Bahrain is unarguably a high-income economy as per the World Bank, standing as the 5th most prosperous Arab country. Its economy was 23rd globally, and its GDP in 2020 was 34.62 billion US dollars, with an increase from 9.19 billion US dollars in 2001.
Islamic finance comes with a concept that follows Islamic law or Sharia. It refers to finance-related activities that are permissible in the law. Few modes of the Islamic banking/finance include Mudarabah, Wadiah, Musharaka, Murabahah, and Ijara. The principles like legitimate and ethical trading practices, investments that promote socio-economic growth with shared risks, and avoidance of harmful activities are the Islamic Banking sector’s significance.
Over the years, Islamic banking and finance have grown in the market share with different products that are beneficial to the customers and investors.
Islamic banking is spurring in Bahrain with constant growth through lucrative mergers and acquisitions that ease economic rebound. The market share of Islamic banking in the country is rising with 37.1% and 17.2% of domestic banking system assets and total banking system assets, respectively, in the last year.
The country currently has nearly six retail Islamic banks and around 15 wholesale Islamic banks. Bahrain increased in Sukuk issuance from $6.4 billion in 2018 to $8.6 billion in 2019.
The total Islamic banking assets were at USD35.7 billion in 2020. The steady growth in the domestic market share of Islamic banks from 35.4% in 2015 occurred due to real estate financing. Yet the pandemic caused a poor economy with low oil prices that affected domestic asset growth of Islamic banks (2.1%), lagging conventional banks’ (5.7%).
The Islamic banks experienced a larger central bank liquidity package of USD642.5 million, whereas the conventional banks got USD610 million. The advantage was a 0% concessionary repo to eligible banks for a six-month maturity period.
The new move of the conventional banks boosting their shareholding capacity in the Islamic banks would offer credit-positive for the sector. Consequently, the National Bank of Bahrain shares grew from 29% to 78.8% in Bahrain Islamic Bank.
Bahrain adopted the Islamic banking system in 2015 when the GCC region’s first Central Sharia Board commenced its activities in the country. It pioneered in adopting to Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) standards which helped standardization. As the essential moderators, AAOIFI and the International Islamic Financial Market are present in Bahrain; it stands as one of the significant international Islamic finance hubs.