Reimagining Islamic banking through first principles and design thinking

Every great transformation begins with a simple question: If we had to build it from scratch, what would we do? Apple asked this when redesigning the computer. Tesla asked it when reimagining the car. bKash asked it when breaking the barrier to banking onboarding. 

Today, Islamic banking must ask the same question.

For years, we tried to fix the old model instead of building the right one. We digitised forms but not philosophy. We automated paperwork but not trust. The result is visible everywhere: conventional banks became faster, but Islamic banking rarely became simpler. Yet the foundations of Islamic economics—prohibitions against riba (interest), gharar (excessive uncertainty), and maysir (gambling), along with requirements for halal investment and real asset backing—are naturally aligned with transparent, verifiable digital systems. What is missing is not Shariah intent, but the design thinking needed to translate that intent into a lived experience.

What went wrong

The tragedy of Bangladesh's Islamic banking is not that it lacks Shariah compliance. The tragedy is that compliance became the entire purpose. What began as economic philosophy became procedural religion.

Islamic finance exists for three reasons: to protect investors seeking a fair return without riba, to safeguard depositors through profit-sharing rather than guaranteed interest, and to serve society by ensuring that capital flows only toward productive, halal activities. The prohibition of gharar demands transparency. The prohibition of maysir demands real asset backing. The prohibition of riba demands risk-sharing. These are not constraints—they are design principles for building fairer finance.

But implementation betrayed philosophy. In Bangladesh, where over 90% of the population shares this ethical framework, Islamic banking operates as if serving a defensive minority. Products mirror conventional banking but come with heavier paperwork. Risk management relies on collateral, despite a foundational commitment to risk-sharing. A woman entrepreneur with a consistent income but no property cannot access financing—despite Islamic economics being designed precisely to enable participation without inherited assets.

This happened because institutions confused compliance with purpose. First-principles thinking forces a different question: if Islamic finance exists to eliminate riba, gharar, and maysir while ensuring halal capital deployment, why are financing decisions opaque, collateral-dependent, and inaccessible to those creating real value?

Design thinking meets Islamic principles

Design thinking asks us to simplify and eliminate friction. When Apple built the iPhone, they didn't improve the keypad—they removed it. When Tesla built the Model S, they didn't optimise the engine—they eliminated it.

This mindset aligns naturally with Islamic finance. Shariah prohibitions are themselves design constraints meant to simplify, not complicate. No riba means transparent profit-sharing visible to all parties. No gharar means contracts must be clear and information complete. No maysir means investments must tie to real economic activity, not speculation. Halal screening means capital deployment must be traceable and verifiable. These principles demand transparency, accountability, and real-sector linkage—exactly what digital infrastructure enables at scale.

Yet current systems replace clarity with paperwork and transparency with committee approval. Design thinking asks how technology can embed Shariah principles into architecture, rather than enforcing them through manual review.

What Islamic banking should actually do

First-principles thinking strips away inherited practices and asks what the system must fundamentally achieve. Islamic banking exists to finance real economic activity while prohibiting riba, gharar, and maysir, and ensuring that all capital flows toward halal purposes. Everything else is accumulated residue—often contradicting these principles.

If we rebuilt Islamic banking today for Bangladesh's Muslim-majority population, would we make Shariah compliance more opaque and harder to verify than conventional lending? No. We would build systems where every principle is continuously verified: transactions prove real economic activity, digital records eliminate gharar through complete transparency, profit-sharing is calculated automatically, and halal screening is embedded in platform architecture.

The failure lies in implementation, not philosophy.

bKash showed the path forward

bKash scaled by replacing trust deficits with transaction data—over ten crore users onboarded without collateral requirements. 

Islamic banking must recognise that if transaction history proves real economic activity (eliminating gharar), if digital records make profit-sharing transparent (eliminating riba disputes), and if marketplace data verifies productive capital use (ensuring halal deployment), then Islamic banking can finally fulfill its purpose—at scale, inclusively, with Shariah principles embedded rather than enforced.

A first-principles blueprint

Imagine an Islamic digital marketplace where artisans, farmers, tailors, and micro-retailers are onboarded instantly. Their transactions create transparent records that automatically satisfy Shariah requirements: real goods sold (no maysir), clear terms recorded (no gharar), profit-sharing tracked digitally (no riba), and business activities verified against halal criteria.

Consider a woman tailor in Gazipur completing forty-seven transactions over three months. Her sales prove real economic activity. Her digital records eliminate gharar. Her business passes halal screening. A Murabaha request is approved in minutes because every Shariah requirement is already verified by transaction data. This is not a compromise of Islamic principles—it is their practical fulfillment.

From manual compliance to embedded shariah

The next phase of Islamic banking will be led by institutions that build platforms where Shariah compliance is architectural, not procedural. Smart contracts can encode Islamic rules directly: automatic halal screening of counterparties and business activities, continuous verification of real asset backing through supply chain integration, transparent profit-sharing calculations executed in real time, and elimination of gharar through complete information disclosure at every transaction step.

For example, a Murabaha contract could automatically verify that the underlying asset exists, calculate profit-sharing based on pre-agreed ratios, and record every step immutably—making disputes about contract terms structurally impossible.

This shift demands stronger data governance and clearer Shariah logic in code. But it also allows Islamic banking to operate at scale while ensuring that every transaction satisfies the prohibitions against riba, gharar, and maysir. Transparency becomes continuous. Accountability becomes automatic.

When Islamic economics feels effortless

The next generation will not choose Islamic banking because it is Shariah-compliant on paper. They will choose it because it feels fair, transparent, and effortless. When profit-sharing is visible, halal screening is automatic, and access depends on contribution rather than collateral, Islamic economics stops being an argument and becomes an experience.

Consider the empirical reality: Islamic banking controls roughly twenty-three percent of Bangladesh's banking assets, yet serves a disproportionately small share of micro and small enterprises, despite serving a ninety percent Muslim population. This gap is not due to demand failure—it is due to design failure.

The moment to act

Islamic economics does not need reinvention—it needs liberation from the bureaucracy that obscures it. The prohibitions against riba, gharar, and maysir, combined with requirements for halal investment and real asset backing, are more naturally suited to transparent digital systems than conventional banking ever was.

What is required now is institutional courage and tactical clarity. Bangladesh Bank should establish a regulatory sandbox specifically for Shariah-compliant digital platforms—learning from Malaysia's AI-driven SME financing models and Indonesia's fintech-enabled zakat systems, but designing for Bangladesh's unique context: a ninety percent Muslim population still underserved by Islamic banks.

Islamic banks should partner with fintech firms to build marketplace infrastructure, rather than merely digitising branches. Shariah boards should shift focus from transaction-by-transaction approval to architectural review—ensuring platforms are designed to make violations structurally impossible, rather than procedurally detectable.

The tools exist. The philosophy has always existed. The population is already aligned. What we need is the intellectual honesty to admit we built the wrong thing—and the institutional will to build it right. When that happens, Islamic banking will not be an alternative to conventional finance. It will be what finance should have been all along: protecting investors without riba, securing depositors through transparency, and serving society through verified halal investment in real economic activity.

Sketch: TBS

Md Mahmudul Hasan is a digital banking and fintech strategist focused on financial inclusion, literacy, innovation, and platform strategy.

Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinions and views of The Business Standard.