Diversification of Islamic Financial Insturments
173
Murabahah in corporate banking is that of trade finance- mainly purchases from suppliers in
the form of wire transfers, cash, Letters of credit and Letters of guarantee149.
Ijarah agreement is the second most common financing instrument used by Bahrain Islamic
retail banks. It made up 22.8% of the banks’ financing portfolio as at the end of September
2016 (CBB, 2017b, p. 49). Ijarah allows corporations to fund machinery purchases and it can
finance cars, housing and other equipment. The Ijarah period ranges between three to seven
years. The lessee may have the right to purchase the leased asset at the end of the Ijarah
period through an Ijarah Muntahia Bittamleek.150
Wakala is very commonly used in Islamic banking in Bahrain, especially in the deposit-taking
operations of Islamic retail banks151, where depositors act as principals and banks as
investment agents who channel savings to investment activities on depositors’ behalf for often
a waive-able fee. Bahraini Islamic retails banks themselves can now benefit from a Wakala
liquidity management instrument offered by the CBB for the purpose of absorbing excess
liquidity.
Istisna is used to finance the construction of buildings. The price is paid in advance or in
instalments as the work progresses 152. According to the Financial Stability Report (2017),
Islamic retail banks’ exposure to “Real Estate/ Construction” remains high at 29.4% of their
financing portfolio in September 2016.
Salam is a forward sale contract, where a commodity is sold for future delivery in exchange for
full cash payment at the time of transaction. The seller is often the party seeking financing.
Salam contract is used to finance farmers, industrialists, contractors and traders.153
The following two tables show the diversity of Islamic financial products and services offered
by Bahrain’s top Islamic banks:
Table 75: Islamic Banking Products - Bahrain
Islamic Banking Products (Full Fledged)
Commercial
Ithmar Bank
Mudaraba
Musharaka
Murabaha
Ijarah
Al Salam Bank
Mudaraba
Musharaka
Murabaha
Ijarah Muntahia Bittamleeek
Wakala
Ististna
Bahrain Islamic Bank
Mudaraba
Musharaka
Murabaha
Ijarah MuntahiaBittamleek
Wakala
Khaleeji Commercial Bank
Mudaraba
Musharaka
ABC Islamic Bank154
Mudaraba
Murabaha
Family Bank
Mudaraba
Murabaha
149 Ithmaar Bank website, Morabaha, accessed 5 April 2017. Se
150 Ithmaar Bank website, Ijara, accessed 5 April 2017. Se
151 Al Salam Bank Bahrain website, Wakala deposits, accessed 5 April 2017. See
152 Al Salam Bank Bahrain website, Glossary, accessed 9 April 2017. Se
153 Bank website, Ijara, accessed 5 April 2017. See Salam
154 ABC Islamic Bank website, 2015 Annual Report, accessed 12 March 2017. See