Islamic finance

Demand for Islamic products is growing. Demand has opened up an increasing number of opportunities for foreign expertise; this expertise has developed Bahrain’s financial infrastructure and created local solutions. Growth in this market is also evident in the number of conferences now dedicated to Islamic finance, many of which continue to recognize Bahrain as the venue of choice for such events. This includes the World Islamic Banking Conference, which is an acknowledgement of the importance of Bahrain as a centre for Islamic finance.

Several significant new players have entered the market during the last two years, and this trend is expected to continue. In addition some well established institutions have expanded their geographic footprint, and many major international conventional players continue to develop their Islamic finance capabilities.

Bahrain is widely recognised as the global leader in Islamic finance, playing host to the largest concentration of Islamic financial institutions in the world. Presently, there are 29 Islamic banks (whose assets under management total US$16.4 billion), 15 Islamic insurance companies (Takaful), and 1 re-Takaful company operating in the Kingdom. Many conventional banks, recognising the growing importance of Islamic banking, have successfully integrated Islamic windows within their operations.

In addition, Bahrain is at the forefront of the market for Islamic securities (sukuk), including short-term government sukuk, as well as leasing securities. The Central Bank of Bahrain (CBB) has played a leading role in the introduction of these innovative products.

The basic concept of Islamic finance is that money has no intrinsic value – it is only a measure of value. Since money has no value itself, there should be no charge for its use. Therefore, Islamic finance is asset-based as opposed to currency-based whereby an investment is structured on exchange or ownership of assets, and money is simply the payment mechanism to effect the transaction. The basic framework of an Islamic financial system is based on Shariah principles, which governs Islamic societies.

Bahrain has seen a number of 'firsts' develop around Islamic finance:

- In 2001, Bahrain became the first country in the world to develop and implement regulations specific to the Islamic banking industry. Since then the CBB Rulebook has undergone significant refinement, and is widely considered as the benchmark for Islamic banking regulation. 

- Also in 2001, Sukuk bonds were effectively pioneered in Bahrain when the Central Bank's predecessor, the Bahrain Monetary Agency, became the first central bank in the world to develop and issue them.

- In 2005, the first ever comprehensive regulatory framework specific to Takaful and re-Takaful companies was introduced. As with the banking sector, this Rulebook provides a robust, focused framework for the industry. It is continuously updated to reflect regulatory developments and industry best practice.
 
- In June 2008, The CBB declared that it is set to launch the Islamic Sukuk Liquidity Instrument (ISLI) aimed at providing Islamic financial institutions a much-needed liquidity management tool. ISLI has been designed to enable financial institutions, both conventional and Islamic, to access short term liquidity against Government of Bahrain Islamic Leasing (Ijara) bonds (sukuk), issued by the CBB.