BAHRAIN. Bahrain aims to grab a greater share of sukuk trading from the U.K., Dubai and Malaysia with a bourse dedicated to securities that adhere to Shariah law, reported Bloomberg, citing the exchange's CEO.

The Bahrain Financial Exchange, scheduled to open in October, will start trading in Islamic debt next year, Chief Executive Officer Arshad Khan said. Eight sukuk valued at about US$2.9 billion trade on the existing Bahrain Stock Exchange, compared with 20 at a face amount of US$16 billion listed on Nasdaq Dubai, data on exchange websites show. The London Stock Exchange has attracted US$17.7 billion from 26 securities.

“We are quite hopeful that we’ll see a very liquid secondary market in sukuk, which does not exist right now, whether in London or anywhere else,” Khan said in a Bloomberg interview on July 15 from Manama.

Bahrain is using money from the Gulf’s energy boom to establish an exchange that would allow investors to list Islamic bonds, real-estate investment trusts, exchange-traded funds and options. It will also create an electronic platform this year that will allow banks and companies to buy and sell commodities used to back so- called Murabahah transactions, Khan said.

Malaysia last year introduced an online trading platform for Murabahah transactions. Hong Kong, Singapore and the U.K. are easing rules on Islamic banks and products to woo investors from the Middle East. Dubai responded by starting Nasdaq Dubai, previously known as the Dubai International Financial Exchange, in 2005 as the Gulf’s first bourse open to investors and issuers of any nationality.

Bahrain is “trying to sustain a niche, which has traditionally been in the area of Islamic finance,”  Riyadh-based John Sfakianakis, chief economist at Banque Saudi Fransi, told Bloomberg “Islamic banking is under a lot of competition from the regional competitors such as Dubai, Qatar, Kuwait and Saudi Arabia.”

The yield on Bahrain’s 6.247 dollar-denominated Islamic bonds maturing in June 2014 fell 11 basis points last week to 3.368%, and has fallen 116 basis points from the year high on February 15, according to data compiled by Bloomberg.

The yield on Malaysia’s 3.928% Islamic note due June 2015 rose four basis points to 3.216%, after falling 23 basis points last week, prices from Royal Bank of Scotland Group Plc show.

Islamic securities returned 7% this year, according to the HSBC/NASDAQ Dubai US Dollar Sukuk Index. Debt in developing markets gained 7.7% over the same period, according to JP Morgan Chase & Co.’s EMBI Global Diversified Index.

Bahrain, the smallest of the six Gulf Cooperation Council states, is bidding to increase its share of the industry, estimated by the Kuala Lumpur-based Islamic Financial Services Board to almost triple to US$2.8 trillion in assets by 2015.

Bahrain has nine Takaful and Retakaful operators, a critical mass for this growing sector of the insurance market.  The seven Takaful companies had gross contributions of BD32.7 million ( US$87 million)  for 2009, representing a 22% increase over 2008. Of this amount, the Family Takaful contributions were BD5.7 million (US$15.2 million), 17.3% of the total Takaful business, according to central bank data.

The Central Bank of Bahrain (CBB) actively participates in the development of new international standards for the Takaful industry . It plays an essential part in the various Islamic Financial Standards Board (IFSB) initiatives and supports the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) in evolving accounting, auditing and governance standards.

Gross premiums from Retakaful companies have grown from BD15.9 million (US$42.3 million) in 2008 to BD50.5 (US$134.3 million) in 2009, registering a significant growth of 217.6%, according to Mr. Abdul Rahman Al Baker, Executive Director, Financial Institutions Supervision at the CBB.

The CBB was also named “Best Financial Centre” for 2010, recognising Bahrain the leading international centre for the Takaful industry.

Bahrain's economy is expected to grow by slightly more than 4% this year, the Economic Development Board (EDB) said on Sunday, while it sees the country's financial sector recovering only slowly.

The EDB, a government body responsible for setting Bahrain's economic policies, also said that GDP grew 5.2% during the first quarter year-on-year and 1.4% compared to the last quarter of 2009.

The EDB also said in its statement it expected the country's financial sector to recover only slowly, in a rare official acknowledgement of the troubles at Bahraini investment houses.

Bahrain has established itself as an off-shore financial hub for the oil wealth accumulated in particular in Saudi Arabia and Kuwait, and the financial industry accounts for around a quarter of its GDP.

There were 27 Islamic banks registered in Bahrain as of June, and eight in the United Arab Emirates, according to data on the central banks’ websites. Malaysia, the Islamic finance hub in Asia, has 18 Islamic banks.

“We will get a lot of interest from the region and the London market,” Bahrain Financial Exchange’s Khan said. “In the Gulf Arab region, companies are using the London market to do their business, so of course when we set up the Murabahah platform this year it will attract them from London.”

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