Bosnia and Herzegovina (B&H) is a beautiful country in the heart of Europe, rich in culture, tradition and natural beauty. Favorable geographical position, richness of natural resources, attractive investment locations, fertile and unpolluted land, skilled and educated workforce and low business costs are just some of the reasons for a decision to invest in B&H. Banking is one of the most stable sectors in B&H. There are 23 commercial banks in B&H ensuring employment for more than 10,000 people. For the development of Islamic finance in Bosnia, the regulatory environment is the biggest challenge. Bosnian banking law does not recognize trade, which effectively prevents banks from using Murabahah, Salam and Istisnah in their operations.

Bosna Bank International (BBI) was founded in 2000 by the IsDB, Dubai Islamic Bank and Abu Dhabi Islamic Bank. It is a fact that in a market that did not know the concept of Islamic banking, in an environment where the way of doing business using Islamic finance is not regulated nor were there specialized staff in this area, BBI managed to grow into a leader in innovation in Islamic banking.

The Islamic finance industry in Bosnia has turned toward a more social impact-oriented approach to Islamic finance, rather than just technically applying Islamic finance instruments in its operations. It started from a greenfield operation, while other European banks took over small banks that were established immediately after the war.

Review of 2021
According to the data of the Central Bank of Bosnia and Herzegovina on the 31st May 2021, the total assets of the banking sector of B&H had an annual growth of 7.24%. The total net profit of the banking sector in the first quarter amounted to more than EUR55 million (US$62.18 million) and is higher by 16% compared with the first quarter of 2020.

The adverse effects of the COVID-19 crisis on the quality of the financing portfolio have been successfully mitigated, thanks to the measures imposed by the watchdog. However, the actual results of the pandemic on the nonperforming loan indicator will be known in 2022 when the regular repayment of the financing portfolio covered by the measures (moratoriums, grace periods) continues in accordance with the original repayment plans.

BBI is the only bank in B&H that operates by Islamic principles and is a strong and stable Islamic bank that plays a vital role in the Bosnian finance industry.

Overall, Islamic finance has continued to grow in all of its segments in 2021 despite the effects of the crisis caused by the global pandemic. BBI increased the number of clients and expanded branch network. At the end of the third quarter, financing growth was 9.3% year-on-year (y-o-y) for the corporate segment and 6.5% y-o-y for the retail segment of clients.

By the end of the third quarter of 2021, BBI achieved a record business result in terms of income. Growth in the deposit segment was significantly higher than the market average. Customer deposits increased by 16.4 % and reached a record amount of more than EUR500 million (US$565.26 million). This increase in deposits is a sign of clients’ trust in BBI and confirms the positive image of a solid and stable bank.

BBI, as a socially responsible development institution within the Sarajevo Business Forum (SBF) platform, worked on creating and presenting various opportunities and potential for investments within the ‘Creativity to the development strategy of Sarajevo’ plan.

In addition, cooperation was established with educational institutions within the ‘BBI Leadership and Excellence’ project in the past period. A leadership program with pupils and students was implemented this year through the high school and university curriculums.

Preview of 2022
The SBF and Sarajevo Halal Fair are initiatives that have positioned the Islamic finance industry as a leader in the B&H market when it comes to foreign direct investment.

These events will be launched and organized in 2022, where domestic and regional businessmen will have the opportunity to present their projects and products to foreign companies and investors.

The focus will, of course, be on development again, and ‘nearshoring’ as an opportunity for growth will be presented at the highest level. B&H has the chance to become one of the pioneers in ‘nearshoring’, and such an opportunity should be used.

Conclusion
During the pandemic, the Islamic finance industry continued to grow, despite market stagnation. It invested in the development of its infrastructure, and undoubtedly showed a lasting orientation to the development of B&H and its economy. In the future, the further development of infrastructure and digitalization will be one of the priorities in this industry.

Kenan Žigovic is the senior officer in the operations sector of Bosna Bank International. He can be contacted at [email protected]

Edin Kadric is the sales specialist at Bosna Bank International. He can be contacted at [email protected]