Islamic Finance in Bahrain

Bahrain strengthens its position as the Islamic finance hub and leader with its valuable institutions.

T he Kingdom of Bahrain is a leading country in Islamic finance and a centre of the Islamic banking sector. In 2001, the Central Bank of Bahrain (CBB) issued the first specific rules and regulations for Islamic banks, and it was also the first one to regulate the Takaful industry. For capital markets, the bank issued the first sovereign sukuk in 2001 and the short-term Islamic liquidity management instruments in 2007.

THE BIGGEST ISLAMIC FINANCE STANDARD BODIES ARE IN BAHRAIN

Bahrain is home to two main global Islamic Finance standard-setting bodies: The Accounting & Auditing Organisation for Islamic Financial Institutions (AAOIFI) established by the Islamic Development Bank in 1991, and the International Islamic Financial Market (IIFM) established in 2002. The country also hosts two other institutions with a global mandate: The General Council for Islamic Banks and Financial Institutions (CIBAFI), and the Islamic International Rating Agency (IIRA). These institutions have reinforced the leading position of the Kingdom as an Islamic finance centre and helped the country to maintain its influential role in the global Islamic finance arena.

BAHRAIN’S SUCCESS STORY IN ISLAMIC FINANCE

There are several factors explaining the success story of the development of Islamic Finance in Bahrain. We can summarise them as follows:

• Through the CBB, the Government has given consistent support and taken a proactive approach in addressing the possible concerns of the Islamic market players. For example, in response to the need for more liquidity management tools, the CBB established a very efficient liquidity management framework. From 2007 onwards, it issues monthly short-term sukuk al-salam (3-month) and sukuk ijarah (6-month) to absorb excess liquidity from local Islamic banks and to offer alternative short-term sharia-compliant investment opportunities. In 2015, the CBB introduced a oneweek wakala liquidity management tool based on an IIFM standard contract. The CBB also put in place the sukuk-based Islamic FX swaps and Islamic liquidity facilities.

• Bahrain has been a leading regional financial hub with a robust regulatory framework and excellent infrastructures. Its strategic central geographical position in the GCC naturally attracted regional and international Islamic institutions willing to expand in the Gulf. In 2002, Kuwait Finance House Group not only chose Bahrain to open its first fully owned subsidiary, but it also set up at the same time a branch of Kuveyt Türk Participation Bank in the Kingdom with a regional mandate.

• Finally, the main factor of stable development in Islamic or conventional financial services is the human capital. Bahrain provides a well-educated and knowledgeable local workforce in the field of Islamic Finance. Local universities and professional training institutes like the Bahrain Institute of Banking & Finance (BIBF), which established its Centre for Islamic Finance as early as 1997, provide well-designed courses that are not only academically sound but also integrating practical exposure to Islamic finance practitioners.

Bahrain Has Always Supported Islamic Finance With its first Islamic bank established in 1979, Bahrain has always supported the Islamic finance sector. With this support, the country has aimed to contribute to the development of its citizens and the Islamic finance industry globally. The CBB regularly shares its experience with delegations from countries willing to develop their Islamic finance capability, and every year, for more than 25 years, the world’s largest and most influential gathering of international Islamic banking and finance leaders, the World Islamic Banking Conference (WIBC) takes place in Bahrain.

BAHRAIN WILL BECOME THE ISLAMIC FINTECH CENTRE

The Government of Bahrain also pointed out the importance of FinTech in the development of the global finance industry. And it gave a mandate to the CBB in 2017 to regulate these emerging financial services. A regulatory sandbox was launched, and the CBB actively took several regulatory initiatives to facilitate Islamic crowdfunding and FinTech strategies of the Islamic local banks. In line with its history of being a leading financial hub, the Kingdom of Bahrain is now well-positioned to be the leading Islamic FinTech hub.

Executive Manager - Head of Treasury Capital Markets at Kuwait Finance House Lilian Le Falher