Rasheed Al Maraj, Governor, Central Bank of Bahrain (CBB), on regulatory progress and human resource development: Viewpoint

This year marks the 22nd World Islamic Banking Conference in Bahrain, a milestone which is perhaps unmatched in the 40-year young Islamic finance industry. This year’s conference brings together many interesting themes and some of the most prominent speakers from around the world.

Since the global financial crisis of 2008, the financial sector has entered a different phase, and Islamic finance is no exception to this situation. More regulations, stronger compliance requirements, larger capital commitment and better risk management are all part of the new paradigm. The CBB has taken steps to enhance the compliance environment in Bahrain, including sharia compliance. Stricter fit and proper criteria for sharia resources, greater controls regarding the sharia compliance process and clearer divisions between sharia compliance and sharia audit are in the process of being introduced.

A centralised sharia board is also being introduced with a broad mandate that includes overseeing product development by Islamic financial institutions and Islamic windows, strengthening sharia compliance, providing guidance to the CBB in issuing rules and regulations for the sector, providing guidance to the courts in legal cases involving Islamic financial institutions and acting as the sharia board for the CBB. The centralised sharia board has been given wide authority to determine the direction of product innovation in Bahrain’s Islamic finance sector and to guide the courts in sharia-related matters concerning Islamic financial institutions, which is a unique initiative for any market in the region.

Human resource development continues to be an important contributing factor in the Islamic finance industry’s growth worldwide. The Waqf Fund, which works under the auspices of the CBB, is a fine example of how the Islamic finance industry in Bahrain has come together for development initiatives that are critical for the long-term sustainability and growth of the industry. The Waqf Fund is running several programmes to upgrade the skills and expertise of sharia reviewers and auditors. Frequent interactive sessions with prominent sharia scholars on specific topics provide an opportunity to learn from the experience of leading scholars. A number of training programmes have been launched with the Bahrain Institute of Banking and Finance, including an advanced diploma in Islamic commercial jurisprudence and the advanced sharia reviewer development programme, designed to broaden the horizon of sharia resources and plug any knowledge gaps.

Another landmark initiative of the Waqf Fund that has received industry-wide appreciation is the recently concluded Leadership Grooming Programme aimed at developing the next generation of Islamic banking industry leaders. A select group of 37 talented middle-level Islamic bankers from Bahrain was chosen for an intensive programme delivered by leading universities in Hong Kong and Toronto. This customised programme was designed to improve the leadership skills, strategic thinking and ethical orientation of the participants. We hope that these young Islamic bankers will emerge as better leaders to steer the industry in the years to come.

The CBB continues to strongly encourage Islamic banks to merge with or acquire other institutions. Given a tougher regulatory environment, challenges to the business model and increased competition from Islamic as well as conventional competitors, the preferred path, particularly for Islamic investment banks, is to merge in order to create institutions of substantial size. Not only will size increase their chances of survival by enabling them to participate in larger deals, but it will also help them attract the right human resources. Liquidity management is also an important area for Islamic banks.

The above is an excerpt from the Keynote Address given at the World Islamic Banking Conference 2015.