Bangladesh Bank has introduced comprehensive new regulations for Shariah supervisory committees, making their formation mandatory for all Islamic banking institutions. The new framework, set to take effect on January 1, 2026, grants these committees significant authority, including the power to report non-compliant bank boards directly to the central bank.
The directives, issued by the Islamic Banking Regulation and Policy Department, establish detailed guidelines on the qualifications, responsibilities, and operational procedures for committee members, aiming to strengthen governance and ensure adherence to Islamic principles across the sector.
Key Takeaways
- Bangladesh Bank has made Shariah supervisory committees mandatory for all Islamic banks.
- Committees are empowered to report bank boards to the central bank for non-compliance.
- Decisions made by the committees on Shariah matters are now considered final and binding.
- The new regulations specify clear criteria for member qualifications, tenure, and compensation.
- The updated rules will be implemented starting from January 1, 2026.
New Framework Grants Unprecedented Authority
The updated regulations represent a significant shift from the previous guidelines established in 2009. A central element of the new rules is the enhanced authority granted to the Shariah supervisory committees. Their decisions on matters of Islamic law will now be considered final, obligating the bank's board of directors and management to implement them without exception.
In a move to ensure accountability, the guidelines stipulate a clear protocol for handling non-compliance. If a committee identifies a violation of Shariah principles, the bank's board must take immediate corrective action based on the committee's recommendations.
Should the board neglect its duty to address these issues, the committee is now mandated to report the negligence directly to Bangladesh Bank. This provision establishes a direct line of oversight from the supervisory committees to the country's main financial regulator.
Furthermore, any disagreements on Shariah matters between the committee and the bank’s management, executive committee, or board must also be reported to the central bank. This ensures that disputes do not hinder the implementation of Shariah-compliant practices.
Strict Criteria for Committee Members
To ensure expertise and integrity, Bangladesh Bank has outlined stringent qualifications for individuals serving on these supervisory committees. Each bank is required to form an independent committee composed of experts who are qualified, competent, and neutral in matters of Islamic jurisprudence.
Background Information
The previous directives, issued in 2009, provided a basic framework for Shariah committees but lacked specific details on member qualifications, the number of members, term limits, and compensation. The new 2025 guidelines are designed to fill these gaps and create a more robust and standardized governance structure for the Islamic banking sector in Bangladesh.
Educational and Professional Requirements
Candidates for a committee position must possess a bachelor's degree in specific fields from a recognized university. Acceptable degrees include Kamil, Dawra-e-Hadith, Islamic Studies, Islamic Economics, Islamic Finance, Islamic Banking, or Islamic Law.
The central bank has specified that candidates with a third-class degree at any stage of their academic career are not eligible. Advanced qualifications, such as a PhD, will be considered an additional advantage. Applicants must also have a minimum of two years of relevant experience, which can include teaching, working as a Mufti, or previous service on a bank's Shariah committee.
Integrity and Conflict of Interest Rules
Beyond academic and professional credentials, members must meet strict ethical standards. Each candidate must provide a written declaration confirming they have:
- Never been convicted of criminal or financial offenses.
- No status as a loan defaulter.
- No executive positions in any other bank or financial institution.
- No direct or indirect business relationships that could create a conflict of interest.
These measures are designed to ensure the independence and impartiality of the committee members, reinforcing the integrity of their oversight function.
Operational Structure and Compensation
The new directives provide a clear and uniform structure for the composition, tenure, and remuneration of the Shariah supervisory committees, standardizing practices across all Islamic banking institutions.
Committee Composition and Term Limits
Each committee will consist of three to five members. An individual is permitted to serve on a maximum of three Shariah supervisory committees simultaneously. Members are appointed for a three-year term, which can be renewed once for a total of six consecutive years. Following a full six-year tenure, a mandatory two-year cooling-off period is required before a member can be considered for reappointment.
The board of directors may remove a member for valid reasons, but only with prior approval from Bangladesh Bank. Committee members also have the right to resign by providing written notice.
Standardized Remuneration
The guidelines establish a fixed compensation structure for committee members. Each member will receive a monthly honorarium of BDT 25,000. In addition, they will be paid BDT 8,000 for each meeting they attend. This standardized payment model aims to eliminate inconsistencies in compensation across different banks.
Each committee will elect one member to serve as its chairman for a three-year term. The head of the bank's Shariah Secretariat will act as the committee's secretary but will not have voting rights.
Role of the Shariah Secretariat
A critical component of the new framework is the mandatory establishment of a Shariah Secretariat within each Islamic bank. This department will function as the administrative and operational arm of the supervisory committee, providing essential support to ensure its effectiveness.
The Secretariat will be structured into several key units, including:
- Internal Shariah Audit and Review: Responsible for conducting regular audits of the bank's operations.
- Shariah Compliance: Tasked with monitoring day-to-day adherence to Shariah principles.
- Research: Focused on studying and providing insights on matters of Islamic finance.
The Secretariat's duties include preparing meeting agendas, maintaining records of discussions and decisions, and issuing formal Shariah opinions on behalf of the committee.
Duties, Responsibilities, and Confidentiality
The primary responsibility of the Shariah supervisory committee is to ensure that every aspect of the bank's operations aligns with Islamic principles. This includes reviewing and approving all policies, product manuals, contracts, services, and promotional materials.
The committee is also tasked with overseeing the bank's profit-loss and investment accounting, the calculation and distribution of Zakat, and the proper use of Qard (interest-free loan) funds. According to the new rules, no new product can be launched without a formal Shariah ruling from the committee. Any existing products found to be non-compliant require prior approval from Bangladesh Bank before they can be modified or continued.
Audit and Reporting Process
The Shariah Secretariat will draft an annual audit plan, which must be approved by the supervisory committee. Any objections or irregularities identified during audits will be reviewed on a quarterly basis. In cases of serious violations, a report must be submitted to the bank's board for immediate action.
To ensure active participation, members are required to attend at least 75% of scheduled meetings. A member who is absent for three consecutive meetings will be automatically removed from the committee.
Finally, the guidelines place a strong emphasis on confidentiality. Committee members are strictly forbidden from disclosing any information or documents obtained during their service. This confidentiality clause will be a mandatory component of their appointment contracts, safeguarding sensitive bank information.
