Bahrain: Financial Capital of the Middle East

The Kingdom of Bahrain is the leading international financial center in the Middle East.

The Kingdom of Bahrain is the leading international financial center in the Middle East.

The country hosts the largest concentration of banks and other financial institutions in the Middle East. The institutions offer a diverse range of services, including money market and portfolio management, investment advice and insurance products involving risk transfer and capital accumulation.

The Bahrain Monetary Agency (BMA), the Kingdoms central bank and sole regulator for the financial system, currently regulates a total of 344 institutions, of which 179 are banks and banking institutions, 152 are insurance and insurance-related firms and 13 are capital market brokers.

Bahrain has also emerged as the worlds Islamic banking hub, boasting the highest concentration of Islamic financial institutions, numbering 26, five industry-support organizations and six Islamic insurance companies.

The BMA was the first central bank to develop and issue prudential regulations for Islamic banks. The Prudential Information and Regulatory Framework for Islamic financial institutions (PIRI), introduced in 2002, covers issues related to capital adequacy, asset quality, the management of investment accounts, corporate governance and liquidity management.

The BMA is also the first central bank to issue Islamic bonds (sukuk). A rolling programme of monthly issuance of the short-term Sukuk Al-Salam has been in place since June 2001. It complements the medium and long-term Ijara (leasing) sukuk, which the BMA began issuing in September 2001.

By the end of April 2003, the BMA had made 23 issues of Sukuk Al-Salam, worth a total of US$575 million, while six Ijara issues have totalled US$480 million.

The Kingdoms success as a global financial center is built upon the scale and scope of its markets and their products, underpinned by a policy of rigorous supervision implemented to standards of international best practice by the BMA.

Bahrain is also among a select group of countries in the world that fully implement Financial Action Task Force (FATF) recommendations on money laundering.

The BMA is currently actively seeking to advance the financial sector by implementing a comprehensive plan aimed at maintaining Bahrains leading position as regional provider of financial services and ensuring further growth and expansion in the coming years.

The plan focuses on the strategic development of seven asset classes, namely debt and equity capital markets, insurance, Islamic finance, corporate and private banking and remote services.

A key strength of Bahrain lies in its highly skilled and qualified human resources, endorsed by the United Nations Development Programme (UNDP), which rated Bahrain first in the Arab world in its Human Development Index of 2002.

The growth and development of the Kingdoms financial sector has been underpinned by a buoyant economy, which has averaged an annual growth rate of 4.5% in the last five years.

Management of Bahrains economy continues to earn international accolades. The US-based Heritage Foundation has, in recent years, consistently ranked Bahrain as the freest economy in the Mena region.

The Kingdom also tops all other Arab countries in terms of foreign direct investment (FDI) inflows, according to the United Nations Annual World Investment Report for 2002.

The sovereign rating status of A- awarded by Standard & Poors (2002) and Fitch-Ibca (2003) is ample testimony of the inherent strengths of the countrys economy.

Collectively, these independent international acknowledgements reflect the undoubted optimistic outlook for further growth and expansion in the Kingdoms financial sector.