GUIDELINES FOR ISLAMIC BANKING

GUIDELINES  FOR  ISLAMIC  BANKING

  Section I: Introduction and Definition of terms used in Islamic Banking

"Islamic bank" means such a banking company or an Islamic  bank  branch(es) of a banking company licensed by Bangladesh Bank, which follows the Islamic Shariah in all its principles and modes of operations and avoids receiving and paying of interest at all levels.

Other terms (Shariah, Islamic Banking Business, Branch or Branch Office, Depositor, Investment, Client, Compensation)

 

Section II: License

A.    Criteria for Setting up full-fledged Islamic banks

B.    Terms and Conditions for opening Islamic banking  branches by conventional commercial banks
    1. Eligibility criteria (CAMELS rating 1/2, no major adverse inspection findings)
    2.  Required working papers
    3.  Formation of an Islamic Banking Division
    4.   Control and segregation of Islamic Banking Fund
    5.  Maintenance of Accounts and Financial Statements

C.     Conversion of conventional commercial banks into Islamic banks. (MOA & AOA, Deposit, Asset, Return, Zakat etc. )

 

Section III: Responsibility for Shariah Compliance

It will be the responsibility of the board of directors of the respective banks to ensure that the activities of the banks and their products are Shariah compliant. The Board of the Islamic banks/Conventional commercial banks having Islamic branches, therefore, be constituted with directors having requisite knowledge and expertise in Islamic Jurisprudence.

The Board may form an independent Shariah Supervisory  Committee  with experienced and knowledgeable persons in Islamic Jurisprudence. However, the Board shall be responsible for any lapses/irregularities on the part of the Shariah Supervisory Committee. A fit and proper criteria for selection of members of the Shariah Supervisory  Committee  is enclosed in Appendix-1.  

Section IV:  Principles of Deposit

• Al-Wadeeah
• Mudaraba

Section V: Investment Principles & Investment Products

• Mudaraba;
• Musharaka;
• Bai-Murabaha (Murabaha to the purchase orders);
• Bai-Muajjal;
• Salam and parallel Salam;
• Istisna and parallel Istisna;
• Ijara;
• Ijarah Muntahia Bittamleek (Hire Purchase);
• Hire Purchase Musharaka Mutanaqisa (HPMM);
•  Direct Investment;
•  Investment Auctioning
•  Quard
•  Quard Hassan- fault in practice

Investment System for Import/Export Business

•  Mudaraba Vs. Musharaka
•  Bai Mechanism (Murabaha, Muajjal, Salam etc.)
•  Documentary Credit (L/C); Wakala vs. Bai Mode
•  Negotiation; FBN/FBP- fault in practice
•  Service Charge:
•  At most as per actual expense single time only (bank guarantee); though Riba (interest), it is allowed.
•  At any amount  based on service quality, requirement etc.

Section VI:  Maintenance of CRR/SLR 

Section VII:  Preparation of Financial Statements

Section VIII: Framework of Rate of Return

• Weight-age Based Framework of Rate of Return
• ISR Based Framework of Rate of Return