Islamic Banks In Bangladesh Research Articles

Sustainable Housing Finance: Role of Islamic Banks in Bangladesh

Sustainable Housing Finance: Role of Islamic Banks in Bangladesh

EVALUATING MSME FINANCING PRACTICES DURING COVID-19: EVIDENCE FROM ISLAMIC BANK ANNUAL REPORTS

This study assesses the MSME financing practices of Islamic banks in Bangladesh during the COVID-19 pandemic. The study examines the annual reports of Bangladeshi Islamic banks between 2020 and 2021. This study found Islamic bank financing for cottage, small and medium enterprises (CMSME) through agent banking was effective during the pandemic. Banks also launched various programs, products, and schemes easily accessible to CMSMEs in the country, including special programs supporting women entrepreneurship and CMSMEs in rural areas. Overall, the performance of MSME financing of Islamic banks in the country was impressive and effective measured by the amounts disbursed to CMSMEs, the number of beneficiaries, new branches opened, and employment of bank staff to handle the enterprises’ financial requests over the period. The findings can help the government and regulatory agencies, particularly Bangladesh Bank, during the revision of regulations to enhance CMSME financing by scheduled banks in the country.

Bank-Specific and Macroeconomic Determinants of Profitability of Islamic Shariah-Based Banks: Evidence from New Economic Horizon Using Panel Data

The purpose of this study is to analyze significant variables that permit us to ascertain the profitability of Bangladeshi Shariah-based banks. In doing so, two profitability measurements, namely, return on asset (ROA) and return on equity (ROE), have been used as dependent variables, while capital adequacy, asset management quality, operational efficiency, credit risk, liquidity, and the size of the bank have been considered as bank-specific independent variables. In addition, the rate of interest, inflation, and GDP growth rate have also been taken as macroeconomic independent variables. This study examined panel data of eight Shariah-based Islamic banks over a thirteen-year period spanning from 2010 to 2022, applying different kinds of linear regression models, including pooled ordinary least squares (OLS), fixed effects, and random effects. Subsequently, the generalized method of moments (GMM) approach is also applied to assess the robustness of the findings. The results revealed that the profitability of Bangladeshi Shariah-based Islamic banks is positively associated with asset management quality, liquidity, and credit risk. In contrast, capital adequacy, operational efficiency, and bank size are negatively correlated with the bank’s profitability. Concerning the macroeconomic factors, the findings indicated a notable positive correlation between the profitability of Shariah-based banks in Bangladesh and both the inflation rate and the interest rate spread. However, this study has also found that the profitability of the sample banks of Bangladesh is not significantly influenced by GDP growth. By providing fresh empirical data, the current research aimed to close a significant vacuum in the body of knowledge on banks and provide important insights for policymakers, managers, and other stakeholders by focusing on particular bank-specific and macroeconomic aspects that influence the profitability of Shariah-based Islamic banks in Bangladesh.

Foreign Exchange Operations of Islami Bank Bangladesh Limited

In the dynamic global financial landscape, foreign exchange operations play a pivotal role in facilitating international trade and economic activities. Islami Bank Bangladesh Limited (IBBL) has emerged as a significant player in the country's banking sector with a strong commitment to Shariah-compliant practices. Understanding the nuances of its foreign exchange operations is essential for assessing its contribution to the national economy. This study aimed to comprehensively analyze the foreign exchange operations of Islami Bank Bangladesh Limited, focusing on its performance and adherence to Islamic principles. The research involved an in-depth examination of IBBL's foreign exchange operations, including documentary analysis, interviews with bank officials, and a review of relevant literature. Data on foreign exchange transactions, compliance with Shariah principles, and financial performance were analyzed. The study found that IBBL has demonstrated commendable performance in foreign exchange operations. It has successfully maintained a substantial share of the foreign exchange market in Bangladesh, accounting for over 20% of total transactions. Moreover, IBBL's strict adherence to Shariah principles in its foreign exchange activities has positioned it as a reputable Islamic banking institution. The bank's compliance rate with Islamic principles in foreign exchange dealings exceeded 90%, reflecting its commitment to ethical banking practices. Islami Bank Bangladesh Limited has emerged as a prominent player in the foreign exchange market, maintaining both financial viability and adherence to Shariah principles. Its commitment to ethical and Islamic banking practices has contributed significantly to the country's economic growth. IBBL should continue to focus on enhancing its foreign exchange operations, ensuring strict adherence to Islamic principles, and expanding its market presence.

A Comparative Study of Accountability Practices for Financial Reporting of Conventional and Islamic Banks in Bangladesh

A Comparative Study of Accountability Practices for Financial Reporting of Conventional and Islamic Banks in Bangladesh

Do Islamic banks use institutional theory in the light of Shariah governance? Empirical evidence from a Muslim dominant country

The present paper examines the application of institutional theory (hereafter IT) mechanisms (isomorphism and legitimacy) in Shariah governance (henceforth SG) practices and in operations, as it best illuminates the operational guidelines and procedures for the Islamic banks to attain legitimacy. More specifically, the study aims to empirically explore the SG of Islamic banks in Bangladesh from the viewpoint of IT mechanisms. The study applied a qualitative case study method and a semi-structured face-to-face (individual) interview with various stakeholders connected with Bangladesh's Islamic banks and SG practices. The study finds that Islamic banks face pressure from the administration, regulators, and government in performing their activities and functions. More importantly, most Islamic banks replicate one leading Islamic bank, which indicates the presence of mimetic or cultural-cognitive isomorphism. Conversely, normative pressure covers the existing practicing environment, people's social awareness, knowledge, willingness, and accountability of the Board of Directors (BOD) towards the people concerning Shariah compliance with policymaking. Moreover, socio-political norms, regulations, and corruption influenced policymaking, preparation of SG guidelines, and their implementation. The study significantly contributed to national regulatory bodies by exploring the presence of significant pressures on diverse stakeholders. The study has several policy contributions for the Islamic banks and the Central Bank of Bangladesh. Notably, the study will help global regulatory bodies and policymakers minimize multifaceted pressures, improve SG practices, and enhance the quality of Shariah compliance.

Bank-Specific and Macroeconomic Determinants of Profitability of Islamic Banks: Evidence from Bangladesh

This study investigates the determinants of profitability of Islamic banks in Bangladesh, considering different bank- specific and macroeconomic variables. This study used ROA and ROE as indicators of Islamic banks’ profitability. The study comprised data from eight Islamic banks spanned from the years of 2011 to 2020. Applying the Fixed Effect Model (FEM), Random Effect Model (REM), and Pooled OLS, the estimated result shows that the three methods classified investment ratio and cost-to-income ratio negatively affect the Islamic bank’s profitability indicators ROA. Whereas the investment-to-deposit ratio and inflation rate positively affect the Islamic bank’s ROE, conversely, Investment to total asset ratio, classified investment ratio, and capital adequacy ratio negatively affect the bank’s profitability of ROE. After applying the robustness method of FGLS, this study found that classified investment ratio, investment to deposit ratio, and the inflation rate is a strong predictor of increasing banks’ overall profitability, and the capital adequacy ratio, cost income ratio, and interest rate are a strong predictor of reducing Islamic banks profitability.

Legal and Regulatory Frameworks For Sharī’a Governance Practices in the Islamic Banking Industry of Bangladesh

This paper aims to explore the regulatory arrangements for sharī’a governance practices in the Islamic banking industry of Bangladesh and to identify the issues and challenges faced in this regard. Despite notable advancements, the necessity for a more robust regulatory framework, separate from the modified Banking Companies Act of 1991, which currently integrates Islamic banking regulations, remains apparent. A conspicuous challenge lies in the lack of a dedicated department within Bangladesh Bank responsible for overseeing Islamic banking activities. The article suggests an independent government-supervised Sharī’a board. This study enhances Bangladesh's Islamic banking regulation and promotes an understanding of sharī’a governance. The research is based on the review of existing literature but lacks empirical evidence. It has been stated in previous studies that a survey method can be used to examine real scenarios. This paper discusses the effectiveness of the Islamic Law Rules in the current practices of Islamic banks in Bangladesh, shedding light on their deficiencies.

Guidelines for developing the shari'ah‐compliant products and shari'ah governance for sustainable banks in Bangladesh

AbstractThe industry of Islamic banking and finance (IBF) has undergone rapid expansion over the past forty years. However, it's imperative that this sector continues to evolve—making sure it aligns with contemporary market trends while staying abreast with modern financial practices. With financial offerings becoming more complex than ever before, adhering closely to shari'ah principles certainly poses a newer level of daunting challenges that need urgent attention in this burgeoning field. Moreover, the infamous products and current shari'ah governance of Islamic banks have been widely debated following the publication of an article titled “Terrible November for Islamic banks” in a reputable newspaper, Prothom Alo, 2022. In order to bridge the gap this study investigates drivers, enablers, and inhibitors of shari'ah‐compliant products and the successful implementation of shari'ah governance for sustainable Islamic banks in Bangladesh. The qualitative data have been collected through in‐depth personal interviews and focus group discussions with 41 well‐known scholars. The analysis shows shari'ah board and research division are required to collaborate to develop shari'ah‐compliant products as outlined in the Qur'an and Hadith. Additionally, a strong legislative framework for shari'ah‐compliant product development and shari'ah governance is essential to promote a sustainable Islamic banking industry. Good shari'ah governance and compliance in a banking institution are significantly dependent on the good intentions of its board members and operational managers. The study offers a legal framework and core value‐based banking that develops unique and fully shari'ah‐compliant products to uphold sustainable development goals (SDGs). Important policy implications are discussed.

A Study on Relationship between Capital Adequacy Ratio (CAR) and Profitability of Islamic Banks in Bangladesh

The study explored the impact of capital adequacy ratio (CAR) on the profit of Islamic banks in Bangladesh. For conducting the study, we have used a panel data set from 2005 to 2018 of 5 Islamic banks operating in Bangladesh, and we also used the return on equity (ROE) as the proxy of profit. By employing the fixed effect (FE) model, we found that CAR had a significant positive impact, while inflation and domestic credit to GDP had a negative effect on profitability of Islamic banks in Bangladesh. The findings of our study have important implications for the stakeholders, customers, and regulators of banks in Bangladesh.

Gender diversity, foreign directors and sector-wise corporate philanthropic giving of Islamic banks in Bangladesh

PurposeThis study aims to examine how board gender diversity and foreign directors influence the sector-wise corporate philanthropic giving (donation) of Islamic banks in Bangladesh.Design/methodology/approachUnbalanced panel data were extracted from the annual reports of Islamic banks in Bangladesh over 11 years, from 2010 to 2020.FindingsThe findings indicate that gender diversity significantly improves corporate philanthropic giving for the education sector but insignificantly influences corporate philanthropic giving for health and humanitarian and disaster relief sectors. In contrast, the results show that foreign directors significantly and positively affect the banks' corporate philanthropic giving for the three sectors.Research limitations/implicationsThis paper used only secondary data extracted from the annual reports of Islamic banks in Bangladesh between 2010 and 2020. Besides, only three sectors of corporate social responsibility activities were considered. Hence, the findings could not be generalized, as the study used only data from one country.Practical implicationsThe findings can be useful to policymakers and regulators to provide policies and regulations that ensure the appointment of women and foreign directors to boards that can competently promote Islamic banks' charitable donations.Social implicationsInducing Islamic banks to provide corporate donations for activities related to education, health and humanitarian and disaster relief can contribute directly to achieving sustainable development goals (SDGs) like SDG-3 (good health and well-being) and SDG-4 (quality education) and impliedly support attaining some indicators of SDG-1 (no poverty), SDG-2 (zero hunger) and SDG-10 (reduced inequality).Originality/valueThis study contributes to the literature by investigating how board gender diversity and foreign directors influence sector-wise corporate donations for the education, health and human and disaster relief sectors instead of aggregate donations studies concentrated by previous studies.

The Effect of Accounting Software on Conventional and Islamic Banks in Bangladesh: A Comparative Study

Science reaching excellence in leading Accounting Software is very important for providing modern banking activities, especially in recording and reporting activities as well as ensuring internal control in the banking sector. The aim of the study is to examine the effect of Accounting Software on Conventional and Islamic Banks in Bangladesh. The study uses accounting software as one of the independent variables to compare the accounting practice of Conventional and Islamic banks. Accounting software is measured through five sub-variables that are collected through a questionnaire survey and analysed through various statistical tools using SPSS and STATA software. It is found that the effect of accounting software on conventional and Islamic banks differs in perception as well as its activities. As this study covers recommendations for the role of technology practice in Bangladeshi banking sectors that could be useful for policy-making as well as decision-making.

Financial Stability Analysis of Islamic Banks in Bangladesh

The paper intends to examine the key factors of financial stability of listed Shariah-based Islamic Banks of Bangladesh for a period of 2009 to 2019. Z-score is used here as a proxy for financial stability measurement, with independent variables including bank-specific, bank industry-specific, and macroeconomic factors. Bank specific determinants are nonperforming investment, bank size, capital adequacy, return on equity, earnings, liquidity and management efficiency. Development in the banking sector is a factor that is unique to the banking industry, while GDP and inflation are macroeconomic factors. To learn more about the factors that affect the financial health of Bangladesh's listed Shariah-based Islamic banks, pooled ordinary linear regression (OLS) analysis was used. The results demonstrate that capital adequacy, earning and banking sector development have a positive and statistically significant impact on financial stability of Islamic banks. On the other hand, nonperforming investment has a negative and statistically significant effect on the financial stability of Islamic banks. correlation matrix shows that non-performing investment and management efficiency is negatively correlated with financial stability. In contrast, return on equity and liquidity are positively correlated with financial health. The findings would add value in the decision makers of the bank supervisors to formulate strategies to maintain the financial stability. It would be one of the few papers on financial stability of Islamic banks in Bangladesh which has investigated macroeconomics as well as bank specific determinants altogether on the financial stability.

Potential risks of liquidity and credit affecting the efficiency of Islamic banks in Bangladesh

Recently worldwide Islamic finance has gained considerable attention. However, Islamic financial institutions face multiple risks to sustaining and growing further. Against this backdrop, the paper examines the impact of both liquidity and credit risk on the efficiency of Islamic banks (IBs) operating in Bangladesh. This paper uses IB’s data from 2007 to 2018 and offers a two-stage assessment. In the first stage, it uses data envelopment analysis (DEA), and in the second stage regression models to assess the impact of both liquidity and credit risk on the efficiency of the IBs. Efficiency scores confirm that IBs are operating with an 86% efficiency level through a 68% share in the constant returns to scale (CRS). Our results also confirm that both liquidity risk (LR) and credit risk (CR) have a significant impact on the efficiency of the IBs in Bangladesh. A higher score for efficiency is shown by a higher liquidity risk, whereas mixed results are confirmed by credit risk indicators. Moreover, the Z-score (a bank stability measurement) and number of branches (a measurement of the bank’s network coverage), have a positive impact on efficiency. On the other side, the size of the bank and the financial crisis period show a negative relationship with the bank’s efficiency. The findings of our paper significantly contribute to the Islamic banking sector, especially for the policymakers and academic researchers.

Islamic banking in Bangladesh: a literature review and future research agenda

PurposeIn recent years, Islamic banking (IB) has received a lot of scholarly interest, as seen by the substantial increase in publications on the subject worldwide. The increasing rate of publications on IB indicates that this subject has attracted a substantial amount of scholarly attention. It has also been a prioritized topic for many banking and financial scholars in Bangladesh. This paper aims to conduct a bibliometric analysis to assess the research on IB in Bangladesh.Design/methodology/approachThe method used in this study is a bibliometric analysis of the sample literature collected in January 2022 from the SCOPUS database. The sample size of the study is 120 articles published between 1999 and 2021 which meet the specific selection criteria. To analyze the data, software such as Rstudio (Rshiny), Microsoft Excel and VOSviewer have been used. The analyses were performed in three broad categories: overall performance indicators, citation analysis and cross-dimensional keyword analysis, followed by a brief content analysis that identifies research streams.FindingsThis paper shows a notable increase in the number of publications between 2012 and 2021 with Alam M.K. being the highest contributor to this momentum publishing 12 articles. The findings also highlight the most contributing countries, organizations, publications, articles, sources and subjects. Out of 120 articles, this study has identified 14 research streams that have already been investigated by previous authors. The research streams include the growth of IB in Bangladesh; corporate social responsibility; Islamic human resource management; comparative study; customer satisfaction; development issues; efficiency of Islamic banks; green banking; Islami Bank Bangladesh Limited; IB industry; Islamic finance; Islamic microfinance; Shariah governance; and theoretical aspects of IB in Bangladesh. This study further identified future research agenda with specific research questions.Research limitations/implicationsThis research is limited to journal articles published in English in Scopus-indexed publications. Further research could include various databases, such as the Web of Science, and increase studied units. While this study focused only on bibliometric analysis and research streams, future studies may center on the systematic review of articles published on specific topics.Originality/valueAlthough IB is a rising sector in the financial system of Bangladesh, to the best of the authors’ knowledge, this is the first bibliometric analysis of IB in Bangladesh. The 14 research streams identified in this study also uniquely provide 10 future research agendas with 39 specific research questions.

Shariah audit of Islamic Banks in Bangladesh: the present practice and the way forward

PurposeThe study explores the existing Shariah audit practice of Islamic banks (IBs) in Bangladesh aiming at providing suggestions for improvements on the detected shortfalls in the relevant areas.Design/methodology/approachThis research applied a qualitative method, and data were collected through conducting semi-structured interviews in Bangladesh. A total of 17 interviews were conducted for accomplishing the research objectives.FindingsThe study finds that there is no comprehensive Shariah audit manual in the current operation for IBs in Bangladesh, and as such, the requirements of their Shariah compliance remain a big question. Although the Shariah audit is conducted within IBs, and the Shariah audit officers or Shariah officers inspect necessary documents while conducting the Shariah audit, they only cover 10–20% of total investments and transactions. Based on the findings of this study, it is recommended that the Shariah auditing tasks should broadly cover at least 80% of the investment portfolios, documents and financial contracts and activities.Research limitations/implicationsThe findings of this research are expected to significantly contribute to the regulatory authorities concerned in Bangladesh and beyond, which include the suggestions that IBs can adopt to strengthen their Shariah governance system. The study also pinpoints that in the current system, Shariah auditors' roles are somehow limited in examining and checking the investment sides with a minimal portion (10–20%), for which they are unable to perform their responsibilities in a befitting manner to provide assurance services and overall Shariah compliance of IBs activities.Practical implicationsThis study explores the current Shariah audit systems and provides recommendations to improve the existing systems which will be beneficial for Islamic banks of Bangladesh.Originality/valueTo the researchers' knowledge, perhaps this is the first research of its kind which seeks to explore the current Shariah audit practice in Bangladesh qualitatively, and it provides some practical suggestions for making the necessary developments of the current audit process of IBs. In addition, there are no empirical studies in the entire Emerald insight publishers and Scopus database regarding Shariah audit practices. The study contributes to the agency, stakeholder and legitimacy theories by exploring the Shariah audit of IBs.

Performance analysis of conventional banking and Islamic banking in Bangladesh: A comparative study

Performance analysis of conventional banking and Islamic banking in Bangladesh: A comparative study

WHAT CAUSES NON-PERFORMING LOANS? EVIDENCE FROM THE ISLAMIC BANKING SECTOR OF BANGLADESH

This study aims to investigate the impact of bank-specific and macroeconomic factors on non-performing loans (NPLs), also known as irregular loans, in Islamic banks in Bangladesh. The study is crucial, as the NPL has become a growing concern for Bangladesh's banking sector, which is affecting the country's economy. The data of banks specific factors were collected from the annual reports of the sample. In contrast, macroeconomic factors were gathered from the World Development Indicators covering the period from 2007 to 2018. Different diagnostic tests, including correlations, heteroskedasticity, and VIF (Variance Inflation Factor), were run to confirm that the results from OLS are accurate and reliable. The study further runs fixed effect and random effect models to check the robustness of the findings. The findings indicate that bank-specific factors such as loan growth, loan-to-asset ratio, and net interest margin significantly reduce NPLs. Moreover, macroeconomic factors like GDP growth and inflation significantly influence NPLs under all models. While we divide the samples into some sub-samples, we found almost similar results, confirming the robustness of the findings. The findings suggest banks' management, regulatory bodies, and other stakeholders have necessary initiatives on how to reduce the NPLs.

Do customers' perceptions of Islamic banking services predict satisfaction and word of mouth? Evidence from Islamic banks in Bangladesh.

This study aims to investigate the customers' perceptions of Islamic banking services and their impact on satisfaction and word of mouth (WOM) with others. This study designs the bootstrapping procedures using a partial least square method to test path coefficient results. Structured questionnaires were distributed among clients of Islamic banks in Dhaka city, where 377 responses were collected for data analysis. The findings revealed that there is a highly significant relationship between security and customers' perception. Ethical responsibility and religious value have a positive and significant impact on customers' perception whereas benefit has a negative significant impact on customers' perception. Findings from this study also indicated that customers' perceptions mediate the effect of ethical responsibility, religious value, benefit, and security on satisfaction. In addition, customers' satisfaction mediates the effect of customers' perception and WOM. These findings can promote managers of Islamic banks to build customer satisfaction and WOM with Islamic banking services, and attain competitive advantage that may lead Islamic banks to succeed in the competitive business. This study also provides new insights into customers' WOM with others about Islamic banking services. This knowledge could assist Islamic banks to understand the customers' perceptions that would increase satisfaction and in turn, contribute to WOM with others in determining where would be best to target marketing attention of Islamic banking services with limited resources.

Effects of Relative Advantage, Complexity, Social Influence, and Awareness on Islamic Banking Adoption in Bangladesh

Bangladesh’s Islamic banking sector has witnessed notable growth, boasting ten fully-fledged Islamic banks operating through a network of 1,659 branches. This development is particularly intriguing given the nation’s extensive banking infrastructure, featuring 61 scheduled banks and 11,153 branches as of December 2022. The contrast becomes even more striking when considering the substantial Muslim population, accounting for 91% of the country’s inhabitants, totaling a staggering 165 million. However, despite this demographic presence, Islamic banks in Bangladesh held only 27% of the nation’s banking assets as of 2021. This study delves into the factors impeding the expansion of Islamic banking in the country, despite its 33-year presence. Through a survey of 407 respondents and the application of Partial Least Squares Structural Equation Modeling, the research explores the relationships between perceived relative advantage, complexity, social influence, awareness, and the intention to adopt Islamic banking. The findings shed light on the potential avenues for further growth in this sector and the importance of raising public awareness to bolster Islamic finance in Bangladesh.