Bangladesh does not yet have any stand-alone or comprehensive legislation for Islamic Finance. However, there are a number of sector-specific rules, guidelines, policies etc. to govern the legal aspects of Islamic financial transactions, which are listed as follows:
Islamic Banking
The only governing law for Islamic banking in Bangladesh is the Bangladesh Bank Guidelines for Conducting Islamic Banking, 2009, which sheds light on a number of products for Islamic finance (e.g. Mudaraba, Musharaka, Bai-Murabaha, Salam, etc.
However, the key corporate legislations e.g. the Companies Act 1994, the Bank Companies Act 1991 have accommodated the aspects of Islamic baking through minor amendments (e.g. Islamic banks are allowed to sell, purchase, and exchange commodities pursuant to accepted shariah norms, which is prohibited for conventional banks (e.g. section 9 of the Bank Companies Act, 1991).
Islamic Capital Market (Sukuk)
The first piece of law on Sukuk came in 2004, when the Bangladesh Bank issued a Sukuk Rule to govern the administration of a short-term Islamic Bond issued by the Govt. of Bangladesh. This rule, however, merely sets out the procedural aspects and required documentation for issuance of the bond, and was not intended for the development of sukuk. Therefore, it did not address aspects of Shariah compliance, dispute resolution, and incentives for the investors (e.g. tax benefits). Furthermore, the the very first sukuk of the country (BGIIB) was intended for the use of banks only to comply with the SLR, and therefore, was not open to public.
It is pertinent to note that despite this piloting initiative back in 2004, no major or effective step was visibly taken by the Govt. to improve the sukuk financing situation in the last 15 years until a rule on Investment sukuk was issued by Bangladesh Securities and Exchange Commission in May 2019 which covers the areas of sukuk definition, formation and administration of the SPV, sukuk asset management aspects as well as shariah standardization issues.
Islamic Insurance
While Bangladesh does not have a standalone law for Islamic insurance, the Insurance Act, 2010 has a specific provision (section 7) that provides specific directions for Islamic insurance business in Bangladesh. Furthermore, very recently the Insurance regulator of the country, i.e. Insurance Development and Regulatory Authority (IDRA) has prepared a draft rules for Islamic Insurance and currently seeks for stakeholder consultation.
Shariah Aspects of Islamic Finance Industry
Despite being a Muslim-majority country, Bangladesh is constitutionally secular and does not recognize the application of Shariah except for specific personal issues (by the promulgation of the Muslim Personal Law (Shariat) Application Act, 1937). Therefore, Bangladesh does not have a formal Shariah board to govern the Islamic banking industry.
However, the main body responsible for ensuring that Islamic financial institutions in Bangladesh function by Shariah is a private organization known as the Central Sharī’a Board of Islamic Banks (CSBIB). The CSBIB is a legally recognized organization (Govt. Reg. No. S-9922 of 2009) whose primary goal is to provide the govt., the central bank, the regulatory body, and member banks with all necessary cooperation and assistance. The CSBIB currently has a membership that includes ten fully-fledged Islamic banks, seven conventional banks with Islamic banking windows, ten conventional banks with Islamic banking branches, and one non-bank Islamic financial institution. Indeed, many other Islamic banking branches and windows have yet to join. These institutions show their dedication to following sharī’a law by entering the CSBIB.
Conclusion
A thorough Islamic banking law must be passed in Bangladesh in order to give the mature banking sector a legal foundation. Dynamic leadership in the industry would be ensured by the proper enactment of laws and regulations, the practice of ethical transactions, the exercise of good governance, and a compliance culture. Because the demand for Islamic banking, which currently makes up one-third of the whole banking industry, is rapidly growing day by day.
Disclaimer: This brief is for general awareness and academic purposes only, and it does not, and is not intended to, constitute or to be construed as legal advice. You are advised to obtain advice from an Advocate with respect to any particular legal matter.