Development Of Islamic Banking In Bosnia And Herzegovina

Integrating a country into a global financial system is a difficult task. This task is even more challenging when faced with a country, Bosnia and Herzegovina (BiH), with two separate government entities with four different levels, further divided along political and ethnic lines.

BiH is a small, open economy going through the 

transition process since the Dayton Peace Agreement ended the aggression in 1995. It consists of two semi- autonomous political entities: The Federation of Bosnia and Herzegovina and Republika Srpska, with District Brčko as a de facto third entity. FBIH is further divided into ten cantons.

Bosna Bank International (BBI) was set up in 2000, marking the starting point of Islamic banking in BiH. It is the only commercial bank in BiH that operates in line with Shari’ah principles.

Before that, the BiH banking sector faced numerous issues: (i) the idea of Islamic banking was utterly unknown to the majority of the population, which is not a surprise due to the BiH history; (ii) lack of legal and regulatory frameworks; (iii) lack of professional expertise in the field; (iv) no educational institutions provided specialized training/ education in Islamic banking; (v) public aversion towards “Islamic” due to historical connotations that were further exaggerated after 9/11 events; (vi) lack of public awareness of Islamic banking principles led to misunderstanding and alienation of the general masses; and (vi) lack of government support for establishment and promotion of Islamic finance in the country. 

Despite all these challenges, BBI recorded rising trends. Its total assets, financing and deposits continuously rise. The same is true for its net profits and growth rates except forperiods of the global financial crisis, Eurozone crisis and the covid-19 pandemic – as can be seen from the graphs.

These issues are, somehow, present even today, and a lot needs to be done to improve the Islamic banking environment in BiH.

Perhaps, an excellent approach to further promote the development of Islamic banking in BiH would be to join hands with other jurisdictions to promote and create a better business environment for the industry. Due to strategic partnership and historical ties, Türkiye is well- positioned to partner with BiH on this ground. There could be joint programmes or training to build new skills and human resources on educational fronts. More important would be to set up a new Islamic bank in BiH that would create a sort of positive competition with the existing bank. All these would lead to a better prospect for Islamic banking in BiH and Türkiye.

In short, being an extremely disintegrated country, BiH is doomed to sluggish progress on all fronts, including the Islamic financial sector. Navigating through rough seas is a daunting task. Still, if other countries with Muslim minorities managed to do that, why not BiH? Our from the experience of Türkiye could play a significant and positive role.

In this regard, taking advantage from the experience of Türkiye can play an important and positive role.