Rationale for Islamic Banking Windows and Issues Impeding Their Effectiveness: Insights from Bangladesh

Abstract

This study evaluates the rationale for introducing Islamic Banking Windows (IBWs) in Bangladesh, particularly in light of governance failures, high levels of non-performing investments, and the reputational damage suffered by several fullfledged Islamic banks. It also examines the sources of scepticism surrounding IBWs and provides practical recommendations to enhance their credibility and institutional strength. The study adopts a qualitative methodology, combining content analysis, semi-structured interviews, and focus group discussions (FGDs). This triangulated approach strengthens the findings by cross-validating evidence from multiple sources. The findings suggest that, although IBWs often face scepticism, they play a critical role in providing credible Islamic banking alternatives, especially during periods when full-fledged Islamic banks are in crisis. The study further identifies key operational and regulatory challenges affecting IBWs that must be addressed to ensure their effective functioning and support the orderly development of the Islamic banking sector. It systematically analyses the rationale, regulatory landscape, and operational dynamics of IBWs in Bangladesh. Drawing on the perspectives of those directly involved in IBWs, the study captures real-world practices and constraints, formulates recommendations grounded in practical realities, and brings practical insights to the Islamic finance literature. The findings and recommendations are relevant not only to Bangladesh but also to other jurisdictions where Islamic banking is emerging and conventional banks are considering establishing IBWs.