A bank will not be able to do Islamic banking business along with conventional banking at the same time, according to the draft 'Islami Bank Company Act-2024', as the central bank looks to level the playing field for Shariah-based banks.

As of June, 30 conventional banks provide Islamic banking services through their 33 branches and 688 windows.

The banks will have to change their banking business model or form a subsidiary company to provide Islamic banking services when the law is effective.

"If the conventional banks are allowed to do Islamic banking, then there will not be a level playing field as the Islamic banks do not have the opportunity to do conventional banking," said Mohammad Shahriar Siddiqui, the head of the committee that prepared the draft.

Globally, this is the practice but, in some countries, there are provisions to open an Islamic banking window, he said.

The basic difference between conventional banking and Islamic banking is interest. Conventional banks are offering and taking interest by providing banking services but Shariah-based banks cannot. Shariah banks can share profits.

The need for the draft came as Shariah-based banking, which began in Bangladesh in 1983, is expanding rapidly without any law or effective guidelines.

The Islamic banking sector accounts for 23.65 percent of the total assets in the banking sector, 26.23 percent in the case of deposits and 28.24 percent in investment as of June.

At present, there are 10 full-fledged Shariah-based banks, and some of them have been involved in irregularities and scams in recent years.

The committee has prepared the draft in accordance with the international best practices by reviewing the existing BB provisions for Shariah-based banks and the existing laws of Islamic banks in different countries, said Siddiqui, also the assistant spokesperson of BB.

The banking regulator is now taking opinions on the draft law, which was approved by the BB governor on October 9.

The 30 conventional banks that are currently offering Islamic banking will have to inform the central bank in writing about their preferred type of banking within six months of the effective date of the act.

The banks will then get three years to become full-fledged Islamic lenders or wrap up their Shariah-based operations. In special cases, the tenure may be extended by a year.

However, the banks can continue the other type of banking business until the liabilities are not paid or the term for the deposits or loans has expired.

All Islamic banking companies licensed under the act will have to use the word Islamic in their name.

An Islamic banking company will not be able to purchase controlling shares in any existing company for the purpose of forming a subsidiary company or converting it into a subsidiary company for any purpose other than providing Islamic banking services.

The central bank will form a central Shariah advisory council to fulfil the adjective of the Act.

The Islamic bank companies will not be involved in any business where Shariah is not allowed, it said.

"You can say that we welcome the law, which is needed. But this is not the right time to impose a bar on conventional banks to do Islamic banking," said Syed Mahbubur Rahman, managing director of Mutual Trust Bank.

The financial health of Shariah-based banks save for two or three has deteriorated.

"Amid this situation, the customers of conventional banks (Shariah branches or windows) will not find any suitable alternative if the bar was imposed in the law. The customers will be impacted."

Now, the Islamic banking branches and windows are doing better than the full-fledged Islamic banks, he said.

"If we can manage the balance sheet separately then there is no problem to do Islamic banking," he said, adding that foreign banks like Standard Chartered are doing both conventional banking and Islamic banking.

The guidelines and supervision are more important than the bar, said Rahman, also the former chairman of the Association of Bankers Bangladesh.

Conventional banks in Bangladesh opened Islamic banking branches and windows when they saw that there was a huge possibility for making high profits and attracting clients, said Md Main Uddin, professor and former chairman of the department of banking and insurance at Dhaka University.

If the law is passed, including those clauses, then the lenders will concentrate their business in specialised areas and their investment will also increase, which is primarily a positive thing, he said.

The barrier should not be imposed for a long time, he said, adding that the service quality and competition will increase when there will be no barrier.

There is a possibility of the service quality deteriorating if there is no competition.

Some banks can come under the merger and acquisition or liquidation process as there are so many banks in the country considering the size of the economy, he added.