This is indeed a very positive development for the Islamic financial services industry and will greatly assist the regulator in developing a comprehensive risk management regime for Islamic banks. Another related initiative by the Central Bank of Bahrain (CBB) is the proposed Regulation on Close-out Netting, and once implemented Bahrain can certainly become a role model for other jurisdictions. IIFM is hopeful that the close-out netting regulation will eventually expand to cover related Islamic financial transactions.
CEO, International Islamic Financial Market (IIFM)
This commendable effort by the CBB will be followed by other countries across the Islamic world, as all will have to comply with Basel III by 2019. Therefore it is not so much a matter of other countries following Bahrain’s example, as rather they will be obliged to adopt similar regulations.
However there remain omissions. The ownership risks associated with Murabahah and Ijarah are not covered, nor is liquidity management with parallel transactions as is the case with Salam and Istisnah contracts. Another omission is the absence of any mention of Shariah risk. There remains much work to do.
Emeritus Professor, Durham University, UK; Visiting Professor, INCEIF