Analysis of Islamic Banking And Finance In Bangladesh

Analysis of Islamic Banking And Finance In Bangladesh

Abstract
The research study explores the concept of Islamic finance and its banking. Apart from this, it also stresses on the challenges of Islamic banking that affects the production of Bangladesh. The differences can also be observed with respect to conventional banks and Islamic banks. In addition to this, the ability of the Islamic banks has been recognized by analyzing the various policies and methods that it uses. The scholar also aims to understand the rules of Shariya and its impact on the Bangladesh population to meet the financial needs of the country. Different financial facilities are also observed, which is related to the Musharaka, Mudaraba, Ijarah, Bai-Muajjal and Bai-Salam. From the discussion, it can also be noticed that the position of Islamic banking in Bangladesh is expanding rapidly and due to this, the people are also able to enjoy the practices of Islamic finance. The survey is conducted among the 100 Bangladeshi people and 4 officials were taken from different Islamic banks. Through these, adequate and better information have been gained. The scholar used pragmatism philosophy, abductive approach, thematic analysis, MS Excel and qualitative, quantitative methods for this study.

Table of Contents

• Chapter 1: Introduction
• 1.1 Background
• 1.2 Research aim
• 1.3 Research objectives
• 1.4 Research questions
• 1.5 Purpose of the study
• 1.5 Rationale
• 1.6 Research problem
• Chapter 2: Literature Review
• 2.1 Overview
• 2.2 Theoretical framework
• 2.2.1 Islamic finance
• 2.2.2 Principles of Islamic finance
• 2.2.3 The difference between conventional banking and Islamic banking
• 2.2.4 Islamic banking in Bangladesh
• 2.2.5 Financing facilities in Bangladesh
• 2.2.6 Customer satisfaction of the local population
• 2.2.7 Position and policies of Islamic banking
• 2.2.8 Challenges of Islamic banking
• 2.3 Conceptual Framework
• 2.4 Literature Gap
• 2.5 Summary
• Chapter 3: Research Methodology
• 3.1 Overview
• Chapter 1: Introduction
• 1.1 Background
• 1.2 Research aim
• 1.3 Research objectives
• 1.4 Research questions
• 1.5 Purpose of the study
• 1.5 Rationale
• 1.6 Research problem
• Chapter 2: Literature Review
• 2.1 Overview
• 2.2 Theoretical framework
• 2.2.1 Islamic finance
• 2.2.2 Principles of Islamic finance
• 2.2.3 The difference between conventional banking and Islamic banking
• 2.2.4 Islamic banking in Bangladesh
• 2.2.5 Financing facilities in Bangladesh
• 2.2.6 Customer satisfaction of the local population
• 2.2.7 Position and policies of Islamic banking
• 2.2.8 Challenges of Islamic banking
• 2.3 Conceptual Framework
• 2.4 Literature Gap
• 2.5 Summary
• Chapter 3: Research Methodology
• 3.1 Overview
• 3.2 Method Outline
• 3.3 Research Onion
• 3.4 Research Philosophy
• 3.5 Research Approach
• 3.6 Research Strategy
• 3.7 Data Collection Method
• 3.8 Research Hypothesis
• 3.9 Research Sampling Method
• 3.10 Data Analysis Techniques
• 3.11 Research Ethics
• 3.12 Research Limitations
• 3.13 Research Timeline
• 3.13 Summary

Chapter 1: Introduction

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1.1 Background
Marked by a timing origination in the 60s, the Islamic industry of finance and banking acquired prominence in almost all Muslim countries and in a few non-Muslim nations as well, drawing customers of diverse beliefs and faith because of its resilience. The banking structure of Islam is characterized by less banking risks and its familiarity with the Shariah law. In the late 20th century the global financial industry experienced the vigorous growth of Islamic banks and financial institutes and Bangladesh was especially responsible for the worldwide adoption of Islamic banking system following the public demand in the country. After the 1983 inception, the Islamic industry of banking and finance documented robust performance.

The current position of Islamic banking in Bangladesh accounted for about 20% of the net market share obtained from the entire finance industry of Bangladesh. The Islamic industry of Banking acquired annual growth by 20% (researchgate.net 2019). However, its rising population indicates that this sector is the immense potential of growth and expansion since the demography of Bangladesh is dominated by Muslims with a vibrant economy marked by growth by 6% in the past few years. The exigent demands regarding the potentiality and scopes of Islamic banking in the Muslim countries, especially in Bangladesh resulted in the growth of research works in this area. This study presents the overall conception of Islamic banking and its comparative performance with the conventional banking and financial industry in Bangladesh. Furthermore, this paper highlights the challenges that are faced by this sector and the initiatives it has taken for meeting the financial requirements of the local population of Bangladesh.

This present paper incorporates a two-fold objective: first, to explore the challenges and status of Islamic banking by assessing the factors that have been responsible for its wide adoption in Bangladesh and the second purpose is to review the policy options that have developed a sound architecture of the financial industry of Bangladesh. The study basically is focused on the viable implications of Islamic banking at the same time representing its irrational manoeuvre. The application of Islamic banking in the already well-structured banking industry of Bangladesh seemed challenging at the initial stage. However, with time the locals identified the facilities and potentials of the Islamic banks which led to the nation-wide acceptance of this system (Waemustafa& Abdullah, 2015).

The researcher has gathered data from primary and secondary sources for addressing the research objectives and presenting an extensive discussion regarding the matter. In the past three decades, the rising popularity of Islamic banking marks the enhancement of the financial industry of Bangladesh. In fact, with the advent of Islamic banking, the local population was immensely benefitted. However, certain regulations associated with Islamic banking has affected the economic development of Bangladesh. The strong demand from the public is a major reason for which Bangladesh has retained this system of banking. The religious implication of this sector has compelled the conformist society to stick with it. Nevertheless, it would be wrong to assert that society has not been benefitted by the new architecture of Islamic banking. It is imperative to evaluate how far Islamic finance and banking differ from conventional banking in terms of facilitating the common people and enhancing the economy of the country. Therefore, the researcher compares the performance of Islamic banking with conventional banking (Yuliana & Bashir, 2017). This study presents the key issues and strengths of this sector for justifying the claims.

1.2 Research aim
The aim of this study is to evaluate the impact of Islamic finance and banking on the regulations and rules of Shariya which have guided the local population of Bangladesh to meet their financial requirements.

1.3 Research objectives
• To examine the concept and exposition of Islamic finance and banking
• To identify the challenges, policy options and the current position of Islamic banking
• To evaluate the difference between conventional banking and Islamic banking
• To assess the ability of Islamic banks in developing addressing local and global circumstances
• To examine how far the Islamic system of finance and banking has facilitated the local population of Bangladesh

1.4 Research questions
1. Why is it essential to define the concept of Islamic finance and banking?
2. What are the challenges and policy options for Islamic banking and finance?
3. What are the core differences between conventional banking and Islamic banking?
4. What are the ways in which Islamic banks have addressed local and global circumstances?
5. What are the ways in which the Islamic system of banking has facilitated the local Bangladesh population?

1.5 Purpose of the study
The purpose of this is to execute a research work with the Muslim demographic who are the official residents of Bangladesh. The purpose of the study is to explore the outlook of the local population regarding the Islamic system of finance and banking. The Islamic structure of banking is contradictory to the traditional banking system with which most parts of the world are acquainted with. However, the policies associated with Islamic banking is confined to Muslim countries. The financial requirements of the local Bangladesh population and the obtainable products of banking are the prime interest of this study. The researcher gathered primary data through random probability sampling for data analysis.

1.5 Rationale
The key issues related to the Islamic structure of finance and banking is discussed under this section which also highlights the status of Islamic banking in Bangladesh. The financial industry in Bangladesh is challenged with a minimum understanding and awareness of the banking services and products which has discouraged the locals from patronizing these banking services. The industry requires regulatory harmonization and clarification. Its lacks a comprehensive knowledge about the standard setters of conventional financing and Islamic financing. This, on the other hand, has led to the dismissal of the supervisory tools that are widely used in conventional banking (Sloane-White, 2018). The Shariah-compliant regulatory financial instruments are substantially lacking in the Islamic banking industry of Bangladesh and it requires a thorough understanding of the transmission mechanism. The resolution frameworks and safety net associated with this industry are severely under-developed which has cost them dearly.

These issues and challenges continue to exist in the Islamic banking industry of Bangladesh. The Islams intended to establish a whole new system of banking that would serve the interests of Muslims, though it has never discouraged customers with other religious beliefs. The Islamic banking industry was set up with contradiction to the policies, regulations and rules of the conventional banking sectors. The Islams successfully established their own system of banking but in doing so they had dismissed some of the major conventional regulations of banking. The banking system of the Islams conforms to the Shariah law and their policies of investment and interest completely differ from traditional banking. The divergent regulations of the Islamic financial industry resulted in cross-cultural issues for which it lost relevance in non-Muslim countries (Suryanto&Ridwansyah, 2016). A majority of Muslim countries along with Bangladesh embraced this system for the new architecture serves the interests of the Muslims. This banking system has driven customer satisfaction in Bangladesh.

The emergence of the issues associated with Islamic banking exposes some areas of this industry which need changes and modifications. It is essential that the bank gathers extensive knowledge regarding the services it intends to provide. The Islamic banks do not believe in interests for according to the law of Shariah interest is a sin and must not be charged. This issue continues to exist and the banks in Bangladesh are surviving with little profit. Islamic banking and finance do not exist independently but are required to comply with Islamic laws (Arafah&Nugroho, 2016). From, the standpoint of the local population, this banking industry is beneficial but on the basis of Bangladesh economy, it needs to modify some of the banking strategies.

Islamic finance and making were basically established to discard some financial practices like charging interest for it violates the Shariah law. Observers have both criticized and praised this system of banking while at the same time acknowledging its rising popularity across the world. In Bangladesh, Islamic banks are widely accepted across the nation. The policies are simple and understandable for commoners who do not have adequate banking knowledge. Its policy of interest owes to the prominence of the banking system in Bangladesh. Common middle-class people are inclined towards it for they would not be charged interest. The acceptance of the banking system across the nation, however, did not serve the interest of the poor and the small traders (Ltifiet al. 2016). The condition of the lower-class people was not enhanced by the Shariah intervention. The bank could land in serious trouble at times of inflation.

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1.6 Research problem
This study is concerned with the impact of Shariah law and regulations on the seamless operations of Islamic banks and how far Islamic banking facilitated the local population of Bangladesh. In the process of doing so, the banking behaviour of Islamic financial industry is exposed. An extensive profile evaluation is implemented by the researcher for investigating the problems of the current research. By far, the performance of the Islamic banks is impressive and its ethical practices are responsible for the growing prominence of this sector. The banking functions of Islamic banks are similar to that of conventional banks. Islamic banks emerged and expanded to serve the interest of Muslims thus executing financial operations in accordance with the regulations and laws of Islam (Khairiet al. 2018). The Islamic banking system is based on a religious notion for which the business model of this sector is conceivably different from the traditional banking model.

Some studies in these areas reveal that Bangladesh customers have chosen Islamic banking and finance on religious and sacred grounds. This research problem is widely discussed in the current study based on consumer behaviour and consumer psychology. The Islamic banking model has acquired immense popularity in some non-Muslim countries because it does not intend to impose financial pressure on customers. The wide appeal of this sector is thoroughly evident in the objectives and initiatives of global banks to provide services based on Islamic regulations. This system has drawn Muslim consumers from all across the world. The prominence of the Islamic system of Bangladesh compelled the country for which a number of banking sectors in Bangladesh have started Islamic services.

It is imperatively essential to observe the sustainable advantages that Islamic banks have over conventional banks for which it could appeal to the wide Muslim population of Bangladesh. It also justifies the worldwide acceptance of this sector (Abozaid, 2016). The sector began with the shake start but continued to expand first in Muslim majority countries and then in non-Muslim countries as well thus acquiring global popularity. Customers in Bangladesh has been using the banking products provided by Islamic banks. These are comparatively cheaper and easily understandable. However, observers claim that the Islamic financial structure in no way has benefitted the subalterns.

Islamic banking was first adopted in Bangladesh in 1983 and ‘Islamic Bank Bangladesh Ltd' came into existence. The research problems of the current study are focused on a number of areas related to Islamic banking in Bangladesh. The research problem is concerned with the demographic profile of customers in Bangladesh who have shown interest or have been using the services of Islamic banks for quite some times. It identifies the history of the local Bangladesh customers in association with banking relationship. The research problem further exposes the utilization of the banking products and services exploring the reasons for which the products and services gained quick popularity in Bangladesh. This study actually measures the level of satisfaction among Bangladesh customers with Islamic banking trying to evaluate their perception of the Islamic structure of finance and banking (Al-Tamimiet al. 2015). A majority of Muslims in Bangladesh has chosen Islamic banking and conventional banking and thus it is important to identify the key drivers that have compelled the local people to choose Islamic banks. Thus the selection criteria are evaluated in the later sections.

Chapter 2: Literature Review

2.1 Overview
The researcher has reviewed a number of articles under this section that are relevant to the matter of study. The reviewed articles are previous research papers that have explored the same area and have presented some significant findings that are related to Islamic banking and finance. In the review of the literature, the researcher presents the contradictory standpoints of different authors and has provided precise conclusions for each discussion. The review of previous studies provides an extensive understanding of the matter and develops contradictory knowledge about the concept of Islamic banking and its application in the financial industry of Bangladesh.

The Review of literature provides a conceptual framework in the form of a structured diagram representing the concerned variables of this study. The multiple independent variables depending on the dependent variable which is Islamic bank is represented by the diagram of a conceptual framework. The relationship between the variables is established in the review of the literature. The reviewed articles strongly support the claims that have been made by the author regarding Islamic banking and its impact on the local population of Bangladesh. Furthermore, this study provides the outlook of the general public regarding the acceptance of Islamic finance and banking.

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2.2 Theoretical framework

2.2.1 Islamic finance
This study would enable the readers to comprehend the various ways in which financial banking in implemented and used in the banking system of Bangladesh. It is mandatory for the system of Islamic finance to comply with the Sharia law or the Islamic law, which is a religious law, considered as significant part of Islamic tradition. While some financial activities are permitted under the Sharia law, some are prohibited. It is on the basis of the principles of Sharia law that the Islamic finance was developed, and it entirely varies from the conventional system of banking, used all across the planet (El-Gamal, 2006).

Islamic finance was established in the 20th century and has been practiced extensively since that time. The formal system of Islamic banking is practiced in some parts of the world, and Bangladesh is among those countries where Islamic Finance is used. Over the years, a number of countries besides Bangladesh has adopted the use of Islamic Banking, mostly because of its compliance with the Sharia law, and due to this, the system of Islamic Finance enhanced rapidly. According toWarde, (2000), the growth rate of Islamic Finance is almost 20% every year, which can be considered as a significant amount. At present, a large number of institutes have been established all across the world where Islamic Finance is extensively practiced.

It can be said that Islamic Finance has largely contributed towards the enhancement of Islamic economic. There are multiple modes of Islamic Finance and some of these include Mudarabah, which refers to the sharing of profit and bearing the loss; Wadiah, which means safe-keeping; Murabahah, which stands for cost-plus; Musharaka, which stands for joint venture; Ijara, which means leasing. According to the Sharia Law, the practice of Riba or interest is prohibited, however, this is a much debated concept among the Islam. As opined by Gheeraert& Weill, (2015), the practice of Investing in business which provide people with goods as well as services is considered a contrary to the principles of Islam (e.g. Alcohol or pork), which is also known as haraam (prohibited and sinful).

Historically, some of the financial institutes practiced these prohibition in varying degree in some communities of Muslims in order to end some of the un-Islamic practices. However, during the 20th centuries, more institutes began to apply these principles, especially in the private as well as in the semi-private institutes. Therefore, institutes in compliance to the Islamic law began to expand gradually, therefore, forming a new financial system especially for the Islam. According to Kassim (2016), by the 2009, it has been found that at least 250 Mutual Funds and 300banks complies with the principles of Shariya. However, it has been also revealed by researchers that Islamic Finance accounts to just a fraction compared to the other banking assets of the Islamic countries. The growth of Islamic finance, on the other hand, is much faster compared to the other banking assets and it is likely to enhance at such rate in the coming years as well. According to Kassim (2016), the rapid growth and adoption of Islamic finance has made this system of banking significant popular among a number of nations, all across the world.

This system of banking was established to reject the western principles and to revive the Islamic principles. Islamic finance assures the nation that it would implement no inflammation, no exploitation, no unemployment and finally no poverty. However, some of the ethical modes of Islamic finance is heavily criticized as well. The enhancement of this banking system has led Bangladesh to adopt it as well, and it has contributed to the economy of the nation. According to Shabanet al. (2016), the widening appeal of Islamic finance has reached to some of the Non-Islamic communities and some of the Non-Islamic nations as well. This system has been used by Bangladesh for a considerable period of time. Most of the customers choose this system of Banking in Bangladesh due to their religious beliefs as well as values. It is mainly due to the perception of the Islamic customers, Islamic Finance has enhanced and popularized. It has also been noticed that more customers are willing to choose the service of Islamic Finance over the conventional banking and this is evident in Bangladesh as well.

2.2.2 Principles of Islamic finance
The principles of Islamic Finance vary greatly from the banking principles followed by most of the nations. Therefore, some of the significant principles of Islamic finance would be discussed in this study. While the principles of Islamic Finance were developed, it was also ensured that the principles are complied with the Sharia law. As opined by Waemustafa& Abdullah, (2015), this is one of the most unique characteristics of the Islamic Finance. The principles of the Islamic Finance are subjected to multiple prohibitions as well as restrictions and this is particularly why this banking system varies from the banking system used in the rest of the world. First, it can be noticed, that under the principles of Islamic Finance, Interest is paid in an entirely different procedure. It is considered by the Shariya law which is applied to the Islamic Finance that asking for interest from a borrower is exploitive in nature and the lender would be only profited by the amount lost by the borrower. According to Abidin&Haseeb, (2018), the principles of Islamic Finance suggest that asking for interest is a sinful act. Thus, the activity of charging interest is also prohibited under the principles of Islamic Finance, and considered as Usury or Riba.

While other systems of Banking provide loan to customers for any form of business activities, including the business of meat or alcohol, if the borrower possess a proper license, the Islamic Financerestricts loan on businesses which involve alcohol or pork meat, as it is considered as Haram or Forbidden. Therefore, banks which abide by the rules of Islamic Finance would not provide customers with loan for such businesses. According to Musa (2015), gambling is also considered as Haram under the Shariya laws and therefore, financial institutes in compliance to Islamic Finance would not associate them with such companies or business. Gharar is also practiced in the system of Islamic Finance mainly because it enables them to measure risk associated with such businesses or companies and the legitimacy of such organizations. Thus, the contracts which are considered as derivatives are prohibited under the Shariya law and therefore, it is restricted in the system of Islamic Finance as well.

As opined by Rahimet al. (2018), there are two other principles apart from the principles already discussed and these two are often seen as more crucial than the other principles. First, the system of economic transaction, and under the system of Islamic Finance, it is required to be real and must possess material finality. Second, the sharing of profit and the bearing of loss is also known by the term, Mudarabah and according to the principle of Mudarabah, the involvement of profit and loss or any form of risks must be shared equally among the parties who are associated with it. As opined by Dikko (2016), these are some of the main principles of Islamic Finance and all the financial institute which abide by the Shariya laws are required to follow these principles. It is due to this principles of Islamic Finance, the institutes are able to draw the attention of more Islamic customers. Even in Bangladesh, the customers prefer the service of Islamic Finance due to these principles and these principles appeal to their religious values and beliefs. It can be said, that the Islamic Finance has been successful so far in reaching them to the customers and contributing towards the economy of the nation.

The principles of Islamic Finance strictly adheres to the Islamic values and principles and it is the aim of the Islamic Finance to overrule the Western economic system from nations like Bangladesh and introduce their own financial system, which complies with the laws of their nation. As opined by Rahimet al. (2018), the Islamic Finance continues to promote this system of banking among the public and communicates their values in order to reach and acquire more customers. It is likely that their principles would be able to draw the interest of more Islamic customers and this would lead to their further growth and development.

2.2.3 The difference between conventional banking and Islamic banking
The system of conventional banking varies greatly from that of the Islamic banking and some of the significant differences between the two systems would be discussed in this study. It can be seen that the principles of conventional banking is different from that of Islamic banking. Even though a large number of Muslims still use conventional banking, however Islamic Finance is developing rapidly as well. According to Obaidullah (2017), it is due to the principles of Islamic Banking, more Islamic customers are switching their services from conventional banking to Islamic Finance. Neither does conventional banking comply with the Islamic laws, nor does it appeal to the religious beliefs or values of the Islamic customers. Therefore, they prefer to choose the service of Islamic Finance to the service of Conventional banking. The customers in the Islamic countries, especially Bangladesh have identified the usefulness of Islamic banking.

Most of the customers in Bangladesh and other Islamic countries believe charging interest on a loan as a sin, however, they are required to pay heavy interest with the system of conventional banking. In case of Islamic Finance charging interest on loan is strictly forbidden and it is due to this practice many Islamic customers have switched to the services of Islamic banking. As opined by Hassanet al. (2017), it is believed that the Bangladeshi customers find the services of Islamic Finance more convenient to the services of conventional banking, as this system barely appeal to their laws and orders. Recently, the world has witnesses multiple issues as well as crisis associated with the conventional system of banking and the capitalist system has contributed to the enhancement of such crisis. This could be one of the reasons why some Islamic customers prefer the service of Islamic Finance. Inflation is high in case of Conventional banking and it is promised by the system of Islamic Finance that they would implement "no inflammation".

Another major difference is noticed when it comes to providing loan to the customers for the purpose of business. The conventional banks are ready to provide the customers with any form of loan, if the customers are eligible for the loan and possess license as well as other legal documents which are required by the bank to grant the loan. According to Shahwanet al.(2018), this is not the case with Islamic Finance and there are a number of restrictions associated with granting loans, especially when it comes to pork meat or alcohol business. Since the consumption of alcohol or pork meat is considered as a sin in Islamic religion or under the Shariya law, the bank would not grant any form of loan for such businesses under any circumstances. Therefore, a number of customers have switched to the service of conventional banking in order to borrow money for such business activities.

These are some of the major differences between the system of Islamic Finance and conventional banking. Apart from this, it has also been noticed that profit maximization is discouraged in Islamic Finance, while conventional banking focuses on the maximization of profit only. According to Pesendorfer&Lehner(2016), the principles of Islamic finance are more rigid than those of conventional banking. Therefore, if customers feel that they are unable to handle the concrete principles of Islamic Finance, they switch to the system of conventional banking. On the other hand, if the Islamic customers believe that conventional banking does not count their religious values and laws, they choose the service of Islamic Finance. Most of the principles of Islamic Finance vary from that of conventional banking. It can be said that over the years, the Islamic Finance institutes have put in much efforts in order to acquire their customers as well as retain them. Both the form of banks have their own ways of acquiring and retaining the customers. According to Shahwanet al. (2018), the most important factor is to understand the perspective of the customers and operate accordingly. Therefore, both the system of banking have tried to identify the interest of the customers in order to serve them.

2.2.4 Islamic banking in Bangladesh
The rapid global expansion of Islamic Finance has allowed Bangladesh to experience a phenomenal growth in the sectors of Islamic Finance. This has contributed to the economic growth as well, facilitating the overall development of the nation. As opined by Hoggarth (2016), the public demand for Islamic Banking is strong in Bangladesh and it is due to this, the system of Islamic Finance has made a rapid enhancement. Since the inception of this system in the year 1983, the industries of Islamic banking in Bangladesh have recorded an impressive performance and it accounts for at least 20% market share of the whole finance industries in the nation. It is also expected that the Islamic Finance in Bangladesh would make further expansion and develop even more rapidly in the coming years, as the majority of Bangladesh' s population is Muslim and 6% growth in the real economy was recorded over the last 10 years. Therefore, in order to reap the potentiality of Islamic banking, it is essential to comprehend the present status of the industries of Islamic Finance in Bangladesh. As opined by Hoggarth (2016), the comparative performance of the Islamic Finance in Bangladesh must be assessed as well in order to evaluate the nature of this system and how it appeals to the local population.

It can be said that the system of Islamic finance appeal to the local population of Bangladesh and it is due to this, this system has found immense popularity among the Bangladeshis. The local population of Bangladesh mainly consists of the Muslims and therefore, it is inevitable that they would abide by the Shariya laws. Therefore, it is likely that this system would appeal to their interest. It is also necessary to assess the present status of Islamic Finance in Bangladesh and some of the challenged faced by this system. According to Abedifaret al. (2015), this paper focused on areas like the growth in deposits, profit, investment, expansion and remittance and international trade. The performance of IBBL is compared to the performance of other private banks in Bangladesh as well. The involvement of more Bangladeshi customers has enabled this system of banking to gain competitive advantage. The Islamic Finance has enabled to acquire a pool of new consumers, which is essential for sustainable competitive advantage. Therefore, the need for understanding the behavior of the Bangladeshi customers is more intense as the competition among the Islamic Finance is more vigorous. With the growing number of Islamic finance in Bangladesh, it has been noticed that the competition in this industry has also enhanced over the years (Abedifaret al. 2015).

The Islamic Finance in Bangladesh do not only compete among themselves, but they are also required to compete with several other financial institutes. There are several dimensions of consumer behavior which have been evaluated by researchers in their works. The banks are required to identify the factors of customer satisfaction in order to find success in Bangladesh. The demographic factors of the customers must be evaluated by the Islamic Finance as well. Islamic banking was established in Bangladesh in the year 1983. According to Sainet al.(2016), they were able to establish 6 Islamic Finance by the year 2007, and it has also been noticed that the performance of Islamic Finance is more impressive in Bangladesh than that of the performance of conventional banking. Following the acceptance of this system of banking in that nation, several other financial institutes began to offer their customers products as well as services in accordance with the principles of Shariya.

It is essential to understand why consumers in Bangladesh is more impressed with the products and services of the Islamic Finance. Besides being its compliance with the Shariya Law, the banking system also focuses, it provides the customers with several other facilities such as Micro Finance, which comes to the benefit of the unemployed people as well as people with low income. Apart from this, Islamic finance also aims at reducing the events of inflammation from the nation in an effective manner. According to Sainet al.(2016), these are some of the facilities which are believed to be acquiring the interest of customers in a number of countries like Bangladesh.

2.2.5 Financing facilities in Bangladesh
There are a number of financial facilities which are provided by the Islamic Finance to the people of Bangladesh. The instruments of commercial financing are supposed to align with the Islamic Sharia. Some of those instruments of Islamic Finance are discussed below:
Musharaka:This term generally suggests to a partnership that is known for sharing profit as well as loss. This particular joint venture has been designed in order for commercial activities or limited production for a long period of time. According to El-Gamal (2006), under this instrument, the customers as well as the Islamic finance make towards the capital and they also contribute towards the managerial expertise and several other services like these at a proportion which have been agreed. Therefore, the profit as well as the loss are shared in accordance to the contract.

Mudaraba:This refers to a contractin which have been created between two parties or more than two parties. This required the Islamic Finance in Bangladesh to supply the entire business capital as it functions as an investor. Therefore, in this manner, a relationship is established, and the banks are supposed to perform the function of a supplier of business capital. According to Shahwanet al. (2018), when the venture came to an end, the entrepreneur is supposed to pay the Islamic institutes with the entire capital. This is also done with an agreed proportion of profit between the partners. (theconversation.com, 2019)

Bai-Murabaha:This refers to the mark-up contract or the cost-plus profit and this system allows the bank to agree with the client's purchase procedures. The client is required to repay the Islamic Finance of Bangladesh, within a time period agreed between them. The mark-up period which has been agreed between the buyer and the bank is established on the basis of the commodities' market price. According to Pesendorfer&Lehner(2016), this mode of Islamic Finance has enabled the financial institutes in Bangladesh to earn without risks. This instrument is popular among several Islamic Finance in Bangladesh and several other nations as well.
Bai-Salam:This instrument generally refers to the process of sales in which the banks are required to pay the sellers in advance and have the products or services delivered at a later date. In this case, the seller is considered as a business or an individual, and the buyer is generally the financial institutes of Bangladesh. As opined by Hassan, M. K., Aliyu&Brodmann (2017), the price is generally locked by the bank and the commodity would be purchased at the same price. The profit would be derived from the commodities upon the delivery.

Bai-Muajjal:This instrument refers to a contract which resembles with a credit sale, and under such contracts, the seller is supposed to sell goods at a fixed price to the buyer and this price is agreed between the seller and the buyer. This price is payable at a later date fixed by the buyer and the seller or the seller might as well pay the buyer in installment. According to Sainet al.(2016), the goods which have been sold is required to be allowed under the law of Sharia, and this system of financing, the Islamic Finance purchase Goods for those who require it and then a fixed payment is received by the bank in the future. (emerald.com, 2019)

Ijarah:This refers to the Islamic Finance and the leasing system of the conventional banks and the Islamic finance are quite similar in nature. The agreement of leasing is generally based on the sharing of profit and the bank is required to buy movable property and then the property is leased to the clients in Bangladesh. This procedure is carried out on the basis of a sum agreed between the client and the bank. This is subjected to installment for a particular time period agreed between the two parties. As opined by Hassanet al. (2017), this is transferred to a Savings account which is held by the clients of Bangladesh in the same bank. The profit which has been generated through this process is invested in the investment venture of the bank. This system or instrument is also popular in the banks of Bangladesh and it has also been noticed that the clients make extensive use of this instrument.

2.2.6 Customer satisfaction of the local population
The Islamic Finance system in Bangladesh also focuses on driving the satisfaction of the customers. It can be said that like any other industries, the industry of Islamic Finance also come across demanding customers and therefore, they are required to perform according to the expectation of the customers. Since the competition in this is enhancing rapidly with the growth of Islamic Finance, it is the focus of every financial institute to meet the requirements of the customers. According to El-Gamal (2006), it has been suggested by the customers in Bangladesh that Loyalty is one of the most important factors in the banking sectors, responsible for generating the satisfaction of the customers. The quality of services is among the several other factors which drives the satisfaction of the customers of Bangladesh. More than the quality of products as well as services, the customers is concerned with the religious aspects associated with the Islamic Finance. Customer satisfaction in conventional system of banking differs to some extent from the concept of customer satisfaction in the Islamic Finance. (corporatefinanceinstitute.com, 2019)

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2.2.7 Position and policies of Islamic banking
The fundamental elements of finance that are related to Islamic banking are discussed under this section for evaluating the position of Islamic banks and for understanding the relevant policies. It is important to be noted that Islamic banks are free of interest. The Islamic banks that are based in Bangladesh comply with the same policies and regulations of Shariah. The policy of ‘Riba' in Islamic banking refers to the Islamic laws and forbids banks from charging interest (Desai, 2016). Interest in Islam is considered to be a sin as Islamic people believe that charging interest on customers is equivalent to imposing monetary pressure. The banks emerged with a particular motive to discard social plights like unemployment, income below the minimum margin, growth of the subaltern population and inflammation. Islamic banking exists with an ethical objective based on Shariah law (Waemustafa& Abdullah, 2015).

Riba was the first policy to be applied ion Islamic banking and it is strictly forbidden under the regulations of Shariah because it is considered by Islams as exploitative. The policy of Riba is interpreted in a different manner in the same society. This policy is applied in the banking system of Bangladesh and Bangladesh Muslims have debated over the concept regarding its constitution. While Raselet al. (2018) have interpreted that Riba has been prohibited by law for it takes unduly advantages of poor people. However, Yunusa&Nordin, (2015) provided a rather contradictory statement claiming that Riba was not prohibited by Shariah rather its application in the banking industry was discouraged by general people for they believed that they would be punished by the God (Allah). Another common policy is the policy of microfinance. It is a service provided by Islamic banks to people who have a very low income or are unemployed. This service gained popularity in Bangladesh soon after the establishment of IBBL, the first Islamic bank in Bangladesh. Yuliana & Bashir (2017) have stated that this policy gained prominence in Bangladesh for the facilities it provided to the local population. It gave an opportunity to the impoverished people of Bangladesh a chance to acquire self-sufficiency. However, Sloane-White (2018) has provided a contradictory perspective regarding this. Some have stated that this policy should be renounced as people would take advantage of it and it would discourage them from working hard for a living.

The performance of the Islamic banking industry is evaluated for assessing the position of Islamic finance and banking in Bangladesh. Bangladesh is a developing country with a Muslim majority population. After the IBBL was first established the Muslim people in Bangladesh extremely interested in the services that the bank promised to provide. The paper is focused on the performance of this bank for it is one of the most popular Islamic banks not only in Bangladesh but across the world. According to Suryanto&Ridwansyah, (2016), the portfolios of long-term lending is evaluated for explaining the concept of Mudaraba and Musharaka. The concept of Mudaraba is applicable in the Islamic banking structure of Bangladesh which promotes the practice of partnership. One of the partners is expected to provide the capital money while the other is expected to supply labour. Earlier studies reveal that only IBBL, in Bangladesh experienced a constant growth rate since its origin in terms of profit, deposits and advances. An investment that was made under the policy of Musharaka dropped by 3% of the net investment (researchgate.net 2019). The Islamic banks in Bangladesh had made no investment under the policy of Mudarba. From an overview of the reviewed papers, it is found that IBBL, the first bank mobilized the obtained deposit under the modes of Mudaraba and Al-Wadia. These trends are not common among banks that practice traditional operations. There are different operational modes under which the banks have made an investment. Most banks in Bangladesh have concentrated on Bai-Muajjal, Guard E Hasan and Hire Purchase. Investments made under the mode of Ward E Hasana and Musharaka dropped considerably. However, from the review of previous papers, it has been found that bot traditional banks and Islamic banks have made a substantial contribution to the economic growth of the country. (semanticscholar.org 2019)

2.2.8 Challenges of Islamic banking
The Islamic system of finance and banking gained immense popularity in Bangladesh after the establishment of the first bank, IBBL. In the previous section, it is discussed that other than the first bank, all other banks in Bangladesh do not hold a very stable position in the market but they continue to exist anyway for the religious foundation on which it is based. However, after 2005, the banks performed considerably better to obtain a more secure position in the market (Arafah&Nugroho, 2016). It is also found that Islamic banks have made a considerable contribution to the economy of Bangladesh. The nationwide acceptance of Islamic banks and the prominence of Islamic finance and banking continue to grow. However, the Islamic banking sector is associated with certain challenges that are elaboratively discussed in this section.

• The banking sector of Islam is governed by the boards of Shariah and Bangladesh is not an exception. This could be challenging for most banking sectors in Bangladesh because the Shariah law lacks a central authority who could promulgate the regulations of banking under Shariah law. No authority has the power to amend or modify the regulations under any circumstance and specific scenarios could land the banks in serious problems.
• The Islamic banking sector lacks constructive knowledge regarding banking operations and thus some of the products and services that are commonly provided in Bangladesh are complex and beyond the understanding of the commoners (Ltifiet al. 2016).
• The Islamic banking sector lacks harmonisation. The Tawwaruqcontract is only allowed in Bangladesh by some specific scholars. Sale of debt is not allowed across Bangladesh though it is popular in places like Malaysia.
• The Islamic banking industry in Bangladesh is heavily criticized for not complying with the basic principles that are specified by the Islamic law. Some banking strategies of the banks in Bangladesh have been modified. The Islamic banking sector in Bangladesh is criticized for distorting the rules of Murabaha (researchgate.net 2019). This is not socially accepted in some areas of Bangladesh and the local people have questioned the new policies of Islamic banking in Bangladesh.
• One of the major challenges that Islamic banks have faced since the origin is the system of Riba. The banking sector in Bangladesh is not spared as these banks also conform to the Shariah law (Khairiet al. 2018). The system of Riba prohibits the banks from charging interest for which the performance of the Bangladesh banks has dropped. Compared to conventional banks, the profitability of Islamic banks is low. Some banks in Bangladesh modified some strategies and introduced some new strategies to recover the lost profit.
• The Islamic banks are based on the principles of Shariah for which the banks in Bangladesh have failed to follow the global standards. The Islamic banks are not benefitted from the international communities with which Bangladesh is involved (semanticscholar.org 2019). However, conventional banks take part in the advantages. The Islamic banks are few in number despite the growing popularity.

The government of Bangladesh has identified the issues and has taken specific measures for fostering the expansion of the Islamic sector of banking. The government has introduced new regulations to follow while at the same time not distorting or modifying the Shariah intervention. The initiatives of the government also include the promotion of Islamic banks so that a wider part of the local population would be aware of the Islamic banks and the benefits it provides. The global advisory board of Shariah has provided more uniformity to the Islamic industry of banking and finance (Abozaid, 2016). The Islamic banks in Bangladesh are also benefitted from global initiatives. The Islamic banks have a wider appeal after some modifications were made in the strategic practices. However, the objectives of the banks are not disturbed in the process.

2.3 Conceptual Framework

2.4 Literature Gap
In the following study, Islamic banking has been taken into the consideration of Bangladesh and various other Asian countries have not been taken into consideration of the study. The countries where Islamic finance is widely accepted in Pakistan, UAE and other Arab countries. This study only takes into the consideration of Bangladesh in respect of Islamic finance, which is a widely used practice around the world. The scholar was unable to gain effective knowledge about the other countries and how they meet the local populations need by the use of Islamic finance.

2.5 Summary
From the following chapter, the scholar was able to gain a piece of effective knowledge about the efficiency of Islamic finance in Bangladesh. The principles of Islamic finance has been taken into consideration, which is implemented in the economy of Bangladesh. The banking system of the country was evaluated with respect to conventional banking and the challenges that are faced by Islamic finance in Bangladesh. Islamic banking in Bangladesh works towards the attainment of better customer satisfaction so that the locals are served in a more versatile way.

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Chapter 3: Research Methodology

3.1 Overview
This chapter intends to have a proper investigation, which is systematic and theoretical for the study. It has been found that this chapter for the study plays a very significant role in attaining a qualitative result for the study. An effective understanding of Islamic finance and banking in respect of Bangladesh will be evaluated in a significant manner after the selection of a proper research methodology for the study. In respect of the research methodology, it has been found that there are various parts in research methodology, which includes the philosophy, approach, strategy, data collection method, data analysis and the various ethics and limitations that are followed by the scholar in research.

3.2 Method Outline

In respect of completing the study, the scholar has taken into the consideration of various methods, design and approach to attain the aim and the objective that has been set for the study. The outline and the framework that has been set for the study is the use of the research onion by the scholar. The scholar has taken into the consideration of pragmatism as a philosophy for the research, abductive research approach, and used both the sources of primary and secondary for the collection of the data. Both the technique of qualitative and quantitative has been taken into consideration by the scholar to attain a robust and fruitful result.

3.3 Research Onion

It has been derived that one of the most effective and well known analogies for research is the use of the research onion, which helps in stating the various methods and the stages so that the success of the research is attained in a significantly robust way. In respect of research onion, it has been found that there are in total six layers for a study, which are time horizon, strategy, philosophy, approach, the technique for collection of data and the choice. The steps illustrated in the research onion sets a path for the future of the study.

3.4 Research Philosophy
In respect of attaining effectiveness for a study, it has been derived that appropriateness is to be maintained so that a proper understanding of the details can be attained in a rational manner. The various assumptions and the notional determination of the study are understandable by the implementation of significant research philosophy. There are various types of research philosophy that can be implemented in a study, which are positivism, interpretivism, realism and pragmatism. It has been derived that various philosophy that can be implemented in a study helps in providing in-depth knowledge. It sets and creates a path for the collection of the data and how it is to be analyzed for the study. The interpretivism is used when the data collection is to be done with a small sample and is mostly qualitative and investigative in nature. The realism, on the other hand, includes the method that is chosen for the subject, which is qualitative and quantitative in nature. The positivism as a research philosophy is considered when the sample is large and it is highly structured in nature. It has been further seen that it is used in qualitative nature(Cazeaux, 2017).

Pragmatism, on the other hand, is a mixed-method and takes into consideration both the methods for data collection, which are qualitative and quantitative in nature. In order to attain a rational idea about the study, the scholar has chosen pragmatism as the philosophy, as there will be a use of both the data collection method and will achieve good results in respect of the objective and aim for the study(Baker &Schaltegger, 2015).

3.5 Research Approach
Another important aspect of the research methodology is the use of the research approach. The approach that is to be selected for the study is an important aspect as it will set help in the proper determination of a result, which aligns with the objective and aim for the study. The different approach that can be implemented in a study is the abductive, inductive and deductive approach. The deductive approach states that the scholar can implement and use the models and theories which already exist in nature. On the contrary, it has been seen that new models and theories are implemented by the scholar in the inductive approach. The abductive approach is a mixed method of both the approach and is used extensively when both of the approaches is to be implemented in the study. In order to achieve the objective that has been set for the study in respect of Islamic banking and finance in Bangladesh, the scholar has chosen an abductive approach for the research(Le Gall & Langley, 2015).

3.6 Research Strategy
The strategy for a research is to be selected effectively. Selection of a proper strategy for the study will help in better understanding of Islamic banking and finance for meeting the needs of the local population. The strategy that are implemented in a research study are mostly of two types, this include the qualitative strategy and the quantitative strategy. The quantitative strategy has set path for the use of the various survey and interview of the study. On the other hand, there is the use of qualitative strategy, which uses the secondary data for the study. It has been taken into consideration that the scholar has chosen both the strategy, which are qualitative and quantitative strategy so that and effective result for the study can be determined. The analysis of the Islamic banking and finance in respect of the locals of Bangladesh will be more robust in nature. Both the strategy will help in setting precise understanding of the objective and the aim for the study. The study has taken into the consideration of a survey and interview for the study and attaining rational outcome for the study(Saleh & et al., 2015).

3.7 Data Collection Method
The strategy that has been selected for the research is just the preliminary stage for attaining an effective result for the study. The collection of the data is to be followed after the implementation of a proper method for the study. The methods that are used for the data collection are the use of secondary data collection method and primary data collection method. In this study, the scholar has taken both the data collection method into consideration. In the primary data collection method, it has been found that the data will be collected by an interview with two higher officials of Islamic banks in Bangladesh, which are First Security Islamic Bank Ltd and Islamic Bank Bangladesh Ltd. Telephonic consent will be taken into consideration so that the interview can be conducted. The Managing director and the financial Manager of both the bank will be interviewed(Quinlan & et al., 2019).

The interview will be conducted by taking into consideration the aim that has been set for the study and consecutively the objectives which are a part of the study. The interview will be conducted by open-ended questions so that the viewpoint of the higher officials can be determined in respect of the meeting the local needs of the population of Bangladesh by Islamic finance and banking. On the other hand, the survey is conducted among the customers of Islamic banking to determine if the banks can meet the needs of the locals and deliver better service. The survey will take into the consideration of close ended questions and there will be in total hundred people, who will be chosen for the survey. The survey will be further conducted to understand the rational factor of the growth of Islamic finance in Bangladesh. The financial requirement and the evaluation of Islamic finance will be done reasonably by the use of the primary data collection method.The study will also take into consideration of a hypothesis followed by a regression analysis to attain effective result for the study. However, data was also be collected by the use of the secondary method, which is the use of journals, articles and books, in respect of Islamic finance in Bangladesh(Ness, 2015).

3.8 Research Hypothesis
In respect of the aim and objective of the study, the scholar has set a hypothesis for the study in respect of Islamic finance and meeting the needs of the people of Bangladesh.

Hypothesis 1
H0: Islamic banking does not help the people of Bangladesh in meeting their needs
H1: Islamic banking does help the people of Bangladeshin meeting their needs

3.9 Research Sampling Method
The sampling method that is implemented in a study is quite important as it will set a basic understanding of how the participants of the study were selected accordingly. It has been found that the total number of sample was 104 people, of which there were hundred people selected for the survey and four of them were selected for the interview. The scholar has further implemented the use of random probability sampling as the method and the research was conducted accordingly. The age group of the participants ranged from eighteen to sixty (Fischetti& et al., 2016).

3.10 Data Analysis Techniques
The technique that has been used for the analysis of the data is to be effective enough so that scholar can gain a rational knowledge concerning Islamic banking and finance in Bangladesh. It has been found that the analysis of the secondary data will be done with the use of thematic tools and descriptive analysis. The efficiency of the data needs to be rational, thus, there will be a use of Microsoft excel so that the study is taken care in respect to the primary data. The binary data will be analyzed with the use of MS Excel as it provides with various statistical which uses charts, tables and graphs.Regression analysis will also be conducted in respect of the hypothesis that has been set for the study. That data that was collected from the interview session will be analyzed with the use of the thematic tools. The aim of the study will be duly achieved by the use of the mentioned techniques for analysis(Mihas, 2019).

3.11 Research Ethics
In order to carry out the research study, it has been found that the scholar has various ethics that were implemented in the study. The data was collected after taking into consideration of the aim and the objective for the study. The scholar has taken consent from various scholars in respect of using the journals for the study and has used the recent journals to attain the most reliable and effective result for the study. Furthermore, the scholar did not follow unbiased nature concerning the study and the scholar was honest in respect of the use of the data. The data that was used for the study was destroyed to maintain authenticity and uniqueness. It has been further found that honesty and sincerity were maintained by the scholar. The result of the data and the use of it for the study will be accessible to the respondents so that the work can be done robustly(Ryen, 2016).

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3.12 Research Limitations
During the completion of the study, it was found that the scholar has faced various limitations. Two of the most important factor that acted as the limitation was time and money. It added a factor that the scholar was unable to complete all the task rationally because of the boundaries of time. It was found that in respect of the study, the scholar faced restrictions towards the completion of the study as many secondary data were not accessible because of the geographical restrictions and asking for payment. Many respondents who replied to the survey question, were not rational with their answer. The budget for the study also created a problem for the scholar as it added a lack of access and barrier towards the availability of resources. The authenticity of the issues also acted as a major problem for the scholar as there was no tool to determine its true nature(Greener, 2018).

3.13 Research Timeline

3.13 Summary
From the following chapter of the dissertation, the scholar has gained sophisticated knowledge to carry out the research. The scholar has taken the factor of pragmatism as the philosophy for the research and abductive research approach. Furthermore, it has been seen that the scholar has implemented both the strategy for the research and the collection of the data was by the use of both the method, which are primary and secondary. A descriptive analysis, survey and an interview will be carried out reasonably in the study.

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