Diversification of Islamic Financial Instruments
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Islamic Banking industry, as a whole, with respect to Islamic Microfinance is commendable.
Since the core objectives of Islamic banking industry are to fulfill the Maqasid-al-Shariah, this
includes the aims to help expedite the financial inclusion drives with Islamic financial literacy
programs, and to associate the poor and disadvantaged people of the country in small types of
income generating activities so that they can get a space to live as a respectable human being.
As the bulk of the investments made by Islamic banks have been concentrated in trade and
rent-related sectors, they may invest more in socially desirable and sustainable real sectors
especially in micro, share-cropping, non-traditional agriculture and small enterprises. Islamic
banks, through profit and loss sharing mode of investments including Zakat, Awkaf (plural of
Waqf) and charitable activities, have been able to create an alternative pathway to reduce
poverty in Bangladesh. As generally, the people of Bangladesh have a desire to abide by the
rules and principles set by Shariah, the demand for interest free banking in Bangladesh is
increasing. As Shariah is the backbone of the Islamic banking industry, a comprehensive
Islamic legal infrastructure with clear ground and commitment is necessary to help expedite
Islamic financial industry to spur as it intended for ensuring human welfare.
Islamic banking sector, including Islamic NBFIs is an important pillar in the development of the
Bangladesh financial sector. The Bangladesh Bank leadership is cognizant of the need to
ensure that an appropriate enabling environment, in the form of an updated (in line with
international standards) regulatory and supervisory framework, as well as effective day-to-day
supervision, is in place to enable and preserve the Islamic banking sector’s safety and
soundness. Achieving a sound and high quality baseline legislative, regulatory and supervisory
framework and effective day-to-day supervision, in line also with the minimum standards
proposed by the Islamic Financial Services Board’s (IFSB’s) Core Principles for Islamic Finance
Regulation, would provide a sound foundation. More foreign direct investment may be
attracted in the form of new Islamic banks and takaful91 entities, the development of Islamic
capital markets and issuing of Sukuk.92
The absence of a comprehensive legal system on the basis of Shariah for a long time resulted in
the lack of legal infrastructure institutions that can support the use of Islamic commercial law
during contemporary times. With the advent of Islamic finance, Islamic financial contracts are
being used, but this is being done in an alien legal environment. For that reason, laws and
courts are unable to interpret and enforce the form of these contracts. Successful application of
Islamic law in contemporary financial transactions requires various supporting legal
infrastructure institutions. To ensure the growth of the Islamic financial industry, there is a
need to have dispute settlement institutions or Islamic courts that understand the form of the
contracts so that these can be interpreted and enforced accordingly. While the whole court
system for the practical reason is not expected to re-design as per Sharia'h, but a solution may
be to have special Islamic bench at high court that may deal with, among others, Islamic
financial transactions. A sound legislative framework is a precondition to ensure the financial
stability of the Islamic banking sector and the safety and soundness of individual Islamic
banks.
91As per Islamic Financial Services Board (IFSB) definition of takaful: A contract whereby a group of participants
(Mushtarikīn) agree among themselves to support one another by contributing a sum of money into a common fund, which
will be used for mutual assistance of the members against specified loss or damage.
92 IFSB definition of sukuk: Certificates that represent a proportional undivided ownership right in tangible assets, or a pool
of assets that is Sharia'h-compliant.