Banking and Finance

The successful development of Bahrain as an international banking center has been based on a far-sighted approach by the Bahrain Monetary Agency (BMA) to create a strong regulatory and supervisory environment on par with international standards.

International financial center with world-class standards

Following the early growth of commercial banks in Bahrain, the BMA realized that the banking infrastructure was inadequate to deal with the excess liquidity circulating in the region during the oil boom of the 1970s. This led to the landmark decision to allow offshore banking units to operate in Bahrain to channel the region’s excess liquidity for investment. An attractive package of benefits was devised to attract leading international financial institutions and this propelled the rise of Bahrain as a leading banking center. The successful creation of a world-class financial infrastructure fostered the rise of a pre-eminent financial center with diverse financial services and institutions unsurpassed anywhere in the Middle East. The political stability of the Kingdom, fiscally attractive infrastructure and stable monetary policies have provided confidence to international banks while the consistent appraisal of the BMA in terms of international banking standards has set a precedent for Bahrain’s future as the international banking center for the region.

Over the years while encouraging international banks to locate in Bahrain, the BMA maintained a selective policy to license those banks of high international standing. The BMA has been successful in attracting many large international banks from the world’s leading financial centers that engage in a variety of business transactions. Depending on the institution, some have established wholesale banking headquarters for their clients, while others maintain representative offices handling administration and marketing. Others are using Bahrain as a fund-gathering center while other banks have established in Bahrain to have an access point to international markets. As a country that relies on foreign investment to maintain its current account balance, the Kingdom is ranked first in the Arab world and fortieth out of 160 in terms of attracting foreign investment. Overall, the BMA has maintained a policy of innovation and entrepreneurship in staying ahead of contemporary developments and has made significant steps toward establishing Bahrain as a center for Islamic finance. Over 300 financial institutions are presently located in Bahrain providing a diverse range of banking services to a diverse clientele, from corporations to individuals in Bahrain, the Middle East region and beyond.

The growth of Islamic finance worldwide has not gone unnoticed by the BMA, which has established an Islamic economic and financial system inspired by the recommendations of the Organization of Islamic Conference in 1978. The OIC believed the Muslim world needed its own Islamic finance hub and Bahrain was the obvious choice as it was already becoming the regional center for conventional banking. The concept of Islamic banking and finance emerged from the desire of Muslims to conduct financial transactions in accordance with Shari’a law. Bahrain now hosts the single largest concentration of Islamic financial institutions in the Middle East with a total of 25, equal to two-thirds of all Islamic finance institutions in the region. As the world’s Islamic banking capital, Bahrain offers a complete range of Shari’a compliant products ranging from conventional Murabaha, Musharaka and Mudaraba financing options to Ijarah, Salam and Istisna’a.

The primary regulatory function of the BMA is to nourish the growth of one of the world’s fastest-growing financial industries and forge Bahrain’s position as the world’s leading Islamic finance hub. Shari’a law strictly forbids interest, or riba in Arabic, and therefore a regulatory framework has been created in which there is ample freedom for financial institutions to derive returns from their investments based in one form or another on tangible assets. The returns on investment cannot in any way be guaranteed in the form of interest, therefore Islamic institutions trade in assets and stipulate financing conditions to ensure their compliance with Shari’a law. In its drive to increase transparency and accountability, the BMA was the first central bank to approve the guidelines of the Accounting and Auditing Organization for Islamic Financial Institutions. An autonomous, non-profit organization, it sets standards for accounting, governance, auditing and transparency to create a measure of standardization for Islamic banking.

Bahrain Financing Company (BFC)

“BFC lets its reputation stand for itself.”

Bahrain Financing Company (BFC), a licensed money exchange company founded in 1917, has grown from a small family business specializing in gold bullion and foreign-exchange services to being a leader in the local financial sector through its Investment Bank Subsidiary. From its base in Bahrain, BFC works through an international network of banks to offer a wide range of FOREX services to its clients.

Managing Director Meir Nonoo explains that BFC has invested in the latest technologies to ensure the highest quality, international-standard services for every customer. Most of the company’s clients are expatriates who know that they can count on BFC to provide quality speedy services at economically priced cost that they would otherwise find in a top-ranked financial institution charging higher commissions elsewhere.

BFC accounts for a large percentage of the local remittances market and a large share of the wholesale market; and is one of the largest wholesale Banknote Dealers in the world.

Nonoo explains that what sets BFC apart from the competition is a strong commitment and investment to research and development and long history of quality service. also has a low cost structure and lets its reputation stand for itself,” he says. Strongly supporting Bahrain’s long-term prosperity, BFC welcomes long-term investors attracted by the new free trade agreement who will make a commitment to Bahrain’s future. As Nonoo says, “At the end of the day, if Bahrain does well, we all benefit.

Urging American investors to investigate everything Bahrain can offer, Nonoo says, Bahrain has clear cut advantages over all other middle east countries:
Protection for Investors through transparency in the law courts,
No corporate or income taxes,
Repatriation of 100% of profits,
A pool of highly skilled labor force at very reasonable salary structure,
A stable and dedicated government.

Khaleej Finance & Investment (KFI)

Founded in 1981, Khaleej Finance & Investment (KFI) is a dedicated firm of venture capitalists serving private, corporate and institutional investors by offering investment opportunities with attractive returns, based upon the philosophy of calculated risk-return formula. CEO Nabil Mohammed Hadi aims to continue the bank’s expansion through offering new innovative structured products in a wide range of sectors, particularly industrial projects and real estate.

Hadi says that KFI plays a key role in serving the asset management and investment interests of shareholders and group of investors throughout the region with its portfolio of structured high-performance Shari’ah-compliant investment products and services.

He added that KFI’s strategic strengths include a strong shareholder base and an impressive track record of growth in profitability with dividend distribution.

Investment opportunities include industrial, manufacturing, retail, educational, tourism development, real estate, entertainment, media, health and infrastructure through to the restructuring of existing businesses and enterprises. One of the criteria for investment is providing added value to the regional community through various financial instruments including Mudaraba (trust finance), Musharaka (partnership financing), Ijara (leasing) and Istisna (progressive financing).

The bank recently launched a new real-estate initiative, Real Estate Ijara Series, which has been oversubscribed by corporate and high-net-worth private investors. The fund projects a 10 percent annual cash yield and a 13 percent internal rate of return over the three year anticipated investment horizon. New additional Ijara real-estate initiatives will be launched very soon.

KFI is seriously increasing its capitalization and investment banking potential supported by knowledge and experience. For shareholders and investors, a key aspect is the diversification of risk. Our teams deal in private equity and whilst our services may not be unique our strengths are experience and professionalism in serving the investment opportunities for the region.

KFI has ambitious plans for the future. Hadi says, “We feel our assets must grow by at least another 800 percent in the coming three to five years. Because more than 80 percent is capital-based and not leveraged, we are setting these targets.”

Hadi believes that Bahrain is a uniquely qualified investment destination because it is small with a stable policy.

Bahrain Islamic Bank (BIB)

“This is a bank with great growth potential..”

Bahrain Islamic Bank was the first Islamic commercial bank incorporated in the Kingdom of Bahrain and the third bank in the Gulf region to operate in full compliance with the principles of Islamic Shari’a. In its 25th anniversary this year, BIB celebrated the traditions of Islamic banking that it has upheld since 1979.

The Bank is listed on the Bahrain Stock Exchange and is regulated by the Bahrain Monetary Agency. BIB has a net equity of just over US$ 100 million and provides a full range of retail, corporate and investment banking services to its clients.

According to a recent announcement by Capital Intelligence, the international rating agency, the outlook of the Bank has been upgraded from stable to positive while the financial strength and long term ratings have been reaffirmed at BBB-.

The bank’s new CEO, Yousif Saleh Khalaf, has instituted an aggressive plan to expand the bank’s activities and increase its market share, which is currently at around 6 percent.

As he explains, “We have three main business units — retail, corporate and investments — and are looking for market-share growth in each one. This is a bank with great growth potential.”

Bahrain Islamic Bank will be investing extensively in new technologies to achieve operational excellence, and has aggressive plans to enhance the quality and composition of its asset base and generate higher profit margins. The bank has always been a strong player in the domestic market, supplying the market with finance solutions such as Murabaha, Mudaraba, Musharaka, Ijara and Istisna that are structured as in accordance with the Islamic principles.

Khalaf explains that the bank is now adopting new strategies. “We have been conservative over the years with our asset portfolio and are looking to a different risk-return strategy to achieve higher margins,” he says. He adds that instead of focusing on low-risk, low-return financing solutions, in the future the bank will target medium-risk, higher-return structured finance and investments.

The bank’s value added products, strong client base, and long experience in the local market guarantee its success in this new approach, Khalaf believes. He adds, “We will first consolidate our human resources and the bank’s IT infrastructure to achieve market-share growth. Expect a different bank, a different image. We want to be one of the preferred Islamic banks in Bahrain and compete equally with all the others.”

The Bank has the strong support of the Bahrain authorities as well as its institutional shareholders like Islamic Development Bank, Kuwait Finance House and Dubai Islamic Bank. All this support has given BIB a chance to demonstrate its abilities in the competitive banking industry and maintain its edge as a prosperous institution with a sustained growth in shareholders’ value.