This paper documents the experience of incentive-based reforms in the secondary Islamic/madrasa education sector in Bangladesh within the context of the broader debate over modernization of religious school systems in South Asia. Key features of the reform are changes of the curriculum and policy regarding admission of female students. In return to formal registration and curriculum modernization, madrasas receive financial aid from the government towards teacher salary. Using a cross-sectional census data-set (containing current and retrospective information) on formal secondary schools and madrasas, we first point out that a significant fraction of the existing post-primary registered madrasas today comprises of 'converts'
that is, formerly all-male, unregistered religious schools that previously offered traditional, religious education. Furthermore, these madrasas have embraced female students in recent years following the introduction of yet another incentive scheme, namely a conditional cash transfer scheme for secondary girls. Drawing upon school enrolment data aggregated at the region level, we show that regions that had more (modernized) madrasas were more likely to achieve gender parity in secondary enrolment during 1999-2003, holding the number of secular secondary schools constant. This finding highlights the previously undocumented role played by religious schools in removing gender disparity in rural Bangladesh.