This research provides a comprehensive analysis of the growth, performance, and challenges of Islamic banking within the financial landscape of Bangladesh. As one of the most rapidly expanding segments of the national economy, Islamic banking offers an alternative to conventional interest-based systems through Shariah-compliant models such as Mudarabah, Musharakah, and Murabaha. Rabiul Karim Mridul, as the lead author, investigates the socio-economic impact of these financial institutions on various stakeholders, including small and medium enterprises (SMEs) and individual depositors. The study utilizes empirical data to evaluate the stability and profitability of Islamic banks compared to their conventional counterparts during periods of economic fluctuation. Furthermore, the paper highlights the regulatory hurdles and the need for a more robust legal framework to ensure the long-term sustainability of the sector. The findings suggest that Islamic banking not only promotes financial inclusion but also aligns with the ethical investment preferences of a large portion of the Bangladeshi population. This study, accepted by the IOSR Journal of Business and Management, serves as a crucial resource for policymakers, economists, and banking professionals aiming to understand the unique dynamics of Islamic finance in a developing economy.

Keywords: Islamic Banking, Bangladesh Financial Sector, Shariah-Compliant Finance, Economic Stability, Mudarabah, Financial Inclusion.