The journey of Islamic banking in Bangladesh started in 1983 with the inception of Islami Bank Bangladesh PLC. Over the past 41 years, Shari’ah-based banking has gained popularity in Bangladesh.
This banking system contributes significantly to the national economy and supports entrepreneurial activities by expanding Shari’ah-compliant, service-oriented, and financially inclusive banking services nationwide.
According to statistics, almost one-third of the country's banking sector is now under Islamic banking. Due to this popularity, conventional banks are also accepting Shari’ah-based banking activities. Even many conventional banks are operating Islamic banking activities through specialised branches and windows.
The Islamic financial sector is now considered a global financial sector in terms of its assets such as various types of Islamic financing, Islamic bonds (Sukuk), Shari’ah-compliant mutual funds and Islamic insurance (Takaful), etc. The Islamic banking system is expanding globally through risk-sharing, financial inclusion and real-asset-based transactions. Recent decades have witnessed a remarkable expansion of Islamic banking across the globe. It is no longer confined to Muslim-majority countries; rather, hundreds of Islamic banking and financial institutions are operating in different countries of the world, including the United States, the United Kingdom, Germany, Argentina, Denmark, Luxembourg, Switzerland and India.
The Bank of Whittier-United States, Al Rayan Bank PLC-United Kingdom, KT Bank-Germany, Dawood Islamic Bank-Argentina, and Islamic Bank International of Denmark are notable.
The total assets of Islamic banks worldwide are more than three trillion US dollars and are growing continuously. The total assets of Islamic finance worldwide are more than four trillion US dollars, which is expected to reach about six trillion by 2026. In keeping with the global trend, the Islamic banking system is building a stronger position day by day in Bangladesh.
Policy support of Bangladesh Bank is also playing an important role in the development of the sector. The Islamic banking system has a significant contribution to the growth and economic development of Bangladesh. The Islamic banking system in the country has seen phenomenal growth and expansion in the last few decades with a significant increase in deposits and investments.
Islamic banking has expanded widely in terms of branches and operations. According to the latest data from Bangladesh Bank, there were 10 full-fledged Islamic banks in Bangladesh at the end of the quarter of September 2023. Banks are operating Islamic banking through 1,671 branches across the country. On the other hand, at the same time, there were 11 thousand 219 branches in the entire banking sector of the country. Considering the percentage of branches, 15 per cent of the entire banking sector of the country is being operated in the Islamic banking system.
Besides 10 full-fledged Islamic banks, 30 Islamic banking branches of 15 conventional banks are functioning. Besides, 615 Islamic banking windows of 15 conventional commercial banks are now providing Islamic financial services in Bangladesh.
Islamic banking has made significant contributions to economic development by promoting financial inclusion and providing services to marginalised people. Due to the rapid growth and success of Islamic banking activities, they have gradually become attractive and profitable to conventional banks. The people of Bangladesh believe in Islamic values can be understood by the deposit growth of Islamic banks.
According to Bangladesh Bank data, total deposits in Islamic banking at the end of the September 2023 quarter were Tk 4319.89 billion. Deposit increased by about Tk 39.89 billion from the same quarter of 2022 with a growth of 0.93 per cent. The deposit status in the conventional bank window is Tk 193.83 billion and the deposit status in the conventional bank branch is Tk 174.64 billion. The total deposit of 10 full-fledged Islamic banks was 91.47 per cent of the Islamic banking system. Among all Islamic banks, Islami Bank Bangladesh PLC (IBBPLC) had 34.54 per cent of deposits. Moreover, Islami Bank is the first bank in the country with a total of 23 million customers in 394 branches and 249 sub-branches.
The Islamic banking system is playing a unique role in national development through strategic fund deployment. Islamic Banks have significantly contributed to various sectors, including large industries, CMSMEs (cottage, micro, small, and medium enterprises), the construction sector, the service industry, consumer investment, agriculture, and fisheries.
According to the latest data of Bangladesh Bank for the quarter of September 2023, the investment of Tk 4290.71 billion in the Islamic banking system is distributed in various sectors in the country, which is Tk 75.95 billion more than the previous quarter of September 2022. Investment in the Islamic banking system is 28 per cent of the country's overall banking sector investment. Islami Bank Bangladesh PLC is playing a leading role in this sector, where the investment made by Islami Bank is about 33.65 per cent.
The Islamic banking sector is playing an important role in collecting and disbursing foreign remittances. In the September quarter of 2023, total remittance collection in the Islamic banking system was Tk 280.47 billion, which is 78.25 billion or 26.38 per cent more than the previous quarter. Among the Islamic banking system, Islami Bank Bangladesh PLC topped the third quarter in terms of remittance collection (48.14 per cent).
The Islamic banking system has contributed significantly to various sub-sectors of agriculture and rural investment programmes. In the third quarter of last year, investment in the agricultural sector through the Islamic banking system was Tk 15.90 billion. However, 16.47 per cent of the agricultural investment disbursement of the entire banking sector of the country is disbursed through the Islamic banking system.
The objective of Islamic banking is to increase social values and bring economic emancipation through banking activities. Islamic banks are making a significant contribution to the implementation of social responsibility in business, Bangladesh is no exception. Islamic banks are fulfilling their goals and objectives by adopting and implementing various social programmes under Corporate Social Responsibility (CSR) activities. Islamic banks carry out CSR activities with funds collected from Zakat, compensation charges taken as punitive charges from investment defaulters and other Shari’ah-approved sources of revenue. This amount is spent on education, training, healthcare and charitable organisations including various welfare works such as the burial of unclaimed dead bodies, gifts to newborns, afforestation and fruit cultivation. In this regard, Islami Bank Bangladesh PLC has been conducting social responsibility activities to the maximum extent by following the principles of Bangladesh Bank.
According to the bank's 2022 data, Islami Bank has distributed a total of Tk 327.36 crore to the government relief fund including education, health, natural calamities, unemployed, helpless and poor people. It is mentionable Islami Bank boasts 29 per cent of the contribution in CSR expenditure made by the total banking industry. According to the data of 2023, the bank has spent a total of more than Tk 100 crore on CSR activities. Besides, Islami Bank has so far spent a total of Tk 1,658 crore under social responsibility activities among about two crore beneficiaries.
