Bangladesh to strengthen Islamic banking regulation
Central bank reforms aim to standardize Sharia compliance, improve liquidity management, and strengthen oversight of systemically important Islamic banks
DHAKA, Bangladesh (MNTV) — Bangladesh is moving to strengthen the regulatory framework of its rapidly growing Islamic banking sector, as the central bank introduces reforms aimed at improving oversight, standardizing Sharia compliance, and addressing long-standing structural challenges.
Islamic banking, which began with a single institution in the 1980s, has grown into a major part of Bangladesh’s financial system, holding a significant share of deposits and investments. The sector has operated for decades under a hybrid framework, relying on conventional banking laws alongside central bank guidelines issued in 2009 for Sharia-compliant banking.
However, the absence of a dedicated Islamic Banking Act has meant limited legal clarity in areas such as dispute resolution, contract enforcement, and risk management, prompting regulators to move toward a more formalized system.
In recent reforms, Bangladesh Bank made Sharia Supervisory Committees mandatory for all Islamic banks and placed greater responsibility on bank boards to ensure Sharia compliance, supported by dedicated Sharia secretariats.
A major development is the establishment of a central Sharia Advisory Board at the central bank, effective from January 2026, to standardize interpretations, resolve disputes, and guide product development across the sector.
The central bank has also taken a more active regulatory role. In 2025, five distressed Islamic banks were consolidated into a single entity, Sammilito Islami Bank PLC, in a move aimed at protecting depositors and stabilizing the sector.
The Bank Resolution Ordinance, 2025, also formally recognized Islamic banking as systemically important, giving the central bank stronger intervention powers.
Liquidity management, a long-standing challenge for Islamic banks due to the lack of Shariah-compliant financial instruments, is also being addressed. Authorities have introduced Sukuk-based liquidity facilities and are supporting the development of a Mudaraba-based interbank market to reduce reliance on conventional financial benchmarks.
Despite these reforms, challenges remain, including the lack of a comprehensive Islamic banking law, governance concerns related to Sharia board independence and audit quality, and rising non-performing investments in some banks.
Officials say future reforms will focus on strengthening the legal framework, expanding Islamic financial instruments, improving regulatory capacity, and aligning the sector with international standards.
The recent measures mark a shift from a guideline-based system to a more institutionalized regulatory framework, as Bangladesh seeks to strengthen the stability of its Islamic banking sector and position itself as a regional hub for Sharia-compliant finance.
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