National and Global Islamic Financial Architecture:
Prolems and Possible Solutions for the OIC Member Countries
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and AAOIFI standards (p. 9), and the second was related to promoting primary and secondary
transactions in the Islamic bond markets by improving the trading platform and infrastructure.
4.1.2. Legal Infrastructure
Supporting Islamic Finance Laws
Different financial and banking laws and acts govern different segments of the financial sector.
The Banking Companies Act, 1991 (BCA 1991) amended in 2003 governs the banking sector in
the country. While no specific act on Islamic banking exists, BCA 1991 incorporates some
provisions of Islamic banking. The NBFI is governed by the Financial Institutions Act, 1993 (Act
27 of 1993) and the regulations have been made thereunder (BB 2005-06).
The insurance business in the country is undertaken under the Insurance Act 1938. The
government passed two insurance laws in 2010 in a bid to further strengthen the regulatory
framework and make the industry operationally vibrant. The new laws are the Insurance Act
2010 and the Insurance Development and Regulatory Authority (IDRA) Act 2010. As in the
case of banking, there is no separate act for takaful operations in Bangladesh. However, the
Insurance Act 2010 provides for the appointment of Shariah consultants for the proposed
Insurance Development and Regulatory Authority (IDRA) to function properly. IDRA has yet to
form the five-member board for the body. The Securities and Exchange Commission Act 1993
amended in 2012 governs the capital markets. While Bangladesh has securities and trust laws,
currently there are no specific provisions to accommodate sukuk issuance.
In summary, no separate act or law relating to Islamic finance (banking, takaful and capital
markets) exist in the country. The legal framework for the Islamic financial industry is
established by some clauses or provisions that are incorporated in the existing financial acts
and laws.
Tax regimes and impact on Islamic finance
Section 29 of Income Tax Ordinance, 1984 stipulates that interest and profits paid to Islamic
banks can be deducted from income of businesses for tax purposes.19 The Income Tax
Ordinance 1984 allows Islamic banks to deduct profits for tax purposes, but the rule of VAT is
the same for both conventional and Islamic banks. Double taxation issues remain with the
Islamic banks, especially in the case of a transfer of property under the ijarah contract.
Dispute Settlement/Conflict Resolution Framework and Institutions
There is no special dispute resolution framework for cases involving Islamic finance. All cases
related to defaults and non-performing loans are placed under the jurisdiction of the Money
Loan Court for both Islamic and conventional banks. But for a violation of the Negotiable
Instruments Act 1881, the Islamic banks suit cases at the civil courts.
Bankruptcy and Resolution of Banks
The Bankruptcy Act of 1997 covers individuals and as well as companies (GOB 1997a).
Additionally, the Companies Act (Bangladesh) 1994 (Act No. 18 of 1994) (GOB 1997b)
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