Why does Bangladesh require a centralized Shariah governance framework for Islamic banks?
Abstract
The main objective of this article is to describe the logical reasons why a Centralized Shariah Governance Framework (CSGF) provided by the Central Bank of Bangladesh (Bangladesh Bank) is essential for the country’s Islamic banks. In doing so, it identifies the major regulatory challenges (self-developed and disparate use of Shariah Governance (SG) practices) faced by Islamic banks in Bangladesh. It considers an analytical approach to explore the significance of a CSGF for Islamic banks in Bangladesh and examines the current diversified procedures of SG practices. This article reveals that the self-developed SG practices of Islamic banks in Bangladesh have created confusion and pessimism among the practitioners, bankers and even to the general people and regulators which is negatively affecting the overall image of Islamic banks. Such incongruent governance practices have led to inconsistencies in SG structures, implementation procedures, monitoring activities. In addition, this article reveals that these deficiencies usually exist due to weak monitoring systems of the Central Bank, ineffective functioning of individual Shariah Supervisory Boards (SSB) and the absence of comprehensive SGF. The article argues that the Central Bank of Bangladesh should initiate to reform its Islamic banking industry by introducing a CSGF aimed to identify the roles, responsibilities, powers, and functions of SSB; thereby improving governance, accountability, and overall Shariah compliance quality. This article is hoped to be beneficial for the regulators and practitioners to consider revising current practices.
Keywords: Centralization, Bangladesh Bank, Islamic banks, Shariah governance framework.
References
Abdullah, M. F., & Rahman, A. (2017). Shari’ah governance of Islamic banks in Bangladesh issues and challenges. Journal of Islamic Economics, Banking & Finance, 13(3), 82-94.
Adams, R. B., & Ferreira, D. (2012). Regulatory pressure and bank directors’ incentives to attend board meetings. International Review of Finance, 12(2), 227-248.
Ahmad, A. U. F., Rashid, M., & Shahed, A. K. M. (2014). Perception of bankers and customers towards deposit and investment mechanisms of Islamic and
conventional banking: Empirical evidence from Bangladesh. Journal of Islamic Business and Management, 4(2), 91-114.
Ahmed, M., & Khatun, M. (2013). The compliance with Shariah governance system of AAOIFI: A study on Islamic banks Bangladesh introduction. Journal of Islamic
Economics, Banking and Finance, 9(3), 177-191.
Ahmed, M. U. (2017). External Shariah audit of Islamic banks. https://www.researchgate.net/publication/316071006_External_Shariah_Audit_of_Islamic_Banks.
Alam, M. K., Rahman, S. A., Mustafa, H., Shah, S. M., & Hossain, M. S. (2019). Shariah governance framework of Islamic banks in Bangladesh: Practices, problems
and recommendations. Asian Economic and Financial Review, 9(1), 118-132.
Alam, M. K., Tabash, M. I., Thakur, O. A., Sahabuddin, M., Hosen, S., & Hassan, M. F. (2020a). A central Shariah regulatory authority for the Islamic banks in
Bangladesh: Legalization or formation. Journal of Asian Finance, Economics and Business, 7(1), 91-100.
Alam, M. K., Miah, M. S, Siddiquii, N., & Hossain, M. I. (2020b). The Influences of board of directors and management in Shariah governance guidelines of the
Islamic banks in Bangladesh. Journal of Islamic Accounting and Business Research, 11(9), 1633-1647.
Alam, M. K., Rahman, S. A., Thakur, O. A., Bashir, M. A., & Hosen, S. (2020c). The reasons behind the absence of a comprehensive Sharī‘ah governance framework
for the Islamic banks in Bangladesh. International Journal of Economics and Business Administration, 8(1), 134-145.
Alam, M. K., Mustafa, H., Uddin, M. S., Islam, M. J., Mohua, M. J., & Hassan, M. F. (2020d). Problems of Shariah governance framework and its mechanisms: An
empirical investigation of Islamic banks in Bangladesh. Journal of Asian Finance, Economics and Business, 7(3), 265-276.
Alam, M. K., Islam, F. T., & Runy, M. K. (2021a). Why does Shariah governance framework important for Islamic banks? Asian Journal of Economics and Banking,
5(2), 158-172.
Alam, M. K., Rahman, M. M., Islam, F. T., Adedeji, B. S., Mannan, M. A., & Sahabuddin, M. (2021b). The practices of Shariah governance systems of Islamic banks in
Bangladesh. Pacific Accounting Review, 33(4), 505-524.
Alam, M. K., & Miah, M. S. (2021). Independence and effectiveness of Shariah supervisory board of Islamic banks: Evidence from emerging economy. Asian Review
of Accounting, 29(2), 173-191.
Bangladesh Bank. (2009). Guideline for conducting Islamic banking, Dhaka, Bangladesh Bank.
https://www.bb.org.bd/aboutus/regulationguideline/islamicbanking/islamicguide.php.
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Bindabel, W. A. (2017). The influence of Shariah (Islamic principles) corporate governance on cross-border merger and acquisitions involving Islamic companies in
the Gulf Countries. (Unpublished doctoral dissertation). De Montfort University, United Kingdom.
BNM. (2010). Shariah governance framework for Islamic financial institutions (BNM/RH/GL 012-3). Bank Negara Malaysia.
Chapra, U., & Khan, T. (2000). Regulations and supervision of Islamic banks. Islamic Research and Training Institute (IRTI), Jeddah.
Hamza, H. (2013). Sharia governance in Islamic banks: Effectiveness and supervision model. International Journal of Islamic and Middle Eastern Finance and
Management, 6(3), 226-237.
Hasan, Z. (2014). In search of the perceptions of the Shari'ah scholars on Shari'ah governance system. International Journal of Islamic and Middle Eastern Finance
and Management, 7(1), 22-36.
Hasan, A., & Sabirzyanov, R. (2015). Optimal Shari’ah governance model in Islamic finance regulation. International Journal of Education and Research, 3(4), 243-
258.
Hassan, M. K., Ullah, M. H., & Khanam, R. (2017). Shariah governance practices in Bangladesh. In N. Ali (Ed.), Shariah governance systems and practices in a
globalized world. https://www.researchgate.net/publication/322077917_Shari'ah_Governance_Practices_in_Bangladesh
IFSB. (2009). Guiding principles on Shari'ah governance systems for institutions offering Islamic financial services. Islamic Financial Services Board.
Jiraporn, P., Davidson, W. N., Dadalt, P., & Ning, Y. (2009). Too busy to show up? An analysis of directors’ absences. The Quarterly Review of Economics and
Finance, 49(3), 1159-1171.
Kasim, N., NuHtay, M. S. N., & Salman, S. A. (2013). Shariah governance for Islamic capital market: A step forward. International Journal of Educational Research,
1(6), 1-14.
Lahsasna, A., & Saba, I. (2014). Shariah governance in the Islamic financial institution: Issues and challenges. Rajawali Press.
Noman, A. H., Pervin, S., Chowdhury, N. J., Hossain, A., & Banna, H. (2017). Comparative performance analysis between conventional and Islamic banks in
Bangladesh: An application of Binary Logistic Regression. Asian Social Science, 11(21), 248-257.
Oseni, U. A., Ahmad, A. U. F., & Hassan, M. K. (2016). The legal implications of Fatwā Shopping’ in the Islamic finance industry: Problems, perceptions and
prospects. Arab Law Quarterly, 30(2), 107–137.
Perves, M. M. (2015). Legal and regulatory framework in Islamic banking system: Bangladesh perspective. European Journal of Business and Management, 7(21),
179-188.
Rahman, J. M. (2014). Cost-benefit analysis of implementing Shari’ah auditing as a separate discipline in Bangladeshi Islamic banks. Applied Accounting -
Practitioner eJournal, 1(1), 1–18.
Razak, A. H. A. (2018). Centralization of corporate governance framework for Islamic financial institutions: Is it a worthy cause? ISRA International Journal of
Islamic Finance, 10(1), 36-51.
Sarker, A. A. (2005). Islamic banking in Bangladesh: Achievements and challenges. Journal of Islamic Economics, Banking and Finance, 1(1), 45-59.
Sori, Z. M., Mohamad, S., & Shah, M. (2015). Shariah governance practices in Malaysian Islamic financial institutions. SSRN Electronic Journal, 1(1), 1-15.
Soualhi, Y. (2016). Models of Shariah governance across jurisdictions. In I. Reuters & T. Reauters (Eds.), Islamic commercial law report (pp. 22-25). Islamic Finance
Gateway.
Uddin, M. H. (2014). Measuring the performance of Islamic banks in Bangladesh: An exploratory study. International Journal of Ethics in Social Sciences, 2(1), 73-
94.
Ullah, H. (2014). Shari’ah compliance in Islamic banking - An empirical study on selected Islamic banks in Bangladesh. International Journal of Islamic and Middle
Eastern Finance and Management, 7(2), 182–199.
Adams, R. B., & Ferreira, D. (2012). Regulatory pressure and bank directors’ incentives to attend board meetings. International Review of Finance, 12(2), 227-248.
Ahmad, A. U. F., Rashid, M., & Shahed, A. K. M. (2014). Perception of bankers and customers towards deposit and investment mechanisms of Islamic and
conventional banking: Empirical evidence from Bangladesh. Journal of Islamic Business and Management, 4(2), 91-114.
Ahmed, M., & Khatun, M. (2013). The compliance with Shariah governance system of AAOIFI: A study on Islamic banks Bangladesh introduction. Journal of Islamic
Economics, Banking and Finance, 9(3), 177-191.
Ahmed, M. U. (2017). External Shariah audit of Islamic banks. https://www.researchgate.net/publication/316071006_External_Shariah_Audit_of_Islamic_Banks.
Alam, M. K., Rahman, S. A., Mustafa, H., Shah, S. M., & Hossain, M. S. (2019). Shariah governance framework of Islamic banks in Bangladesh: Practices, problems
and recommendations. Asian Economic and Financial Review, 9(1), 118-132.
Alam, M. K., Tabash, M. I., Thakur, O. A., Sahabuddin, M., Hosen, S., & Hassan, M. F. (2020a). A central Shariah regulatory authority for the Islamic banks in
Bangladesh: Legalization or formation. Journal of Asian Finance, Economics and Business, 7(1), 91-100.
Alam, M. K., Miah, M. S, Siddiquii, N., & Hossain, M. I. (2020b). The Influences of board of directors and management in Shariah governance guidelines of the
Islamic banks in Bangladesh. Journal of Islamic Accounting and Business Research, 11(9), 1633-1647.
Alam, M. K., Rahman, S. A., Thakur, O. A., Bashir, M. A., & Hosen, S. (2020c). The reasons behind the absence of a comprehensive Sharī‘ah governance framework
for the Islamic banks in Bangladesh. International Journal of Economics and Business Administration, 8(1), 134-145.
Alam, M. K., Mustafa, H., Uddin, M. S., Islam, M. J., Mohua, M. J., & Hassan, M. F. (2020d). Problems of Shariah governance framework and its mechanisms: An
empirical investigation of Islamic banks in Bangladesh. Journal of Asian Finance, Economics and Business, 7(3), 265-276.
Alam, M. K., Islam, F. T., & Runy, M. K. (2021a). Why does Shariah governance framework important for Islamic banks? Asian Journal of Economics and Banking,
5(2), 158-172.
Alam, M. K., Rahman, M. M., Islam, F. T., Adedeji, B. S., Mannan, M. A., & Sahabuddin, M. (2021b). The practices of Shariah governance systems of Islamic banks in
Bangladesh. Pacific Accounting Review, 33(4), 505-524.
Alam, M. K., & Miah, M. S. (2021). Independence and effectiveness of Shariah supervisory board of Islamic banks: Evidence from emerging economy. Asian Review
of Accounting, 29(2), 173-191.
Bangladesh Bank. (2009). Guideline for conducting Islamic banking, Dhaka, Bangladesh Bank.
https://www.bb.org.bd/aboutus/regulationguideline/islamicbanking/islamicguide.php.
Bangladesh Bank Report. (2019). Developments of Islamic banking in Bangladesh, quarterly report, July-September 2019. Bangladesh Bank Dhaka.
Bindabel, W. A. (2017). The influence of Shariah (Islamic principles) corporate governance on cross-border merger and acquisitions involving Islamic companies in
the Gulf Countries. (Unpublished doctoral dissertation). De Montfort University, United Kingdom.
BNM. (2010). Shariah governance framework for Islamic financial institutions (BNM/RH/GL 012-3). Bank Negara Malaysia.
Chapra, U., & Khan, T. (2000). Regulations and supervision of Islamic banks. Islamic Research and Training Institute (IRTI), Jeddah.
Hamza, H. (2013). Sharia governance in Islamic banks: Effectiveness and supervision model. International Journal of Islamic and Middle Eastern Finance and
Management, 6(3), 226-237.
Hasan, Z. (2014). In search of the perceptions of the Shari'ah scholars on Shari'ah governance system. International Journal of Islamic and Middle Eastern Finance
and Management, 7(1), 22-36.
Hasan, A., & Sabirzyanov, R. (2015). Optimal Shari’ah governance model in Islamic finance regulation. International Journal of Education and Research, 3(4), 243-
258.
Hassan, M. K., Ullah, M. H., & Khanam, R. (2017). Shariah governance practices in Bangladesh. In N. Ali (Ed.), Shariah governance systems and practices in a
globalized world. https://www.researchgate.net/publication/322077917_Shari'ah_Governance_Practices_in_Bangladesh
IFSB. (2009). Guiding principles on Shari'ah governance systems for institutions offering Islamic financial services. Islamic Financial Services Board.
Jiraporn, P., Davidson, W. N., Dadalt, P., & Ning, Y. (2009). Too busy to show up? An analysis of directors’ absences. The Quarterly Review of Economics and
Finance, 49(3), 1159-1171.
Kasim, N., NuHtay, M. S. N., & Salman, S. A. (2013). Shariah governance for Islamic capital market: A step forward. International Journal of Educational Research,
1(6), 1-14.
Lahsasna, A., & Saba, I. (2014). Shariah governance in the Islamic financial institution: Issues and challenges. Rajawali Press.
Noman, A. H., Pervin, S., Chowdhury, N. J., Hossain, A., & Banna, H. (2017). Comparative performance analysis between conventional and Islamic banks in
Bangladesh: An application of Binary Logistic Regression. Asian Social Science, 11(21), 248-257.
Oseni, U. A., Ahmad, A. U. F., & Hassan, M. K. (2016). The legal implications of Fatwā Shopping’ in the Islamic finance industry: Problems, perceptions and
prospects. Arab Law Quarterly, 30(2), 107–137.
Perves, M. M. (2015). Legal and regulatory framework in Islamic banking system: Bangladesh perspective. European Journal of Business and Management, 7(21),
179-188.
Rahman, J. M. (2014). Cost-benefit analysis of implementing Shari’ah auditing as a separate discipline in Bangladeshi Islamic banks. Applied Accounting -
Practitioner eJournal, 1(1), 1–18.
Razak, A. H. A. (2018). Centralization of corporate governance framework for Islamic financial institutions: Is it a worthy cause? ISRA International Journal of
Islamic Finance, 10(1), 36-51.
Sarker, A. A. (2005). Islamic banking in Bangladesh: Achievements and challenges. Journal of Islamic Economics, Banking and Finance, 1(1), 45-59.
Sori, Z. M., Mohamad, S., & Shah, M. (2015). Shariah governance practices in Malaysian Islamic financial institutions. SSRN Electronic Journal, 1(1), 1-15.
Soualhi, Y. (2016). Models of Shariah governance across jurisdictions. In I. Reuters & T. Reauters (Eds.), Islamic commercial law report (pp. 22-25). Islamic Finance
Gateway.
Uddin, M. H. (2014). Measuring the performance of Islamic banks in Bangladesh: An exploratory study. International Journal of Ethics in Social Sciences, 2(1), 73-
94.
Ullah, H. (2014). Shari’ah compliance in Islamic banking - An empirical study on selected Islamic banks in Bangladesh. International Journal of Islamic and Middle
Eastern Finance and Management, 7(2), 182–199.
Published
2022-01-13
How to Cite
Alam, M. K., & Thakur, O. A. (2022). Why does Bangladesh require a centralized Shariah governance framework for Islamic banks?. Journal of Nusantara Studies (JONUS), 7(1), 24-42. https://doi.org/10.24200/jonus.vol7iss1pp24-42
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Articles
