Islamic banking in Bangladesh is facing a significant crisis of confidence due to widespread lending malpractices, leading to a liquidity crunch and declining market share. Official data reveals a continuous drop in the share of deposits, investments, and remittances handled by Shariah-compliant banks. From December 2023 to March 2024, the share of Islamic banking deposits fell from 23.86% to 23.44%, while their investment share fluctuated, peaking at 28.92% in January before falling to 24.86% by March. Remittance share dropped dramatically from 51.57% in January to 37.95% by March.
A central bank official cited media reports of loan irregularities as a key factor in eroding public trust. Efforts to regain confidence have seen limited success, as funds continue to flow into conventional banks. Fitch Ratings highlighted liquidity shortages and governance issues as critical challenges, despite some Islamic banks performing well under these adverse conditions.
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