Diversification of Islamic Financial Instruments
172
Growth has been driven by customer and investor’s confidence, transparent framework,
supportive organizations, products and service innovations and skilled local workforce. This is
not to mention the excess liquidity resulting from rising oil prices after the Gulf war. Moreover,
the CBB was a pioneer in the Islamic window concept, allowing conventional banks to roll out
Islamic banking business using available infrastructure.
To cater for the growing industry locally and abroad, the Accounting and Auditing
Organization for Islamic Financial Institutions (AAOIFI) was established in 1990 to create
standards for reporting and accounting that attended to the peculiarity of Islamic banking and
finance. AAOIFI worked with organizations such as the International Accounting Standards
Board (IASB). Bahrain was the first country to implement the standards for its local market.
Sudan, Jordan, Qatar and other countries followed suit.
To further ensure the development of the financial services sector in Bahrain and produce
well-trained and high-calibre Islamic finance professionals, the Bahrain Institute of Banking
and Finance (BIBF) was founded by the BMA in order to train and educate individuals in
Islamic finance. The Central Bank of Bahrain has also established an endowment (the Waqf
Fund) in partnership with the industry to fund Islamic finance research, education and
training. The fund is valued at US$7.5 million and has 22 member institutions.
Authorities in Bahrain have long recognized the importance of regulation and supervision for
Islamic finance and the compliance of all transactions, products or services with Shari’ah law. It
was, thus, the first regulator to develop and implement Islamic-banking-specific regulations in
2001 in the form of the Prudential Information and Regulatory Framework (PIRI).
3.9.3.1 Product Development and Diversity
According to industry experts, there is no shortage of retail products in the Bahraini and Gulf
markets in general. Many of the retail needs of Shariah compliant customers are being met
through a myriad of products, including Mudaraba, Musharaka, Murabaha, Ijarah, Ijarah
Muntahia Bittamleek, Wakala, Istisna’, Tawarruq and Salam
Retail Islamic banks, such as Ithmar Bank, provide Mudaraba investment accounts that are
covered by the regulation protecting deposits and unrestricted Investment Accounts issued by
the CBB in accordance with Resolution No. (34) of 2010. The account can be opened as an
individual, Joint Personal, Sole Proprietorship, Body Corporate account or any other legal
entity. It may be opened in Bahraini Dinars or United States Dollars. There are two options to
open an account; either under general unrestricted Mudarabah or special restricted
Mudarabah - for investors who seek higher rates of return. 146
The retail banking arms of Islamic banks offer Musharakah financing where the bank invests
capital in new and existing projects entitling it to a share of their profits. It may also contribute
towards specific ownership of assets on a permanent or non-permanent basis.147
Murabahah is the most dominant financing contract in Bahrain’s Islamic banking segment. It
commanded 64.2% and 91.9% of Islamic retail and wholesale financings respectively, as at the
end of September 2016 (CBB, 2017b, Pp. 50 and 53).148 An example of common use of
146 Ithmaar Bank website, Modaraba account, accessed 5 April 2017. Se
147 Al Salam Bank website, Musharaka, accessed 9 April 2017. Se
148 Central Bank of Bahrain (2017b). Financial Stability Report- February 2017. Manama, Bahrain.