About Banking

Bahrain’s banking system consists of both conventional and Islamic banks and is the largest component of the financial system, accounting for over 85% of total financial assets. The conventional segment includes 23 retail banks, 69 wholesale banks, 2 specialized banks as well as 36 representative offices of overseas banks. The Islamic segment, offering a host of Sharia compliant products and services include 6 retail banks and 18 wholesale banks.

The banking sector has played a pivotal role in the emergence of Bahrain as a leading financial center in the region. As at December 2006, banking sector assets stood at over US$180 billion, more than twelve times annual Gross Domestic Product.
Industry growth has been supported by an open market economy; stable and prudent macro-economic and fiscal policies; a credible regulatory framework in line with international standards; and a notably strong and well qualified local workforce. All these factors have combined to cement Bahrain’s position as a regional banking hub, successfully attracting numerous foreign banking organizations to establish a physical presence in the country.

Recent growth in the sector has been backed by the good fortunes of the oil industry and the corresponding increases in liquidity. Banks are thus playing a central role in reinvesting surplus oil earnings as well as serving financing opportunities in other segments of the economy.

Islamic Finance

In recent years, Bahrain has rapidly become a global leader in Islamic finance, playing host to the largest concentration of Islamic financial institutions in the Middle East. Presently, there are 7 Islamic insurance companies (Takaful) and 2 Re-Takaful companies operating in the Kingdom. In addition, Bahrain is at the forefront in the market for Islamic securities (sukuk), including short-term government sukuk as well as leasing securities. The Central Bank has played a leading role in the introduction of these innovative products.

The growth of Islamic banking in particular has been remarkable, with total assets in this segment jumping from US$1.9 billion in 2000 to US$25.4 billion by August 2012, an increase of over 12 times. The market share of Islamic banks correspondingly increased from 1.8% of total banking assets in 2000 to 13.3% in August 2012. Islamic banks provide a variety of products, including Murabaha, Ijara, Mudaraba, Musharaka, Al Salam and Istitsna’a, restricted and unrestricted investment accounts, syndications and other structures used in conventional finance, which have been appropriately modified to comply with Shari’a principles.

The Central Bank of Bahrain has installed a comprehensive prudential and reporting framework, tailor-made for the specific concepts and needs of Islamic banking and insurance. The rulebook for Islamic banks covers areas such as licensing requirements, capital adequacy, risk management, business conduct, financial crime and disclosure/reporting requirements. Similarly, the insurance rulebook addresses the specific features of takaful and re-takaful firms. Both rulebooks were the first comprehensive regulatory frameworks that dealt with the Islamic finance industry.

In addition to the numerous Islamic financial institutions active in its financial sector, Bahrain also plays host to a number of organizations central to the development of Islamic finance, including: i) the Accounting and Auditing Organisation for Islamic Financial Institutions (‘AAOIFI’); ii) Liquidity Management Centre (‘LMC’); iii) the International Islamic Financial Market (‘IIFM’), iv) and the Islamic International Rating Agency (‘IIRA’) and v) Shariya Review Bureau.

The Central Bank of Bahrain has also recently established a special fund to finance research, education and training in Islamic finance (the Waqf Fund); and is active in working with the industry and stakeholders in developing industry standards and the standardization of market practices.

The Waqf Fund

The Waqf Fund was established in November 2006 under the auspices of the Central Bank of Bahrain (CBB) in partnership with Islamic Financial Institutions (IFIs) in Bahrain. The member institutions made one-time contributions to the Waqf Fund’s corpus which is invested in Islamic money market instruments and the return is used to finance the Fund’s initiatives. These initiatives are executed through partner organizations such as BIBF. A brief write-up on these initiatives is as follows:

Waqf Fund programs
1. Advance Diploma in Islamic Finance program:Now in its ninth year, Advance Diploma in Islamic Finance (ADIF) program serves to provide young Bahraini graduates and junior staff of Waqf Fund member institutions with an orientation in Islamic finance. Islamic banks nominate their staff for the 9-month diploma program with BIBF. The Fund also financed the development of the ADIF curriculum by engaging a well-recognized consulting firm. The candidates study the following six courses:

Islamic Commercial Jurisprudence

Islamic Banking Operations

Islamic Treasury and Capital Markets

Islamic Accounting

Islamic Insurance

Banking, Business and Trust Law.

Over 150 people have benefited from this program so far.

2. Advance Diploma in Islamic Commercial Jurisprudence:This program provides more depth in specific topics to the Internal Shari’a Reviewers of IFIs. Spread over a one year period the Diploma consists of 8 modules:

The Theory of Contracts and its Legal Maxims

Objectives of Shari’ah and Jurisprudential Law (Usul Al Fiqh)

Principles of Fatwa and Applied Jurisprudence

Islamic Financial Transactions

Fiqh of Zakat and Waqf

Fiqh of Takaful

Shari’ah Auditing and Compliance for Islamic Financial Institutions

Research paper on a selected topic

The research paper that concludes the program has been added for greater depth and quality and to ensure that the program’s learning outcomes are thoroughly achieved by all the participants. More than 50 people have benefited from this program.

3. Advanced Shari’ah Reviewer Development Program:The Waqf Fund started out with a Shari’ah Reviewer Development Program (SRDP) aiming to provide basic orientation to Islamic and conventional finance/banking to Internal Shari’ah Reviewers of IFIs and plug any knowledge gaps. After successfully running the program for two years an advanced version has been launched with added modules designed as short courses of 10-30 hour duration. The topics covered include (not an exhaustive list):

Understanding Financial Statements for IFIs

Business, Banking and Trust Law

Islamic Treasury and Capital Markets

Risk Management for IFIs

Shari’ah Auditing & Governance for IFIs

Introduction to AAOIFI and IFSB Standards

The Estate and Inheritance Law

Business Report Writing and Professional Presentation Skills

Quantitative and Qualitative Methods

Approx. 30 people have benefited from SRDP and Advanced SRDP.

4. Roundtable DiscussionsThe Fund has held a series of Roundtable Discussions on developmental issues by bringing together leading figures in Islamic finance – including industry professionals, regulator and Shari’ah scholars – to focus on key issues and recommending a way forward.  The recommendations from these Roundtables are compiled and forwarded to the Central Bank of Bahrain for its consideration and further action. Some of the industry developments were a direct result of these Roundtables while others are under consideration of the CBB. The topics discussed during these Roundtables are:

“Shortage of Products and Human Resources in the Islamic Finance Industry”

“Islamic Investment Accounts and Investment Account Holders – Issues, Challenges and Way Forward”

“Resilience of Islamic Finance during the Financial Crisis and its Future”

“Enhancement of Shari’ah Compliance Framework – Opportunities and Challenges”

“Ethical Checks and Balances in an Islamic Bank”

“Shari’ah and Corporate Governance Issues in SPV Governance”

“Roles & Responsibilities of Shari’ah Supervisory Boards and Internal Shari’ah Reviewers of Islamic Financial Institutions”

“Venture Capital – Building the Next Phase of Economic Development in Bahrain”

“Liquidity Management in Islamic Banks”

“Revamping AAOIFI’s CSAA Qualification”

“Pool Management & Profit Distribution”

5. Development of a course on Business Ethics for Islamic BankersThe Fund sponsored the development of a general course through the BIBF on main Shari’ah principles on ethics for junior bankers. The course materials were developed and the course is now being offered by BIBF as a mandatory course as required by the Central Bank of Bahrain. The course aims to provide a basic understanding of Shari’ah-based ethical guidelines for practitioners, improving their confidence and promoting good governance at Islamic banks. The objective is to ingrain in the sales people a Shari’ah compliant sales approach, other front office functions to deal with clients based on Shari’ah principles, the middle office staff to review transactions bearing in mind the relevant Shari’ah principles, and the back office people to record, settle and maintain documentation bearing and observing Shari’ah principles, thereby establishing a Shari’ah oriented culture in the financial institution.
6. Assisted and sponsored University of Bahrain in developing and launching a 4-year B.Sc. in Islamic Banking & Finance program:The Waqf Fund joined hands with the University of Bahrain to support its 4-year bachelor program in Islamic banking & finance. The Waqf Fund has provided financial assistance to the program as well as helped in curriculum development by providing the industry’s perspective. Now in its fourth year, this is a unique fusion program between Shari’ah and business. The graduates of this bilingual program are well equipped to work for any Islamic financial institution in Bahrain and globally. They possess a rare combination of Shari’ah, banking, accounting, economics and business knowledge. They are integrated with the industry through seminars and internships. The first batch of graduates entered the market and started working in 2016.
7. Shari’ah Scholar sessions:In 2013 the Waqf Fund started a regular session with leading Shari’ah scholars in the Islamic finance industry whereby they address the Internal Shari’ah Reviewers of IFIs in Bahrain on specific topics, followed by an extensive Q&A session. The purpose of this program is to provide an opportunity to up and coming Shari’ah scholars to interact with and learn from leading scholars through dialogue and discussion. Ten sessions have so far been held with scholars of international standing including Shaikh Esam Ishaq, Shaikh Nizam Yaquby, Shaikh Osama Bahar, Dr. Abdulsattar Al-Kattan, Dr. Hussain Hamid Hassan, Dr. Mohamed Burhan Arbouna, Dr. Akram Laldin, Dr. Ali Elgari, Dr. Osaid Kailani and Dr. Abdulbari Mashal. The topics covered include:

“Shari’ah issues in SPVs”

“Credit Card Structures and their Shari’ah Issues”

“Perpetual Sukuk – The Shari’ah Perspective”

“Investment Wakala”

“Sukuk Role and Challenges in Project Finance and Asset-Backed vs. Asset-Based debate”

“Salam as a Liquidity Management Tool for Islamic Banks”

“Commodity Murabaha / Organized Tawarruq – Should the Door be Shut?”

“The Challenges of Achieving Shari’ah Compliance in Islamic Finance”

“Shari’ah Issues Related to Mudaraba Tier One Capital Sukuk”

“What Shari’ah Reviewers Can Do to Enhance Shari’ah Governance and Compliance at Islamic Banks”

8. Corporate Governance workshops:Given the increasing importance of corporate governance worldwide there is a pressing need to continuously improve the CG standards of IFIs. The Waqf Fund has been offering CG workshops regularly since 2011 to its member institutions who have been participating enthusiastically including Chairmen, Board members and CEOs. Eight workshops have been held so far covering various topics. An international expert in corporate governance who is also a former professor at Harvard Business School is engaged to deliver the workshops. The use of case study method not only helps bring out key issues, it also makes the workshop highly interactive and interesting for the participants.
9. Sponsoring AAOIFI in revamping its CIPA and CSAA qualifications:Based on industry feedback the Waqf Fund engaged with AAOIFI to sponsor further development of its flagship global Islamic accounting qualification – Certified Islamic Professional Accountant (CIPA) – to enhance its quality and bring it on par with equivalent and similar global qualifications. The objective is to develop the right human resources who combine conventional as well as AAOIFI accounting knowledge, understanding of the underlying Shari’ah principles and standards and exposure of practical issues facing Islamic financial institutions. The Waqf Fund engaged a well-recognized consultant to substantially upgrade the curriculum in line with industry requirements as well as change the conduct of examination. This is the first major revision of the CIPA curriculum since its launch in September 2006. The Waqf Fund is the sole financial and technical sponsor for this important project. After successful completion of the CIPA revamp the Waqf Fund also sponsored the CSAA qualification (Certified Shari’ah Advisor & Auditor).
10. Leadership Grooming Program:In order to groom the next generation of future C-suite Islamic finance professionals the Waqf Fund board decided to engage a leading university in North America to launch a custom made leadership grooming program for the middle management of IFIs. This initiative seeks to address a key demand of the industry that the number of competent and high integrity Bahraini nationals in positions of authority should increase in the Islamic financial sector. The program targets Bahrainis in mid management aged up to 45 years at the time of nomination and having at least 10 years professional experience. The program ran for 17 working days in Hong Kong and Toronto, Canada. Primarily using the case study method the participants were provided advanced learning in leadership skills, strategic thinking and ethics, while also exposing them to the Asian business model and the financial sector of Canada. The program received excellent reviews from the participants and their employers alike.
11. Distinguished Leader Series:As a next step after the successful completion of the Leadership Grooming Program the Waqf Fund has started a “Distinguished Leader” series in which prominent leaders from within and outside of the financial sector are invited to share their leadership experience and journey with the participants of the Leadership Grooming Program. The first such session was held on 8th March 2016 with Mr. Adel El Labban, Group CEO and Managing Director of Ahli United Bank, Bahrain.
12. Research project initiative:The Waqf Fund has launched a research initiative focusing primarily on Internal Shari’ah Reviewers whereby they are financially incentivized to undertake research on a specific topic of interest. Such research, once completed, is to be presented to the peer group (other Internal Shari’ah Reviewers) and a select group of Shari’ah scholars for comments, critique and feedback. This will promote a research culture among Internal Shari’ah Reviewers and enhance their analytical, writing and presentation skills. The research topics will be practical, rather than academic, in nature and focus on real issues facing Islamic financial institutions. The first research project is being undertaken under this initiative.
13. Sponsorship to IIFM for preparation of market standards:The Waqf Fund is providing financial assistance to International Islamic Financial Market (IIFM) to help complete four new standards. These include Islamic cross currency swap, Islamic credit support agreement, risk participation agreement and Sukuk standardization. The grant will be used primarily to pay for Shari’ah and legal consultation costs.
14. Sponsorship for BIBF’s e-learning platform:The Waqf Fund is sponsoring BIBF as it transforms itself into a hybrid online, offline model. BIBF plans to offer most of its existing and future courses on both offline and online delivery platforms, thereby increasing its reach to geographies beyond Bahrain/GCC. It needs serious investment in building the online content creation, management and delivery infrastructure. The Waqf Fund’s financial assistance is aimed at catalyzing the process which has strategic implications for the Islamic finance training industry and Bahrain’s position as a regional financial sector training hub.
15. Sponsorship for Islamic economics textbook project:The Waqf Fund provided funding to International Shari’ah Research Academy (ISRA), Malaysia to write a textbook on Islamic economics. The project aims to produce a high quality textbook which can be used by top universities globally for teaching Islamic economics. ISRA has already produced a textbook on “Islamic Financial System – Principles & Operations” which is being taught at 70+ universities. Another textbook “Islamic Capital Markets – Principles & Practices” has also been published. As lead sponsor of the project, a foreword from the Waqf Fund chairman will be included in the textbook. In addition, a number of Waqf Fund board members have agreed to contribute through review of selected chapters.
16. Sponsorship for Islamic finance training program for Bahraini lawyers, judges and prosecutors:The Waqf Fund sponsored 30 Bahraini lawyers, judges and public prosecutors to enroll in a two-day Islamic finance training workshop organized by the Chartered Institute of Arbitrators (CIArb). The purpose of the program was to orientate Bahraini legal resources towards Islamic finance.
17. Sponsorship for Islamic finance training program for Bahraini judges:The Waqf Fund sponsored a program organized by the Ministry of Justice, Islamic Affairs & Waqf and delivered by BIBF. The 19-day training program aims at providing Bahraini judges training in financial matters including insurance, banking, Islamic banking, capital markets, leasing, etc.
18. CFO Grooming Program:In order to groom the next generation of Bahraini CFOs the Waqf Fund has initiated a program covering two training modules – strategy and technical. A select group of Bahraini professionals working in finance / financial control departments of Waqf Fund member institutions received strategy related training in Toronto, Canada from 3 April to 16 April 2018. The technical training module will be delivered in the second half of 2018.

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