Bangladesh Central Bank Mandates Islamic Banking Reforms

The central bank has directed all Islamic banking institutions to set up a Sharia supervisory board, outlining specific qualifications and responsibilities for its members.

As per the newly issued guidelines, if any Sharia compliance issues arise within a bank’s operations, the bank’s board is required to promptly make adjustments based on the supervisory board’s recommendations. Should the board fail to act, the committee is obligated to report to the central bank.

This directive was released today, September 28, by the Bank of Bangladesh’s Islamic Banking Regulation and Policy Bureau. It aims to clarify the formation, appointment, dismissal, and duties of committee members, with the new rules taking effect on January 1, 2026.

The supervisory committee’s decisions regarding Sharia matters will be final, and the bank’s management must adhere to these directives.

If there is a conflict between the supervisory board and the bank’s management or other committees, the supervisory board must inform the Bangladesh Bank.

The Bank of Bangladesh noted that it had previously mandated the formation of such committees in 2009, but the earlier guidelines lacked clarity on membership and responsibilities. The updated instructions fill in these gaps.

Under the new rules, each bank’s board needs to establish an independent supervisory committee composed of qualified and impartial experts in Islamic law.

Requirements for Supervisory Board Members

To qualify, candidates must hold a bachelor’s degree in Kamil, Dauraehadis, Islamic Studies, Islamic Economics, Islamic Finance, Islamic Banking, or Islamic Law from a recognized institution. Lower-level degrees are not acceptable at any point, while advanced degrees like a PhD are viewed as advantageous.

Candidates should also have a minimum of two years of relevant educational experience, work experience as a mufti, or past involvement with the bank’s Sharia Committee. Publications related to Islamic banking or economics are also considered beneficial.

Members of the supervisory committee must submit a written declaration confirming they have no past convictions for financial or criminal offenses, are not in default on loans, and do not hold executive roles in other banks or financial institutions. They should not have any business affiliations that might create conflicts of interest.

Composition, Tenure, and Compensation

The supervisory committee will consist of 3-5 members. Individuals may serve on a maximum of three such boards. Members will be appointed for three years, renewable for a total of six years, after which a two-year gap is required.

Members will receive a monthly honorarium of 25,000 BDT and an additional 8,000 BDT for each meeting. The bank may remove members for justifiable reasons with the Bangladesh Bank’s approval, while members can resign through written notice.

A chair will be elected for a three-year term, and the Secretary General will act as secretary, though without voting privileges.

Establishment of a Sharia Secretariat

All banks are required to set up a Sharia Secretariat to assist the supervisory board, which will include sections for internal Sharia audits, compliance, and research. This Secretariat will handle meeting agendas, documentation, and Sharia opinions.

Duties and Responsibilities

The committee is responsible for ensuring that all banking policies, manuals, contracts, products, and services comply with Sharia law. They will also oversee profit calculations, Zakat distribution, and usage of Qard funds.

Before launching new products, a Sharia ruling must be obtained. Non-compliant products need prior approval from the Bank of Bangladesh.

The Secretariat will formulate an annual audit plan that requires approval from the supervisory board. Any major issues will be reviewed quarterly, and serious discrepancies must be reported to the board. Members are expected to attend at least 75% of meetings, with consecutive absences leading to automatic removal.

Committee members are prohibited from disclosing any sensitive information obtained during their tenure, which is a stipulation included in their appointment agreement.