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A joint study by the Bangladesh Institute of Bank Management (BIBM) and Malaysia’s INCEIF University has flagged serious gaps in Shariah governance in Bangladesh’s Islamic banking sector, warning that weaknesses in oversight and accountability are fueling financial stress and undermining depositor confidence.

Although Islamic banks now make up nearly a quarter of the country’s financial system, the study finds that governance frameworks have lagged behind the sector’s rapid expansion. Key financial indicators show deterioration: return on equity (ROE) fell to just over 3 per cent in 2024, capital adequacy turned negative, and classified investments exceeded 23 per cent, highlighting a worsening non-performing financing crisis.

Global ratings echo these concerns. S&P Global Ratings placed Bangladesh’s banking sector among the riskiest in the Asia-Pacific region, citing governance failures and liquidity crises in some Shariah-based banks. The study noted that in 2024, several Islamic banks underwent board restructuring after severe financial distress, with non-performing loan ratios in some institutions reaching as high as 98 per cent.

Beyond financial stress, the research points to persistent institutional weaknesses. Many banks provide limited disclosure of Shariah Supervisory Committee activities, minimal reporting on Shariah awareness programmes, and uneven audit coverage, raising questions about effective compliance monitoring.

To address these issues, the study recommends strengthening board independence, aligning corporate and Shariah governance, introducing external Shariah audits, and enhancing regulatory oversight. It also calls for capacity development and stricter fit-and-proper criteria for Shariah Supervisory Committee members.

The findings were presented at a seminar titled “Shariah Governance in Islamic Banks of Bangladesh: An Evaluation” in Dhaka on Monday, jointly organised by BIBM and INCEIF University.

Chairman of the BIBM Executive Committee and Bangladesh Bank Deputy Governor Nurun Nahar inaugurated the seminar, stressing that robust Shariah governance is essential to ensure compliance, uphold Islamic principles, and strengthen sector resilience.

Professor Dr Said Bouheraoua of INCEIF University shared global best practices, while Dr Md Mahabbat Hossain of BIBM and his research team presented the keynote paper. Panelists, including senior bankers and regulators, highlighted the need for stronger internal compliance, regulatory oversight, and coordination between banks and regulators.

In his concluding remarks, BIBM Director General Dr Md Ezazul Islam said, “Shariah governance is no longer a narrow institutional issue; it is now a matter of financial stability, public confidence, and the credibility of Islamic banking.”

He added that effective governance requires not just well-designed policies but sincere implementation, institutional independence, and clear accountability, emphasizing coordinated action among regulators, banks, Shariah scholars, and training institutions to restore trust in the sector.

The seminar was attended by senior bankers, regulators, academics, and researchers.