Bahrain - Banking and securities

Bahrain is considered the pre-eminent fiancial services center in the Middle East. The Bahrain Monetary Agency (BMA), Bahrain's equivalent of a central bank, issues and redeems bank notes, regulates the value of the Bahrain dinar, supervises interest rates, and licenses and monitors the activities of money changers. One factor contributing to Bahrain's growth as a Middle Eastern financial services center is that unlike some of its larger, richer neighbors, there is no serious religious opposition to western banking practices-especially the accrual of interest-which some Islamic scholars consider to be contrary to Muslim teachings. There are, however, several large banks in Bahrain classified as Islamic; they don't pay or charge interest, don't finance or otherwise support "un-Islamic" enterprises, and make a conscious effort to invest in socially productive enterprises. Another important factor influencing the growth of the financial sector is the tax-free environment.

The value of assets and liabilities held by Bahrain's commercial banks rose by 43%, and offshore banking units (DBUs) rose by 20%; between 1991 and 1995. The consolidated assets and liabilities of commercial and offshore banks in Bahrain reached over $82 million in 1997. In 2000, Bahrain was home to 20 full commercial banks, 2 specialized banks, 52 offshore banks, 37 representative offices, 33 investment banks, 6 foreign exchange and money brokers, 8 investment and financial advisory services, and 18 money-changing companies. The International Monetary Fund reports that in 2001, currency and demand deposits—an aggregate commonly known as M1—were equal to $1.5 billion. In that same year, M2—an aggregate equal to M1 plus savings deposits, small time deposits, and money market mutual funds—was $6.3 billion. The money market rate, the rate at which financial institutions lend to one another in the short term, was 3.9%.

The Bahrain Stock Exchange (BSE) was planned in 1987 after the unofficial Kuwait Stock Exchange collapsed. The BSE has become an important Gulf center of share trading; volume or shares increased from its inception from 62 million in 1989 to almost 400 million in 1993. Beginning in 1995, the BSE listed foreign companies, bonds, and investment funds. Trading in foreign investment vehicles was made open to all Bahrainis, and resident and non-resident foreigners in late 1996. Between 2000 and 2001, the index fell about 2.5%. There were 34 funds and 41 companies listed on the BSE in 1999. The total value, volume, and number of transactions of shares traded in 1999 declined from 1998 by 23%, 13%, and 27% respectively. The top three firms, Investcorp, the Bahrain Telecommunications Company (BATELCO), and the Arab Banking Corporation, account for over one-half of the exchange's total market capitalization of $7.3 billion in 1999.