“With approximately US$ 7 billion in assets under management, through more than 2,800 funds, the industry has been growing at steady base in recent years. Overall, there are 88 Islamic funds that are incorporated and registered in Bahrain with total assets amounting to US$1.4 billion as of March 2015,” Abdul Rahman Mohammed Al Baker, Executive Director of Financial Institutions Supervision at the CBB told the audience of 11th Annual Edition of the World Islamic Funds and Financial Markets (WIFFMC).
The CBB, he added, through its enabling legislation, promotes the development of new products for investors in both Islamic and traditional finance, while at the same time providing credible regulation in both areas.
“The existing regulatory framework for Collective Investment Undertakings (CIUs) has provided for a full range of investment funds catering to various types of investors, from retail to high net worth individuals and institutional investors. In order to further enhance the existing CIUs framework, the CBB has issued Volume 7 Rulebook which provides a comprehensive rules and regulations pertaining to the authorization and supervision of CIUs domiciled or offered for sales in Bahrain. The regulation has recognized the importance of expanding key areas such as the corporate governance, as well as the role and responsibilities of each relevant party of a scheme. It also expands the variety of funds that can be established in Bahrain, by introducing rules governing Real Estate Investment Trusts (REITs) and Private Investment Undertakings (PIUs). Private Investment Undertakings are new breed of investment funds with a high degree of flexibility in structuring, aimed basically to facilitate private investments, the like of a family held investment, single investor or a single investment type. Due to the investment risk characteristics it may exhibit, such type of scheme can only be initiated to High Net-Worth Individuals and Institutional investors.
“In keeping with Bahrain’s leadership in Islamic finance, the CIU rules also provide a solid foundation for the establishment and management of mutual funds that comply with Sharia principles.
“The Offering of Securities (OFS) Module under Volume 6 Rulebook contains detailed rules and regulation that covers the issuing, offering, floating and subscribing to different types and classes of securities, including Sharia compliant securities like Sukuk offered to the public or through private placement in or from Bahrain. The Module also provides the procedures and documentation that need to be submitted by the issuer as a part of their application to obtain the CBB approval in this regard.
On its part, the CBB, having pioneered the development of sukuk, 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.
“It is the CBB’s hope that such initiatives will go a long way in harmonizing market practices and further enhancing the Islamic capital market.
“Generally, the potential size of Islamic finance market is vast, and the accelerated establishment of Islamic finance hinges on attracting the flow of these potential funds into Islamic investment. However, it is important to ensure that Islamic funds and investment industry have solid and strong foundations for future development and growth.
“In order to further enhance the growth and expand the Islamic Investment industry, there are several factors that need to be taken into consideration. First, there is a need to build a solid financial system that would be able to facilitate efficient capital and trading flows. This requires further development of an Islamic financial system which has the entire required infrastructure that includes (i) Islamic financial Institutions ranging from banking, takaful, capital market, funds, wealth management entities, and Islamic endowments (Waqf); (ii) creating a conducive legal and Sharia framework, and (iii) a financial system that has a comprehensive range of Islamic products and services.
“Having an active Islamic financial market is one of the contributing factors that will further enhance the growth of Islamic investment industry. Basically, a vibrant Islamic financial market will facilitate fund raising and investment activities and will enhance the creation of primary and secondary markets for Islamic financial instruments. In this regard, some progress has been achieved.
Second, it is critical for Islamic financial institutions to better understand the clients and their needs for financial products and services, as such understanding will help to further expand the horizons of Islamic market. For example, the investment of Islamic financial institutions should shift focus from key-holdings constituting long term assets with large amounts of real estate, toward new asset classes and markets.
Third, it is important to further develop Islamic endowments (Waqf) which not only serves as a potentially effective wealth management instrument but also holds significant prospects for large-scale social development and poverty alleviation. Basically, developing financial institutions and trusts that provide advisory services on structuring and managing Waqf assets, enabling these waqfs to invest in various types of assets without any geographical limitation, free of administrative complexities will further enhance the development of the Islamic investment industry.
Fourth, it is important to adopt proper corporate governance in the Islamic investment industry in order to enhance the confidence of the investors and to ensure that markets are fair, efficient and transparent. This includes having proper disclosures requirements of all terms and conditions of the Islamic products, as well as transparency in disclosing financial information and indicators.
Creating adequate regulatory framework for Islamic investment products is another factor to further strengthen the Islamic Investment Markets. Such regulation should create the necessary framework for investment products targeting small, medium size, as well as accredited investors, who wish to invest their funds in accordance with Sharia principles. This regulatory framework should also cater for wide range of Sharia compliant investment products that include equity, sukuk, and various types of Islamic funds.
Fifth, it is important to have sufficient number of professionals that are well versed in both the capital market and Sharia knowledge to further develop the Islamic investment industry. This, in turn, will further enhance the products development and improve the services to investors in the Islamic capital market.
Last but not least, it is important to further enhance talent, education and research and development to improve the efficiency and innovative capabilities of the Islamic financial industry.
“The CBB intends to remain at the forefront of the Islamic Finance and investment industry and we look forward to work closely with market players to further develop this key industry.”