion linked recent crises to governance lapses and called for stronger supervisory vigilance.

Islamic Finance as a National Economic Component

Dr. Md. Ezazul Islam, Director General of BIBM, argued that Islamic banking and finance should be viewed as an integral component of the national financial system rather than as a purely religious matter. He highlighted the need to develop a professional talent pool that combines technical and economic expertise with knowledge of Islamic jurisprudence, without framing Islamic finance within narrow identity boundaries.

Dr. Muhammad Amir Hossain, former Executive Director of Bangladesh Bank, reinforced this perspective, stressing that sustainable growth depends on a combination of expertise in banking operations and Islamic jurisprudence.

Dr. Shah Md. Ahsan Habib, Chairperson, Dnet, noted that Islamic banking in Bangladesh now holds systemic importance and must therefore ensure institutional integrity, transparency, and accountability. He observed that Islamic values, if appropriately embraced, would position Islamic banking at the forefront of sustainability.

Call for a Comprehensive Islamic Banking Law

Md. Zulkar Nayn, Independent Director of National Bank PLC and former Executive Director of Bangladesh Bank, underscored several priority reforms for advancing the industry. Participants broadly agreed that the absence of a dedicated Islamic banking law has resulted in regulatory ambiguities and uneven governance practices across institutions.

They discussed the importance of the prompt enactment of a comprehensive Islamic Banking Law to provide a clear statutory foundation; the establishment of a strong and independent Central Shari'ah Board to ensure uniformity and credibility in Shari'ah governance; the introduction of independent third-party Shari'ah review mechanisms; structured partnerships between industry and academia to enhance research and human capital development; and the creation of a robust consumer protection framework focused on Shari'ah compliance and enhanced disclosure.

Regulatory Initiatives Underway

From the regulatory side, Mohammad Anisur Rahman, Director of the Islamic Banking Regulations and Policy Department (IBRPD) at Bangladesh Bank, outlined recent initiatives, including Shari'ah governance circulars, the drafting of the Islamic Banking Act, and additional regulatory guidelines.

Mohammad Zakir Hossain, Additional Director of IBRPD, reiterated that Shari'ah compliance cannot be compromised in pursuit of business expansion. He affirmed Bangladesh Bank's commitment to strengthening regulatory discipline.

Liquidity Instruments and Sukuk Market Development

The issue of Shari'ah-compliant liquidity management instruments was a prominent topic of discussion.

Istequemal Hussain, Director of the Debt Management Department at Bangladesh Bank, indicated that short-term Islamic instruments are being considered to address liquidity needs alongside existing Sukuk. Neeroo Nasreen, Additional Director & Head of SPV, Bangladesh Bank, added that efforts are underway to introduce an online trading platform to facilitate Sukuk transactions.

Participants acknowledged that while sovereign Sukuk issuance has begun to shape the Islamic capital market, secondary market depth remains limited. The development of short-term instruments and active trading platforms was seen as critical to ensuring efficient liquidity management for Islamic banks and financial institutions.

Financial Reporting and Accounting Gaps

Financial reporting challenges were another central focus area. Nabil Ahmad, Executive Director of the Financial Reporting Council (FRC), and Mezbah Uddin Ahmed, Research Fellow at ISRA Institute of INCEIF University, recognised that Islamic finance transactions possess distinctive characteristics that may require tailored accounting and reporting treatment. They suggested the selective adoption of the Financial Accounting Standards (FAS) issued by the Accounting and Auditing Organisation for Islamic Financial Institutions.

Md. Mahamud Hosain, FCA, former Council Member of Institute of Chartered Accountants of Bangladesh, stated that IFRS alone may not fully capture the distinctive features of Islamic finance transactions. He also observed that some banks' annual reports do not always reflect the true financial performance, underscoring the need for more transparent and Shariah-aligned disclosures.

The discussion highlighted the need to balance global accounting convergence with the unique contractual and risk-sharing features of Islamic finance.

Reassessing the Dual Banking Architecture

A.K.M. Mizanur Rahman, EVP and Deputy Chief of EBL Islamic Banking, highlighted the importance of a dual Islamic banking architecture in which Islamic windows operate alongside full-fledged Islamic banks. Md. Arif Bin Idrish, EVP and Head of Islamic Banking at Mutual Trust Bank PLC, supported this view.

Speakers suggested that regulatory safeguards, governance discipline, and clear market positioning are necessary to ensure that dual structures do not dilute Shari'ah standards or create competitive distortions.

Scaling Islamic Finance Companies Beyond Bank-Centric Growth

Humaira Azam, Managing Director and CEO of LankaBangla Finance PLC, called for policy support to scale Islamic finance companies beyond bank-centric growth. She highlighted licensing and operational gaps faced by non-bank Islamic finance providers and urged regulators to create an enabling framework.

Mohammad Abdul Hannan, Head of Islamic Finance, IDLC Finance PLC, observed that since Islamic finance avoids certain income streams that are permissible in conventional finance, tax and regulatory frameworks should be structured accordingly to support the sustainable growth of Islamic finance companies. He explained that many Islamic financial transactions require institutions to purchase underlying assets before selling or leasing them to customers in compliance with Shariah principles therefore, such intermediary asset purchases – undertaken solely to facilitate Shariah-compliant financing – should receive special tax and VAT considerations to prevent unintended fiscal burdens and ensure regulatory neutrality.

Participants agreed that diversification of Islamic financial institutions, including NBFIs, asset management firms, and capital market intermediaries, is essential for building a resilient ecosystem.

Takaful and Islamic Social Finance

The roundtable also examined the Takaful sector. Imran Loskar, CEO of Actuary Bangladesh, emphasised the need to strengthen governance frameworks within Takaful institutions.

In addition, participants discussed Islamic social finance and microfinance, noting that Bangladesh's global leadership in microfinance offers significant opportunities to integrate Shari'ah-compliant social finance instruments. However, structural constraints and limited policy alignment have slowed progress.

Islamic Capital Market Development

Sk. Md. Lutful Kabir, Additional Director of the Bangladesh Securities and Exchange Commission, identified recommended approaches to developing the Islamic capital market in Bangladesh. These include the establishment of a separate Islamic Capital Market Department; the introduction of a uniform Shari'ah index methodology under the guidance of a local Shari'ah Advisory Board for both DSE and CSE, with public disclosure for all investors; the creation of dedicated desks for Shari'ah-based products at both exchanges to introduce product features, processes, and legal and Shari'ah considerations; the issuance of separate guidance notes by BSEC for different types of Shari'ah-based products; and exploring the issuance of Sukuk directly through the capital market to finance infrastructure projects.

Thematic Engagement and Practical Solutions

Several speakers expressed concern over supervisory weaknesses in certain institutions and stressed the importance of improved monitoring to prevent governance failures. They called for regular thematic engagement among regulators, industry leaders, scholars, and academics to ensure that challenges are accurately identified and solutions remain practical and implementable.

Among other contributors were Dr. Hasina Sheykh of the Department of Banking and Insurance; Dr. Muhammad Yousuf Ibn Hossain, Professor at the University of Dhaka; Dr. Md. Anowar Hossain Bhuiyan of National University; and Dr. Abu Talib Mohammad Monawer of International Islamic University Chittagong.

From Discussion to Action

The overall tone of the roundtable was candid yet constructive. Participants agreed that Bangladesh stands at a critical juncture. Islamic banking and finance have achieved scale and visibility, but their long-term credibility depends on institutional reform, regulatory clarity, governance integrity, and intellectual leadership.

The unveiling of IBFBD 2025 symbolised a commitment to evidence-based analysis and continuous review. Speakers emphasised that the industry must move beyond labels and slogans towards measurable outcomes, transparent reporting, and operational excellence.

As the session concluded, a shared message emerged: Islamic finance in Bangladesh cannot rely solely on demographic advantage or historical momentum. It must evolve through structural reform, knowledge development, and principled governance.

If implemented with seriousness and collaboration, the recommendations emerging from this roundtable may shape the next phase of Islamic finance development in Bangladesh, grounded in discipline, transparency, and sustainable growth.