This chapter explores the Shariah Governance (SG) of Islamic banks in Bangladesh as compared to global SG practices. Applying semi-structured face-to-face interviews, this study finds that Bangladesh is not far behind the global SG system. Most of the countries have enacted Islamic banking regulations, but Bangladesh does not have any separate banking legislation for Islamic banks. Islamic banks are working on their own instead of centralized functioning under the regulations of the central bank. Islamic banks in Bangladesh are mainly dominated by the ‘buy and sell mode' which is diminishing the real sense of Islamic finance. Islamic banks are not practicing true Islamic banking because of the predetermined profit rate and violation of the Shariah principles. But the central bank has accepted it due to social demands and people's expectations. The corporate social responsibility functions are broader and more focused in Bangladesh as compared to global practices.
Top1. Introduction
The global Shariah Governance (SG) practices of Islamic Financial Institutions (IFIs) vary due to countries’ legal rules and regulations to monitor the overall functions of Islamic banks and finance (Hassan et al., 2011). The governance structure is the written form of guidelines and practiced by the Board of Directors (BOD) to ensure accountability, fairness, and transparency among the concerned stakeholders (customers, investors, shareholders, management, employees, society, and government). The government and regulators deliver the guidelines for controlling the institutions and safeguard the interest of the numerous stakeholders. Accordingly, Ginena and Hamid (2015) stated that SG is a complete system that outlines how IFIs follow the Shariah principles in conducting their business functions. Islamic Financial Service Board (IFSB) (2009) has demonstrated SG systems as “a set of structural procedures where IFIs assure the Shariah compliance throughout its operational activities”. SG is the backbone of the IFIs because it outlines a comprehensive procedure for ensuring the Shariah rules to accomplish the business functions. Without the SG it is impossible to assure a proper Islamic financing system. Thus, a comprehensive SG structure is grounded on four pillars i.e., Shariah Supervisory Board (SSB), management and supervision, Shariah compliance and review, and lastly, transparency and disclosure (Minhas, 2012; Rafay & Farid, 2018).
However, Bangladesh has started its Islamic banking journey through the inauguration of the ‘Islami Bank Bangladesh Limited’ in 1983 with combined efforts of the government and general people (Hassan et al., 2017). Currently, Bangladesh has 8 full-fledged Islamic banks (Bangladesh Bank, 2019). Though the Central Bank promulgated a guideline in 2009 still Bangladesh has an absence of a well-defined full-fledged regulatory, supervisory specific and structured governance framework to govern, supervise, monitor, and regulate the Islamic banking activities (Ullah, 2014; Ahmad et al., 2014; Perves, 2015; Alam et al., 2019; Alam et al., 2020a, b; Nomran and Haron, 2020). The study of Alam et al. (2020a) found that the intention of the regulators and concerned stakeholders are responsible for the absence of a comprehensive SGF of IBs in Bangladesh. As a result of such lacking and absence of a comprehensive SGF, Islamic banks have developed their SG mechanisms that are flexible in their practices (Hassan et al., 2017; Sohrabuddin, et al., 2020). In the guideline, the central bank stated that the formation of SSB is voluntary rather than compulsory which contradicts the global practices (BMB Islamic, 2011).
The Islamic banks and financial institutions as well as their SG guidelines are developed by the government of the respective country (Hassan et al., 2017; Adam and Muizzuddin, 2020). While the government of the respective countries actively supports the development and expansion of Islamic banking and finance whereas the scenario is different in Bangladesh. The development of Islamic banks and their governance systems are developed by the initiative of the general people and Muslims in Bangladesh (Hassan et al., 2017). As a result, the self-developed SG are diversified in the formation and practices which create confusion among the general people, customers and government (Abdullah and Rahman, 2017). Besides, it is well-known that Islamic banks are violating the Shariah principles in the existing practices (Alam et al., 2020b). Besides, the BOD and management influence in the implementations of SG of Islamic banks in Bangladesh (Alam et al., 2020c). Sometimes, the Shariah auditors do not conduct a comprehensive Shariah audit of large customers. Therefore, it is required to examine the uniqueness, limitations and consequences of the SG of Islamic banks in Bangladesh. This chapter aims to examine the uniqueness, limitations and consequences of SG systems of Bangladesh compare to global SG practices. For doing this we asked the respondents “how do the Shariah Governance systems of Islamic banks in Bangladesh are different from global Shariah governance practices?”
Starting with the introduction, section 2 illustrates the literature review. Section 3 outlines the methodology of the appear and section 4 narrates the findings and discussions from the respondents. Finally, section 5 concludes with implications and policy recommendations.