Diversification of Islamic Financial Instruments
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3.9.3 ISLAMIC CAPITAL MARKETS IN BAHRAIN
Further development of services and specialized Islamic products, including leasing, loans and
investment schemes has enriched the sector.
Bahrain’s flag-bearing initiatives in support of Islamic finance transcend borders and extend to
other segments of Islamic finance, in addition to Islamic banking, including Islamic capital
markets and Takaful. Bahrain issued the first international sovereign Sukuk in 2001, to
manage the liquidity of Islamic banks on the basis of Salam and Ijarah. The issuance was a
major catalyst behind the growth of GCC’s Islamic capital market in recent years. The CBB
“remains active in the sovereign Sukuk market through the issuance of medium to long term
Sukuk, complemented by a regular program of short term issuance” (Al Baker, 2015)169.
At the same year, Bahrain signed an agreement with Indonesia, Sudan, Saudi Arabia and
Malaysia to establish the International Islamic Financial Market (IIFM), which supports the
international secondary market for trading of Sukuk and other Islamic financial instruments.
170
In 2002, the Liquidity Management Center (LMC) was developed in Bahrain in order to
underwrite Islamic financial trading and provides Shariah compliant liquidity management. Its
aim was to create a secondary market for short-term Shariah compliant treasury instruments
for Islamic banks. LMC commenced its first commercial operations in May 2003. LMC has been
instrumental in arranging a US$150 million Sukuk for the Bahrain Financial Harbor project
and a US$120 million Durrat Al-Bahrain project171.
Bahrain is also home to the Islamic International Rating Agency (IIRA), which rates Takaful
and Islamic financial institutions, according to credit and Shariah quality parameters. IIRA was
founded in 2005 with the aim of facilitating the growth of Islamic capital markets through
more Sukuk issuance. Other active stakeholders in Bahrain’s burgeoning and wholesome
Islamic financial system include the Sharia Review Bureau172, Thomson Reuters Global Islamic
Finance Hub and Deloitte’s Islamic Finance Knowledge Centre.
As part of its initiatives, CBB executed an MoU with Tokyo Commodity Exchange (TOCOM) in
2005 to enable financial institutions, brokers and other players in Bahrain to carry out
transactions on TOCOM using Shariah compliant instruments. Furthermore, the Offering of
Securities (OFS) Module under Volume 6 Rulebook contains detailed rules, procedures and
regulation pertaining to the issuance of different types and classes of securities, including
Sukuk.
In January 2015, Bahrain Bourse (Bourse) launched a mechanism that allows Bahraini and
Non-Bahraini individuals and institutions to subscribe to government issuances of Sukuk and
bonds through registered brokers and trade them in the secondary market. Therefore, the
169 Al Baker, A. (2015) Building a Transparent and Robust Foundation to Facilitate Growth in the Islamic Investment
Industry. Keynote Speech at the 11th Annual World Islamic Funds and Financial Markets Conferences 2015. Manama,
Bahrain: 18 May 2015. Available online at
11th_annual_world_islamic_funds_and_financial_markets_conferences_2015.htm
17
171 Redmoney. 2008. Bahrain Report 2007. Kuala Lumpur, Malaysia. Available online at
p.
4
172 Central Bank of Bahrain, Islamic Finance, accessed 7 March 2017, see