issue no. 163 - january–march 2007 / muharram–rabi al awwal 1428

NEWHORIZON Muharram–Rabi Al Awwal 1428
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. Innovation, modernisation and regulation are the three cornerstones of the country’s
main regulator, the Central 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 globalisation of Islamic banking.
Islamic financial institutions are now
rightfully recognised as fully-functional
counterparts of conventional ones. Today,
the market size of this industry is estimated
at $250–300 billion spread over around
75 countries.
The Kingdom of Bahrain is traditionally
considered to be the hub of Islamic banking
and, according to the Central Bank of
Bahrain (formerly the Bahrain Monetary
Agency or BMA), ‘is proud to play host to
the largest concentration of Islamic financial
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 financial
centres in the region having licensed 33
financial 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 general and Bahrain in particular
has witnessed a mushroom growth and
rapid development of Islamic financial
institutions.
Pakistan has adopted a Shari’ah-compliant
banking system alongside its conventional
counterpart. The entire banking system
of Sudan has made its practices Shari’ahcompliant.
A number of conventional banks
in the Muslim world have converted to
Islamic banking, with Sharjah Islamic Bank
being one example. In 2005, the former
Sharjah National Bank announced 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 not 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 now in the pipeline in France.
Large conventional banking conglomerates,
including Lloyds TSB, have capitalised
on this niche by establishing Islamic
departments. And global financial
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 Financial
Institutions, Central Bank. ‘And although
the number of Islamic banks has increased
significantly, there is still a very good
potential for them to grow further in
the region and worldwide.’
However, Bahrain is not focusing solely
on Islamic banking. It also encourages the
presence of conventional banks by pursuing
a dual banking system. ‘There is no reason
Central Bank is very potent
in imposing and supervising
banking activities. That is
why Shamil Bank chose to
be headquartered here.
Abdulnasser Ali Bukamal,
Shamil Bank
www.islamic-banking.com IIBI 25