Bahrain has a strategic location at the heart of the Gulf, and is attempting to re-boost its Islamic finance sector following the disruption of the Arab Spring. DUSTIN JAMES COLLINS sings its praises.
The Kingdom of Bahrain is composed of over 30 islands, with Bahrain Island being the largest. Bahrain boasts sophisticated communications and trade facilities and is host to many multinational firms who do business in the Gulf. Petroleum, both production and refining, accounts for more than half of Bahrain’s exports, fueling significant economic growth in recent years. Bahrain also has a surging financial sector, focused on Islamic banking.
Bahrain’s strategic location in the heart of the gulf is attractive to multinational firms, with ready access to the large economies of Kuwait, Saudi Arabia and Iran.
Increasingly, Bahrain is a major leader in Islamic finance, with the largest concentration of Islamic financial institutions. Bahrain is presently at the forefront of Islamic insurance, currently with seven Islamic insurance companies (Takaful), as well as two re-Takaful companies within the kingdom.
Bahrain is also a major player in Islamic securities (Sukuk), both governmental short-term and leasing securities. The Central Bank of Bahrain (CBB) has taken the lead in introducing these new products.
Tailored for the specific needs of Islamic banking, finance, and insurance, The CBB has produced an all-inclusive prudential and reporting framework. Among others, the framework of rules includes areas such as capital adequacy, risk management, financial crime, licensing rules and requirements and disclosure and reporting requirements. The CBB has also composed an insurance rulebook addressing the specific features of Takaful and re-Takaful firms. These two rulebooks were the first comprehensive regulatory frameworks that dealt with the Islamic finance industry.
Bahrain plays host to numerous organizations who are critical to the development of Islamic finance, including the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI); the Liquidity Management Centre (LMC); the International Islamic Financial Market (IIFM), the Islamic International Rating Agency (IIRA) and the Shariah Review Bureau. These organizations are in addition to the many Islamic financial institutions within Bahrain’s financial sector.
In addition, the CBB has recently setup and recognized a special fund, the Waqf Fund, to finance research, training, and education in Islamic finance; as well as actively working with the financial industry to develop industry standards and standardized market practices. This fund was set up to help bridge the skills deficit in Bahrain, and also in an effort to expand the Islamic banking sector within Bahrain.
Most recently, the fund unveiled plans to conduct training programmers in conjunction with the Islamic Finance Council UK for Shariah scholars, auditors and compliance professionals, aimed at enhancing their understanding of global financial markets. Specifically, the training program will cover topics such as the global financial crisis, development of the monetary system, financial derivatives, the treasury function, and equity and debt capital markets.
Bahrain has been an innovator in Islamic finance ever since it brought Sukuk to the international market. They have continued to lead the significant growth in this sector and have the largest concentration of Islamic financial institutions in the world, including commercial, investment and leasing banks, insurance companies and mutual funds.
Bahrain’s Islamic finance sector has averaged a 15-20% annual growth rate over the last five years. This has prompted consulting giant Deloitte to establish its new Islamic Finance Knowledge Centre (IFKC) in Bahrain. This attests to Bahrain as the best-regulated financial centre in the Middle East.
With regards to the international economic crisis, Bahrain has weathered the storm relatively well, with most Islamic banks and insurance firms posting solid profits and many increasing their asset bases. According to Bahrain’s finance minister, Sheikh Ahmed bin Mohammed Al Halifax, one of the reasons Bahrain’s Islamic sector managed to avoid the worst of the global recession was its close adherence to the principles laid down by Shariah. This helped the kingdom’s banks avoid buying into some of the more risky assets that subsequently turned toxic.
“We’ve never claimed we were immune. We were exposed like the rest of the world. But by adhering to best practices, were able to make sure that we minimized the damage to controllable levels,” Sheikh Ahmed claims.
Islamic finance knowledge hub
Bahrain has been chosen as an Islamic finance knowledge hub by international business intelligence firm Thomson Reuters. The hub will initially employ 21 Bahrainis, and this is expected to grow over time.
“Bahrain has been a pioneer in the Islamic finance sector, and the establishment of this knowledge hub by Thomson Reuters will both enhance the kingdom’s position in the sector and in the global knowledge economy. We have always placed a great deal of emphasis on making sure we have a local workforce that has the skills needed by international businesses and this initiative will support the development of the next generation of highly-skilled Bahraini Islamic finance experts,” said the acting chief executive of the Bahrain Economic Development Board, Kamal Ahmed.
“Along with promoting entrepreneurship and innovation, encouraging and supporting foreign investments is among the key means in which Tamkeen is fostering the creation and development of enterprises,” said Shaikh Mohammed bin Essa Al Khalifa, the chairman of Tamkeen.
Dustin James Collins is chairman of The Ottoman Group, an international wealth, asset and investment manager that offers public and private capital management solutions. He can be contacted at
[email protected]
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