Bahrain Fort: The old and the new
NEWHORIZON Muharram–Rabi Al Aww<strong>al</strong> <strong>1428</strong> COUNTRY FOCUS: BAHRAIN Bahrain: Middle Eastern promise As the world’s Islamic finance industry continues to grow and mature, striving for more transparency and a wider range of products and services, so does the banking market of Bahrain. In<strong>no</strong>vation, modernisation and regulation are the three cornerstones of the country’s main regulator, the Centr<strong>al</strong> Bank of Bahrain. Although the practice of Islamic finance in the Muslim world dates back to the Middle Ages, it’s only the last few decades that have seen the glob<strong>al</strong>isation of Islamic banking. Islamic financi<strong>al</strong> institutions are <strong>no</strong>w rightfully recognised as fully-function<strong>al</strong> counterparts of convention<strong>al</strong> ones. Today, the market size of this industry is estimated at $250–300 billion spread over around 75 countries. The Kingdom of Bahrain is tradition<strong>al</strong>ly considered to be the hub of Islamic banking and, according to the Centr<strong>al</strong> Bank of Bahrain (formerly the Bahrain Monetary Agency or BMA), ‘is proud to play host to the largest concentration of Islamic financi<strong>al</strong> institutions in the Middle East region’. Indeed, a country with an area of only 665 square kilometres (253 square miles) has become one of the leading Islamic financi<strong>al</strong> centres in the region having licensed 33 financi<strong>al</strong> institutions of this type, including 26 banks and seven investment business firms and financing companies. The history of Islamic banking in the country dates back to 1978, when the first Islamic bank, Bahrain Islamic Bank, was licensed. The industry’s growth in the years following the bank’s establishment was slow. One of the triggers which prompted a rapid development of Islamic finance was the Gulf war, which broke out in the early 1990s. It stimulated the Islamic finance market by pushing up oil prices and boosting revenues, thus increasing the demand for Islamic tailored investments. Since then, the world in gener<strong>al</strong> and Bahrain in particular has witnessed a mushroom growth and rapid development of Islamic financi<strong>al</strong> institutions. Pakistan has adopted a Shari’ah-compliant banking system <strong>al</strong>ongside its convention<strong>al</strong> counterpart. The entire banking system of Sudan has made its practices Shari’ahcompliant. A number of convention<strong>al</strong> banks in the Muslim world have converted to Islamic banking, with Sharjah Islamic Bank being one example. In 2005, the former Sharjah Nation<strong>al</strong> Bank an<strong>no</strong>unced its ‘new vision and commitment’, becoming the first and only bank in Sharjah offering Islamic banking products and services to the public. Adopting such practices has <strong>no</strong>t been confined to the Muslim countries and has spread to the Western world. In mid- 2004, the first UK-based entirely Shari’ahcompliant bank, Islamic Bank of Britain, was established, followed by the European Islamic Investment Bank in 2005. A similar project is <strong>no</strong>w in the pipeline in France. Large convention<strong>al</strong> banking conglomerates, including Lloyds TSB, have capit<strong>al</strong>ised on this niche by establishing Islamic departments. And glob<strong>al</strong> financi<strong>al</strong> institutions such as Citigroup and HSBC have created fully-fledged Islamic subsidiaries operating in various parts of the world, including the Kingdom of Bahrain. ‘They have recognised the importance of Islamic banking,’ says Abdulrahman Abdulla Al-Sayed, director of Islamic Financi<strong>al</strong> Institutions, Centr<strong>al</strong> Bank. ‘And <strong>al</strong>though the number of Islamic banks has increased significantly, there is still a very good potenti<strong>al</strong> for them to grow further in the region and worldwide.’ However, Bahrain is <strong>no</strong>t focusing solely on Islamic banking. It <strong>al</strong>so encourages the presence of convention<strong>al</strong> banks by pursuing a du<strong>al</strong> banking system. ‘There is <strong>no</strong> reason Centr<strong>al</strong> Bank is very potent in imposing and supervising banking activities. That is why Shamil Bank chose to be headquartered here. Abdulnasser Ali Bukam<strong>al</strong>, Shamil Bank www.islamic-banking.com IIBI 25