Core Theological & Financial Distinctions
Islamic banking in Bangladesh is governed by Islamic jurisprudence (Fiqh al-Muamalat) and regulated under the Bangladesh Bank Guidelines for Islamic Banking 2009. Unlike conventional banking, which operates on debtor-creditor relationships where interest (Riba) is charged on the passage of time, Islamic banking operates on asset-backed commercial transactions and profit-loss sharing.
Money in Islamic finance is treated as a medium of exchange and unit of measurement rather than a self-generating commodity. All financing contracts must involve tangible underlying assets, trade goods, or usufruct services.
Key Shariah Contract Structures Explained
Bangladeshi Islamic banks and conventional bank Islamic windows utilize standardized contractual mechanisms approved by their respective Shariah Supervisory Boards and the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI).
| Contract Name | Contract Structure | Conventional Equivalent | Common Practical Application |
|---|---|---|---|
| Mudaraba (مضاربة) | Trustee Profit-Sharing (Capital Provider + Manager) | Savings & Term Deposit Accounts | DPS schemes, FDR term deposit receipts |
| Musharaka (مشاركة) | Joint Venture Partnership (Shared Equity & Risk) | Syndicated & Project Finance | Commercial enterprise financing, working capital |
| Murabaha (مرابحة) | Cost-Plus Profit Sale (Deferred Payment) | Working Capital & Retail Loans | Trade goods import, consumer electronics purchases |
| Ijara (إجارة) | Asset Lease with Ownership Transfer (Wa-Iqtina) | Auto & Equipment Lease Finance | Vehicle financing, medical equipment procurement |
| HPSM (Hire Purchase Shirkatul Melk) | Co-ownership with Progressive Equity Buyout | Home Mortgage Loan | Residential property purchase, construction financing |
Structural Comparison: Conventional vs. Islamic
| Operational Dimension | Conventional Banking | Islamic Banking |
|---|---|---|
| Core Philosophy | Interest-based lending and borrowing (Riba) | Asset-backed trade and profit-loss sharing |
| Deposit Returns | Guaranteed predetermined interest yield | Provisional expected profit rate adjusted by weightage |
| Late Payment Penalty | Compound interest / late penal charge kept as bank income | Compensation fee credited exclusively to approved charity fund |
| Risk Distribution | Risk transferred predominantly to borrower | Risk shared between financier and commercial partner |
| Governance | Board of Directors & Bangladesh Bank oversight | Board of Directors, Bangladesh Bank & Shariah Supervisory Board |
Full-Fledged Islamic Banks vs. Islamic Windows
In Bangladesh, Shariah-compliant banking is delivered through two distinct institutional licenses: 10 full-fledged Islamic banks (such as Islami Bank Bangladesh, Al-Arafah, Social Islami, Shahjalal Islami), and designated Islamic banking branches/windows operated by conventional scheduled banks (such as Standard Chartered Saadiq, City Bank Islamic, Dhaka Bank Islamic).
Conventional banks operating Islamic windows are strictly required under Bangladesh Bank regulations to maintain fully segregated accounting books, separate clearing accounts, independent funds pools, and dedicated Shariah auditing teams to eliminate fund commingling.
Explore Shariah-compliant banking & windows
Filter Mudaraba and Murabaha products across 10 full-fledged Islamic banks and 30+ conventional windows.