Islamic Social Finance in Bangladesh: Challenges and Opportunities of the Institutional and Regulatory Landscape

Abstract

From the end of World War Two, the core methodology of law and development projects has been to transplant the best legal institutions of Western capitalism to poor and emerging economies. In many post-colonial contemporary Muslim-majority countries, such programs have not adequately engaged with local legal systems, cultures and traditions. Contrary to the restrictive modernist approach to law and development, and inspired by the Sharia, there are numerous Islamic social finance mechanisms that can be utilised for poverty alleviation and their existence is evident across Bangladesh. These cover the full spectrum of philanthropic to financing, investments and insurance built upon Sharia norms and principles. Unfortunately, the true potential of Islamic social finance is considerably constrained by the weak regulatory and policy environment. Islamic social finance does not feature in national development plans, is regulated through a patchwork framework, and operates at a negligible scale. This paper provides a detailed analysis of the existing regulatory and institutional landscape of Zakah (obligatory almsgiving), awqaf (perpetual endowments), Islamic microfinance and microtakaful (microinsurance) in Bangladesh and examines the potential and challenges for Islamic social finance to reduce poverty. Thereafter, several pertinent policy and institutional recommendations are provided to effectively modernise and advance the effectiveness of Islamic social finance institutions. The methodology employed is a mixed approach incorporating literature review, legal analysis of laws and regulation and contextual analysis and field interviews among industry stakeholders. Ultimately, while private investment and initiatives are always able to support the Islamic social finance sector, this paper focuses on the extent to which the regulatory and policy environment is a crucial enabler for widespread and sustained development impact.

The integration of Islamic social and commercial finance (IISCF): Systematic literature review, bibliometric analysis, conceptual framework, and future research opportunities

“…Earlier, a field investigation on Amanah Ikhtiar Malaysia, one of the world's largest Islamic MFIs, based in Malaysia, provided new insights into the issues and challenges confronting women micro-entrepreneurs as clients of the Islamic microfinance industry [ 99 ]. An in-depth mixed-method analysis was also conducted in Bangladesh centred on regulatory and institutional aspects to identify the main factors impeding the achievement of Islamic social finance objectives and integration with the commercial sector, including the need for harmonisation and a clear regulatory framework [ 111 ]. Regarding risk management issues, stakeholders in Malaysia will accept the reality of unavoidable risk after all efforts have been exhausted provided the standard operating procedures were followed during the integration process [ 63 ].…”

Islamic Village Development Management: A Systematic Literature Review

“…This Islamic microfinance institution in village development praxis is found in Bangladesh, Malaysia, and Indonesia, which are majority Muslim population countries. The Islamic village microfinance institution contribution through rural development scheme, as has been done by Islamic Bank Bangladesh Limited (IBBL) in Bangladesh (Abdullah et al 2017;Hassan & Saleem, 2017;Anwarul Islam, 2016;Uddin & Mohiuddin, 2020), Rupali Bank Limited in Bangladesh (Nasrin & Sarker, 2014) and Amanah Ikhtiar Malaysia (Bhuiyan et al, 2011). It can be concluded that in the context of village development management, Islamic microfinance institution plays a major role in efforts to alleviate poverty in the Muslim world, most of whom live in villages.…”

“…In this first theme, seven articles highlight the practice of institutionalizing Islamic principlesbased microfinance, which carries out its praxis in rural areas in Bangladesh as the first sub-theme ( (Abdullah et al, 2017), (Umar, Usman, & Purba, 2018), (Bhuiyan et al, 2011), (A. Hassan & Saleem, 2017), (Nasrin & Sarker, 2014), (Uddin & Mohiuddin, 2020)).…”

“…Additionally, Uddin & Mohiuddin (2020) points out that Islamic social finance institutions like RDS contribute meaningful complementary function to Bangladesh's government efforts to alleviate poverty. Islamic social finance offers two significant task (Uddin & Mohiuddin, 2020). Firstly, it mobilizes an enormous pool of resources from philanthropic and commercial sources.…”

A bibliometric review of the Waqf literature

“…The author builds the concept of Islamic social bank on the theoretical perspective of Waqf as a tool for sustainable poverty eradication tool Abduh (2019). further establishes the role of Waqf based on Islamic social finance in financial inclusion Uddin and Mohiuddin (2020). tackle the regulatory constraints of implementing a Waqf based Islamic social finance model in an emerging country such a Bangladesh.…”