Islamic Banking Under Scrutiny: New Rules Aim to Ensure Shariah Compliance
The world of Islamic finance is about to get a whole lot stricter. Bangladesh Bank, the country's central banking authority, has issued a bold mandate: all Islamic banking institutions must now establish dedicated Shariah supervisory committees. This move, effective January 1, 2026, aims to strengthen oversight and ensure every aspect of Islamic banking operations adheres strictly to Shariah principles. But here's where it gets interesting: these committees aren't just advisory bodies; they hold real power. If a bank strays from Shariah compliance, the committee can demand immediate corrective action from the bank's board. And if the board drags its feet? The committee reports directly to Bangladesh Bank, potentially leading to serious consequences.
A Detailed Framework for Accountability
These new guidelines, issued by the Islamic Banking Regulation and Policy Department, leave no room for ambiguity. They meticulously outline the formation, composition, and responsibilities of these supervisory committees. Gone are the days of vague directives; the 2009 guidelines, lacking specifics on member qualifications, tenure, and duties, are being replaced by a comprehensive framework.
Who Watches the Watchers? Qualifications and Composition
Committee members aren't just anyone. They must be highly qualified experts in Islamic jurisprudence, holding degrees in fields like Kamil, Islamic Studies, Islamic Finance, or Islamic Law from recognized universities. Think PhDs and experienced Muftis, not just anyone with a passing interest in Shariah.
Each committee will consist of three to five members, carefully selected for their competence and neutrality. To prevent conflicts of interest, members cannot hold executive positions in banks or have any business ties that could compromise their judgment. Interestingly, an individual can serve on a maximum of three committees, ensuring a diverse pool of expertise across the banking sector.
Tenure, Remuneration, and the Power to Act
Committee members are appointed for three-year terms, renewable for another three, followed by a mandatory two-year break. This rotation system promotes fresh perspectives and prevents stagnation. They receive a monthly honorarium and meeting fees, ensuring their dedication to the role.
The committee's decisions on Shariah matters are final, binding the bank's board and management to implement them. This is a significant shift in power dynamics, giving the committees real teeth. And this is the part most people miss: in case of disagreements between the committee and the bank's management, the committee has the authority to escalate the issue directly to Bangladesh Bank, bypassing internal politics.
Transparency and Support: The Shariah Secretariat
To further bolster oversight, each bank must establish a Shariah Secretariat. This dedicated department will provide crucial support to the supervisory committee, handling tasks like internal Shariah audits, compliance reviews, and research. Think of it as the committee's research and administrative backbone, ensuring they have the resources to effectively carry out their duties.
A New Era of Accountability in Islamic Finance
These new regulations mark a significant step towards greater transparency and accountability in Islamic banking. By empowering independent Shariah supervisory committees, Bangladesh Bank is sending a clear message: Shariah compliance isn't just a checkbox, it's the cornerstone of Islamic finance.
But will this increased scrutiny stifle innovation in Islamic banking products? Some argue that overly rigid regulations could hinder the development of new financial instruments. What do you think? Is this a necessary step to protect the integrity of Islamic finance, or does it risk stifling growth? Let us know your thoughts in the comments below.
