Bangladesh will keep conventional and Islamic banks operating separately from each other because of concern about possible violations of sharia principles, although the decision is not permanent, the central bank’s deputy governor told Reuters.
The central bank will not approve applications by conventional banks to convert themselves into Islamic ones and is barring the use of Islamic windows, which let conventional banks offer Islamic financial services provided client money is segregated.
“It is our observation that it created complications and problems as there was no separate exchange house and sometimes it goes against the law of sharia,” Deputy Governor SK Sur Chowdhury told Reuters late on Wednesday.
So for now it has been stopped, but in future if government take any new decision, then again we will allow them.”
Regulators in Muslim-majority countries in Asia and the Middle East have been wrestling with the issue of how to treat the entrance of conventional banks into Islamic finance.
The participation of conventional institutions promises to accelerate the industry’s growth, but it could backfire if consumers come to view Islamic banks as essentially little different from conventional ones.
Qatar banned Islamic windows in 2011, while Oman requires them to operate through separate branches.
With a predominantly Muslim population of 160 million, Bangladesh has so far regulated Islamic finance only lightly, and the industry has doubled in size in the past four years.
Islamic banks, which follow religious principles such as a ban on interest payments, hold about a fifth of total bank deposits in Bangladesh. They include Islami Bank Bangladesh Limited, set up in 1983 as the country’s first Islamic bank and its largest privately owned commercial bank.