Islamic Finance in Bangladesh: Shariah Banking, Sukuk, Takaful and Microfinance Law (2026)

Islamic finance Bangladesh: the 2026 legal framework

Islamic finance Bangladesh lawyers advise on is no longer a niche. The Islamic banking sector held 22.53 per cent of all bank deposits and 29.19 per cent of all bank investment at the end of June 2026.[2] Yet there is still no Islamic banking statute. The sector runs on the Bank Company Act 1991, Bangladesh Bank's 2009 guidelines and new rules on Shariah supervisory committees, and it has been reshaped by the resolution of five failed Islamic banks into Sammilito Islami Bank.[1] [3] [5]

This guide covers Islamic banks, branches and windows, Shariah governance, the main financing products and their enforcement, sukuk and takaful. A full section then deals with microfinance law: licensing by the Microcredit Regulatory Authority, the 24 per cent service charge cap, borrower protection and the Microcredit Bank Ordinance. General bank regulation is covered in companion TRW guides, linked where relevant.

Summary: Islamic banks are ordinary bank companies licensed under the Bank Company Act 1991 and supervised by Bangladesh Bank under its 2009 guidelines and, from January 2026, compulsory Shariah committee rules. Their murabaha, bai-muajjal and ijarah facilities are recovered in the Artha Rin Adalat like any loan. Sukuk are issued by the government and, under BSEC rules, by companies. Microfinance is separate: no microcredit programme may run without a Microcredit Regulatory Authority certificate, and the service charge is capped at 24 per cent a year on a declining balance.

Key point: Profit-sharing deposits are not a free option for the bank. When Bangladesh Bank told depositors of the five merged Islamic banks in January 2026 that they would earn nothing for 2024 and 2025, the Central Shariah Board said shifting the losses onto depositors was not Shariah-compliant. Bangladesh Bank reversed course within a week and set a 4 per cent profit rate for both years.[6]

At a glance

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Table of Contents

How Islamic finance Bangladesh law is built

Bangladesh regulates Islamic finance through general financial law plus regulator guidance. A full-fledged Islamic bank is a bank company licensed and supervised under the Bank Company Act 1991. Bangladesh Bank's Guidelines for Conducting Islamic Banking, issued in November 2009, sit on top. They state that they are supplementary to banking law, not a substitute, and that the statute prevails in any conflict.[1] They define an Islamic bank as a banking company, or an Islamic branch of one, that follows Shariah in all its modes of operation and avoids receiving or paying interest at all levels.[1] Licensing and supervision generally are explained in our guide to banking law in Bangladesh.

The size of the market

Bangladesh Bank's report for April to June 2026 counts 10 full-fledged Islamic banks with 1,700 of the country's 11,425 bank branches. A further 53 Islamic branches are run by 17 conventional banks, and 990 Islamic windows by 22 conventional banks. The five banks folded into Sammilito Islami Bank still appear in that table under their former names.[2] Islamic banks also supplied 36.59 per cent of agricultural credit in the quarter.[2]

Towards an Islamic Banking Act

Bangladesh Bank now has an Islamic Banks Regulation and Policy Department and its own Shariah Advisory Board. In July 2026 the department's head, Executive Director Md Ashraful Alam, said drafting of an Islamic Banking Act was in its final stage, and Governor Md Mostaqur Rahman pledged stronger Shariah governance.[4] Until a bill is published, every Islamic finance Bangladesh transaction must be structured against existing statutes, and the draft's treatment of windows and resolution should be watched closely.

Shariah supervisory committees under the 2025 rules

The 2009 guidelines made the board responsible for Shariah compliance and allowed, but did not require, a Shariah supervisory committee.[1] In September 2025 Bangladesh Bank made the committee compulsory from January 2026. Each committee has three to five qualified, neutral experts in Islamic jurisprudence; nobody may sit on more than three. Terms are three years, renewable to six, followed by a two-year gap. Members need recognised qualifications and at least two years' relevant experience, and must declare no conviction, loan default, executive bank role or conflict of interest.[3]

The committee's Shariah decisions are final and binding on the board and management, and unresolved disagreements go to Bangladesh Bank. Every new product needs a Shariah ruling before launch. Members can be removed only for valid reasons with Bangladesh Bank's approval.[3] For counterparties, a product launch or restructuring will not close until that ruling is in hand, so build it into the timetable.

Islamic branches and windows of conventional banks

Conventional banks offer Islamic products through dedicated Islamic branches or through windows inside conventional branches. For branches, the 2009 guidelines require a CAMEL rating of 1 or 2 at the last inspection, no major adverse findings and a sound record on capital, liquidity and credit discipline.[1] The bank must keep Islamic funds and accounts completely separate, prepare separate financial statements, establish an Islamic Banking Division at head office and adopt a board-approved operational manual with distinct forms and cheque books.[1]

Islamic branches must keep cash reserve and statutory liquidity at the rates set for Islamic banks, through a separate account with Bangladesh Bank.[1] Islamic investment bonds, introduced in 2004, help Islamic banks meet the liquidity requirement and obtain support against mudaraba-based holdings.[2] Windows grew from 975 to 990 in the second quarter of 2026.[2] Any bank planning a window should expect the same segregation logic and check the forthcoming Act before investing in systems.

Bank resolution and Sammilito Islami Bank

The largest legal event in Islamic finance Bangladesh has seen was the failure and merger of EXIM Bank, First Security Islami Bank, Global Islami Bank, Social Islami Bank and Union Bank. Each was declared failed under the Bank Resolution Ordinance 2025, and administrators were appointed on 5 November 2025. Bangladesh Bank issued a no-objection certificate for the new entity on 9 November, and Sammilito Islami Bank PLC was registered and received its final licence.[5] The five banks held about Tk 1.42 lakh crore from roughly 76 lakh depositors, and about 77 per cent of their Tk 1.92 lakh crore of loans had defaulted.[6]

Parliament re-enacted the ordinance in amended form as the Bank Resolution Act 2026.[18] On 9 September 2026 it repealed section 18A, which let pre-resolution shareholders apply to buy back a bank's shares, assets and liabilities, after critics feared former owners of the merged Islamic banks could regain control.[7] The resolution toolkit is covered in our guide to the Bank Company Act 1991.

The mudaraba deposit problem

Mudaraba term deposits made up 51.77 per cent of Islamic bank deposits at end June 2026.[2] The depositor is the capital provider and the bank the manager. A Bangladesh Bank directive of 14 January 2026 said deposits in the merged banks would earn no profit for 2024 and 2025, and that profit already withdrawn could be set off against principal. After protests it was reversed on 21 January: depositors receive 4 per cent for both years and market rates from 2026. The Central Shariah Board had said loading losses from embezzlement and negligence onto depositors was not Shariah-compliant; under mudaraba principles and AAOIFI standards the manager bears losses caused by its own negligence or breach of trust.[6]

The Deposit Protection Act 2026 raised deposit insurance cover to Tk 2 lakh, and Bangladesh Bank expects Islamic banks to implement it with the Bank Resolution Act.[2] Corporate depositors with large mudaraba balances should diversify.

Islamic finance products and how they are documented

The 2009 guidelines permit mudaraba, musharaka, bai-murabaha, bai-muajjal, salam, istisna, ijara, hire purchase in two forms, direct investment and qard.[1] Sale-based modes dominate. At end June 2026 bai-murabaha made up 47.56 per cent of Islamic bank investment, bai-muajjal 19.15 per cent, hire purchase under shirkatul melk 18.58 per cent and ijara 4.69 per cent. Bangladesh Bank describes investment in genuine profit-and-loss sharing modes as minimal.[2] The table summarises each mode; on a phone, scroll it sideways.

In bai-murabaha the bank buys specified goods at the client's request and sells them at cost plus a mark-up, disclosed separately. Bai-muajjal is a sale on credit at a fixed price payable on a future date or by instalments. Both contracts must state quantity, quality, price and profit, delivery terms and the payment timeframe.[1] Under ijara the bank owns and leases the asset; under hire purchase the client takes title only once every instalment is paid.[1] Ownership therefore matters: insurance, registration and risk of loss must follow the contract. A facility that skips the bank's purchase is a disguised loan, vulnerable on Shariah and evidential grounds alike.

Enforcing Islamic finance Bangladesh contracts in the Artha Rin Adalat

An Islamic facility is enforced through the same machinery as a conventional loan. The Artha Rin Adalat Ain 2003 defines "loan" to include Shariah-based investment, so profit, rent and mark-up claims go to the money loan courts.[11] Islamic banks use those courts routinely. In Sulaiman Rubel v Dr Kazi Sirajul Islam, Islami Bank Bangladesh sued in Artha Rin Case No 388 of 2019 for Tk 4,65,18,699 after an auction of mortgaged property failed.[8]

On 27 November 2023 the Appellate Division held that section 12(1) does not make a prior sale of the security an absolute precondition to suit where the bank tried to sell under section 12(3). It held that a defaulting borrower cannot dictate how the bank realises its dues, and that the bank may still sell during the suit with the Adalat's approval.[8] The procedure is set out in our guide to the Artha Rin Adalat in Bangladesh.

What decides enforceability in practice

Courts enforce the contract the parties actually made. A murabaha claim is strongest where the file holds the purchase order, the supplier invoice in the bank's name, proof of delivery and the separate sale deed; an ijarah claim needs proof that the bank owned the asset. The guidelines define late-payment "compensation" as a financial penalty above the instalment and permit stipulated compensation clauses in some contracts.[1] Draft them carefully, because a Shariah committee may require the amount to go to charity. Security follows the usual forms explained in our guide to loan security documentation.

Sukuk in Bangladesh: sovereign and corporate

Bangladesh entered the sovereign sukuk market in December 2020, when Bangladesh Bank issued the first government investment sukuk to finance infrastructure. Issues are mainly ijarah or istisna structures with semi-annual payments, and outstanding government sukuk stood at BDT 535 billion at end June 2026.[2] Three oversubscribed auctions followed in that quarter: a 7-year BDT 59 billion rural bridge sukuk at 10.40 per cent on 14 May, a 5-year BDT 56 billion issue at 9.75 per cent on 23 June, and the first short-term issue, a 273-day BDT 55 billion sukuk at 9.36 per cent on 29 June.[2]

Corporate sukuk under the BSEC rules

Private issuers use the BSEC (Investment Sukuk) Rules 2019, which cover every Shariah-structured investment sukuk, privately placed or publicly offered.[9] The sukuk is constituted as a trust under the Trust Act 1882, registered under the Registration Act 1908, with a trust deed the Commission approves first. Permitted structures follow AAOIFI Shariah Standard 17 and include ijara, musharakah, murabahah, mudaraba and istisna.[9]

The issuer appoints a Shariah supervisory board of at least three advisers and obtains provisional and final pronouncements before the prospectus. A registered trustee holds the assets, the transfer must be bankruptcy-remote from the originator, and on default the trustee may take control of and liquidate the assets with Commission approval.[9] See also our BSEC compliance guide and our analysis of asset management law for Shariah funds.

The Beximco Green Sukuk test

The Tk 3,000 crore Beximco Green Sukuk Al Istisna of 2021, the first asset-backed corporate green sukuk, is the market's stress case. About Tk 2,800 crore was outstanding in May 2026 against a December 2026 maturity, and a Bangladesh Bank committee recommended a six-year extension that needs BSEC approval. The Investment Corporation of Bangladesh is trustee and about 97 per cent of holders are institutions.[10] For Islamic finance Bangladesh investors, the lesson is that sukuk-holders need enforceable trustee powers over real assets, not just a Shariah label.

Takaful under the Insurance Act 2010

Islamic insurance is written under the Insurance Act 2010 alongside conventional business. A 2023 academic review found that the Act lacks a comprehensive takaful framework and that no specific takaful regulations had been issued. It also found no separation of policyholders' risk and investment funds, investment rules that push family takaful towards interest-based securities, and a Central Shariah Board for Islamic Insurance without legal authority.[12] Until takaful rules arrive, the weakest link in Islamic finance Bangladesh offers is insurance cover, so anyone launching a takaful product should document the operating model, fund segregation and Shariah oversight contractually, because the statute does not.

Islamic finance globally and the Bangladesh position

The global industry reached US$3.88 trillion of assets in 2024, up 14.9 per cent, with sukuk issuance up 25.6 per cent, according to the Islamic Financial Services Board.[19] Bangladesh stands out for retail depth: its Islamic banks gather deposits from millions of ordinary savers. International standards already shape domestic law, from the BSEC rules' adoption of AAOIFI Standard 17 to the AAOIFI loss principles invoked for mudaraba depositors in 2026.[9] [6] Foreign Islamic lenders should also read our guide to foreign loan approval in Bangladesh.

Microfinance law in Bangladesh: the MRA Act 2006

Microfinance is regulated separately from banking. The Microcredit Regulatory Authority Act 2006 (Act No 32 of 2006), assented to on 16 July 2006, establishes the Microcredit Regulatory Authority to bring transparency and accountability to microcredit programmes. The Governor of Bangladesh Bank chairs its board, and the Act overrides other laws.[13] It covers organisations registered as societies, trusts, voluntary agencies, cooperatives or companies.[13]

Commentary in January 2026 put the sector at nearly 700 licensed MFIs, about 40 million client families and outstanding loans of about US$13 billion.[16] Islamic banks run their own microfinance, worth BDT 77.60 billion at end June 2026, under banking rather than MRA rules.[2]

The certificate requirement

Section 15(1) is the core rule: no microcredit organisation may run any microcredit programme without the Authority's certificate. Under section 16, a refused applicant must be given written reasons and a hearing, and may seek reconsideration within thirty days. Section 17 makes the certificate non-transferable and lets the Authority impose and change binding conditions.[13]

Permitted activities

Section 24 allows a licensed MFI to lend to the poor, accept deposits from members, borrow, invest surplus in approved sectors, charge a service charge at the rate the Authority sets and offer insurance to borrowers. Anything else needs approval. Section 32 bars deposits from non-members, and section 33 gives an MFI's charge priority over other charges on the same property.[13]

MRA licensing and MFI compliance

Licensing follows the Act and the Microcredit Regulatory Authority Rules 2010, made on 19 December 2010, which cover procedure, conditions, suspension, cancellation and fees graded by number of borrowers.[14] Fees and thresholds have been revised since, so confirm the current schedule before filing. The sequence we follow is below.

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Governance and prudential rules

No paid employee may sit on an MFI's general body or board, and people convicted of moral turpitude or misappropriation are disqualified. The Authority may remove a chairman, director or chief executive after a show-cause notice. No MFI may change its constitution or pay a dividend without approval.[13] The 2010 rules require boards of 5 to 10 members including at least two women. Voluntary deposits are allowed only after five years' operation, three profitable years and recovery rates of at least 95 per cent cumulatively and 90 per cent currently, and total deposits may not exceed 80 per cent of loans outstanding.[14]

Enforcement

Running microcredit without a certificate, giving false information or defying the Authority's directives is punishable by up to one year's imprisonment, a fine of up to Tk 5 lakh, or both. The Authority may instead impose administrative fines of up to Tk 5 lakh, and may search premises and seize records. On its petition the High Court Division may order an MFI closed.[13]

The service charge cap and borrower protection

The cap was set at 27 per cent a year in 2010 and cut to 24 per cent in 2019, with a recommendation to review it every two years on the declining balance method. Later committees reached no decision to cut further, and MFIs have proposed a 12.75 per cent flat rate for small loans instead.[15] On the latest reporting we have found, 24 per cent on a declining balance remains the ceiling. That is 24 per cent a year on principal actually outstanding; a flat rate on the original amount, or added fees, can breach it in effective terms. Compliance teams should test the effective rate on the instalment schedule.

Protections from MRA circulars

The Authority's principal 2010 circular capped application, membership and passbook charges at Tk 15 and ended collateral for microcredit. It required a grace period of at least 15 days before the first instalment, prohibited up-front deductions for compulsory savings or insurance, and set a minimum 6 per cent return on member savings. Under the 2010 rules a client with no outstanding loan may withdraw her savings in full.[14] Unlicensed lenders are the larger risk, and the Authority's search powers exist for them.[13] Where a lender is also a registered NGO, issues may overlap with NGO registration law.

PKSF, Grameen Bank and the Microcredit Bank Ordinance

Palli Karma-Sahayak Foundation is the apex development organisation the government established in 1989, working through more than 223 partner organisations.[20] It supplied about 7 per cent of sector financing in early 2026.[16] Grameen Bank has its own statute, and Parliament's 2026 review recommended passing the interim government's Grameen Bank (Amendment) Ordinance unchanged.[18]

The Microcredit Bank Ordinance: status in 2026

The Financial Institutions Division opened its draft to consultation in December 2025.[16] The ordinance was issued on 28 January 2026.[18] As reported, it set authorised capital at Tk 500 crore and paid-up capital at Tk 200 crore, made Bangladesh Bank the licensing regulator, allowed deposits from borrowers and others, and capped investor dividends at the amount invested.[17]

It had not come into effect when Parliament reviewed the interim government's 133 ordinances. In April 2026 the review committee placed it among 16 ordinances to be reviewed and strengthened before any reintroduction as a new bill.[18] We have not found a microfinance bank bill passed since. On the information available, MFIs remain under the 2006 Act and no microfinance bank can yet be licensed. Supporters see a route to deposits and capital; critics fear mission drift. Check the position afresh before acting.

Working with an Islamic finance lawyer in Bangladesh

An Islamic finance Bangladesh mandate is part banking law, part drafting and part Shariah process. The adviser's job is to make the structure the Shariah committee approves the same structure the documents create and the courts will enforce. That covers structuring, documentation that follows the guidelines' contract requirements, approvals from Bangladesh Bank, BSEC or the MRA, and recovery or resolution disputes.[1]

The recurring mistakes are predictable: a murabaha sale that happens only on paper, a Shariah pronouncement treated as a formality, trustee powers nobody checked, and flat rates that breach the declining-balance cap. Each is cheaper to fix at the drafting stage than in court.

What to watch in 2026 and 2027

Four developments will shape Islamic finance Bangladesh practice: the Islamic Banking Act, in its final stage in July 2026;[4] the integration of Sammilito Islami Bank after repeal of section 18A;[7] the Beximco sukuk extension ahead of its December 2026 maturity;[10] and expected-credit-loss provisioning under IFRS 9, targeted for 2027.[2] In microfinance, watch whether a microfinance bank bill returns and whether the 24 per cent cap is reviewed.[18] [15]

TRW's banking and finance practice structures Shariah-compliant facilities and advises MFIs, our capital markets team handles sukuk, and our banking litigation team acts in recovery and resolution disputes.

Frequently asked questions

Is there a separate Islamic banking law in Bangladesh?

Not yet. Islamic banks are licensed under the Bank Company Act 1991 and follow Bangladesh Bank's 2009 guidelines; in July 2026 an Islamic Banking Act was in its final drafting stage.[1] [4]

How big is Islamic finance in Bangladesh?

At end June 2026 Islamic banking held 22.53 per cent of bank deposits and 29.19 per cent of bank investment, through 10 full-fledged banks, 53 Islamic branches and 990 windows.[2]

Must every Islamic bank have a Shariah supervisory committee?

Yes. Since January 2026 each Islamic bank must have an independent committee of three to five qualified members whose Shariah decisions are final.[3]

What is Sammilito Islami Bank?

The state-owned bank formed in late 2025 from EXIM, First Security Islami, Global Islami, Social Islami and Union Bank after they were resolved under the Bank Resolution Ordinance 2025.[5]

Can an Islamic bank sue in the Artha Rin Adalat?

Yes. Shariah-based investment falls within the Artha Rin Adalat Ain 2003, and Islamic banks recover their dues in the money loan courts.[11] [8]

Which Islamic finance product is most common?

Bai-murabaha, at 47.56 per cent of Islamic bank investment at end June 2026, followed by bai-muajjal and hire purchase.[2]

Which rules govern corporate sukuk?

The BSEC (Investment Sukuk) Rules 2019, which require a trust vehicle, a Shariah supervisory board of at least three advisers and a registered trustee.[9]

Who needs an MRA licence?

Any organisation running a microcredit programme. Section 15 of the 2006 Act prohibits microcredit without the Authority's certificate.[13]

What is the maximum microcredit service charge?

24 per cent a year on a declining balance, set in 2019 to replace the 27 per cent cap of 2010.[15]

Is the Microcredit Bank Ordinance in force?

On the information available, no. It was issued on 28 January 2026 but had not taken effect, and in April 2026 Parliament's review committee set it aside for further review.[18]