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Bahrain’s Islamic finance sector sets the tone for the rest of the world

Article - December 13, 2016

With decades of experience and regarded as the benchmark for its regulation, Bahrain stands out as a global leader in Islamic finance and has helped more than 30 countries worldwide to set up Islamic financial structures. From its benchmark-setting regulation to its highly qualified human resources, the kingdom has all the fundamentals to lead the industry’s future development both regionally and internationally.


In the 2015 Islamic Finance Development Indicator (IFDI) Report by Thomson Reuters and the Islamic Corporation for the Development of the Private Sector (ICD), Bahrain was ranked second overall out of 124 countries that contribute to the $2 trillion global Islamic finance industry, behind only Malaysia. The IFDI considers three factors: regulations, corporate governance, and Sharia governance.

IFDI ranks Bahrain as having the most effective Sharia governance measures in the world, something that is likely to be further improved by the release of a comprehensive Sharia Governance module for market consultation in October 2016. Among other things, the draft regulations require Islamic banks to engage external audit firms to conduct independent Sharia compliance audits in a move designed to enhance public trust in the industry.

“With international organizations such as International Islamic Financial Market (IIFM) and Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) located in Bahrain, we are a point of reference for the sector around the world. It is important to remember, as more countries start introducing Islamic finance as an alternative to conventional banking, Bahrain has been practicing it for decades,” says Yousif Abdulla Taqi, Director & Group CEO, Al Salam Bank - Bahrain.

Indeed, the Central Bank has provided guidance in setting up Islamic financial structures to over 30 countries, notes the Central Bank of Bahrain’s Executive Director of Banking Supervision, Khalid Hamad Abdul-Rahman Hamad.

The origins of participation banking in the kingdom can be traced back to 1979, when Bahrain Islamic Bank (BisB) was established. According to the EY 2016 Islamic Banking Report, the national market share of Islamic banks in terms of domestic banking assets now stands at 29.3%.

The EY report states that Islamic banking in Bahrain attracts loyal retail and corporate followers that have maintained stable investment accounts and financings in the face of contraction in conventional banking.

Reflecting its leading position in the industry, Bahrain played host to 1,300 international delegates at the World Islamic Banking Conference (WIBC) in December 2016. The conference was focused on transforming Islamic finance into a global proposition by facilitating strategic opportunities and addressing systematic challenges.

Product innovation is key to the future growth of the industry, according to the CEO of the Bahrain Association of Banks, Waheed Al Qassim. “Demand for new products across segments such as Islamic banking, takaful, sukuk and funds will rise, thanks to increased understanding and acceptance of Sharia-compliant finance,” he predicts.

For Abdulhakeem Y. Alkhayyat, Managing Director and CEO of Kuwait Finance House (KFH) – Bahrain, the Islamic banking sector in the kingdom has already overcome the main hurdles in relation to regulations. “I would say that the future will depend on two key aspects: developing our human resources and advancing technology,” Mr Alkhayyat says.

In terms of human resources, Bahrain’s Islamic finance ecosystem is well supported by 17 providers offering Islamic finance-related education. For example, Bahrain Institute of Banking & Finance (BIBF) offers several Islamic finance courses that have global appeal, while the University of Bahrain offers a bachelor’s program in Islamic Banking & Finance.