Bahrain has been ranked fourth according to the Islamic Finance Country Index (IFCI), a composite ranking of more than 40 countries, published in Global Islamic Finance Report (GIFR) 2014. It is an indicator of the country’s involvement, leadership’s role and contribution to the development of Islamic banking and finance. It also highlights Bahrain’s long-standing commitment to Islamic banking and finance.
Following the Arab Spring and the bankruptcies of Arcapita, there is now growing anticipation that Islamic finance is set to boom once again. Indeed, GIFR declares that Bahrain has a 95 per cent probability of achieving a domestic Islamic banking and finance market share of 50pc by the year 2020.
Bahrain has long been a hub for Islamic finance in the Middle East. It established its first Islamic commercial Bank, Bahrain Islamic Bank, in 1979. The kingdom is also home to the Accounting and Auditing Organisation for Islamic Financial Institutions, International Islamic Financial Market, Liquidity Management Centre and Islamic International Rating Agency, and the Bahrain Institute of Banking and Finance.
Bahrain has 24 banks and nine Takaful and Re-Takaful companies (as of August 2012). It is also home to more than 100 Islamic funds. The World Islamic Banking Conference, an annual gathering of leading Islamic finance practitioners and state leaders, has been a staple feature of the industry’s calendar.
The Central Bank of Bahrain has been a key supporter of the industry. Its regular sukuk salam programme, started in 2001, addresses the ongoing challenge for Islamic banks to manage liquidity without resorting to interest-based products. The programme has regularly been oversubscribed.
The Islamic finance infrastructure in Bahrain is strong, but it took a lashing in the financial crisis. The failing of Arcapita Bank, the country’s first Islamic investment bank set up in 1996, embodies the destructive effects of the crisis. In 2012, the international bank filed for Chapter 11 (bankruptcy) protection in the US sending ripple effects through the industry in Bahrain.
The bankruptcy impelled many Bahraini Islamic banks to consolidate, and they have done this through merging. Elaf Bank, Capivest and Capital Management House merged to become Ibdar Bank while Bank Ithmaar merged with First Leasing Bank. Al Salam Bank has agreed to a merger with BMI Bank while Khaleeji Commercial Bank is evaluating a merger with Bank Al Khair. To add to this trend of consolidation, National Bank of Bahrain and a local pension fund bought 51.6pc stake in BisB from Kuwait Investment Dar.
Bahrain needs to continue its efforts in promoting the kingdom as a hub for Islamic finance, especially when Qatar and the UAE are positioning themselves as Islamic financial centre-points. Islamic finance offers an avenue for growth, and with strong roots present, the government should consider more active promotion of the industry.
The Malaysian International Islamic Financial Centre has been instrumental in advocating and promoting the industry internationally serving to benefit domestic institutions. Bahrain needs to consider a similar approach. It should set up a Bahrain Islamic Financial Centre which brings together different stakeholders in the country.
Another way would be to develop a separate department within Bahrain Economic Development Board for promotion and development of Islamic finance.
It goes without saying that the current situation of the country needs to be improved; relationships between the two major religious groups in the country remain tensed. The government has not done enough to eliminate frustrations on both sides and should be more proactive in formulating an effective compromise. By doing so it will portray a healthier image of the country globally. This will bring confidence in the market and improve the credit rating of the country.
The world is recovering from the financial crisis. Bahrain has all the credentials, ingredients, framework and support and it is high time right measures are taken without any further delay. This will ensure that the economy and Islamic finance thrives and surpasses its prior heights. (Mr Malik is a student of Islamic economics, banking and finance and can be reached on Rizwanmalic@gmail.com