Interview: Yaser Alsharifi

Where do you see potential opportunities for Bahrain’s Islamic banking sector?

YASER ALSHARIFI: Banking remains key to the financial services sector, with significant potential for growth. Although there has been a recent consolidation in the industry, it continues to be a vital driver of economic performance. The sector has been a key focus for the government and the Bahrain Economic Development Board. The regulatory approach and strategy support customers’ needs, while maintaining global market standards and regulations. The sector is open to innovation in areas in which market dynamics have changed in recent years, such as financial technology, decentralised finance and open banking frameworks.

This benefits both retail and commercial consumers in the country. Which areas of the economy offer the greatest growth potential for local Islamic banks?

ALSHARIFI: The financial services sector benefits all participants in the economy, although the logistics and manufacturing sectors are crucial to servicing core industries such as aluminium, downstream petrochemicals, and downstream oil and gas. Lifestyle-related sectors – including real estate and hospitality – are also important economic contributors.

While there is potential for growth in 2023, there are also challenges, such as higher interest rates and inflation. The government’s proactive approach during the Covid-19 pandemic helped the economy and aided businesses. The support of our regional neighbours, and an adherence to fiscal discipline and reforms implemented by the government, allow for closer regional integration and greater confidence.

By what means can local small and medium-sized enterprises be supported in terms of financing?

ALSHARIFI: There has been close coordination and dialogue with Tamkeen, the semi-autonomous government labour fund, to improve programmes that cater to smaller businesses in Bahrain. Continued investment in digital technology is also crucial, although adopting new systems brings added risks, such as cyberattacks and fraud. As we have seen with ChatGPT being used in university exams, it is possible that fraudsters may also use tech tools to manipulate the financial system.

In what ways can innovation and digital services support growth in the Islamic banking sector?

ALSHARIFI: Digitalisation efforts in the banking sector, particularly in customer service, are rapidly becoming commoditised, as BisB and other banks have ATMs and online platforms. In the future every bank will have a digital application and various ways of managing accounts, so investing in digital infrastructure is crucial.

However, we need to be guided by what our customers want, and innovation must be at the core of how we approach the industry. For example, banks deal with a sensitive asset – people’s money – and have a custodial relationship with customers in a highly regulated industry. This requires a high level of trust and confidence that they will manage people’s money securely.

How do you expect the market share of Bahrain’s Islamic banking sector to grow?

ALSHARIFI: The market will continue to expand, and projections indicate that the market share of Islamic banks will grow faster than that of traditional ones. The landscape has shifted, and there are now two viable options on the conventional side, with smaller and larger banks competing for the same market share.

Growth can also be achieved by attracting more foreign investment into segments with significant multiplier effects, such as start-ups. However, serving these entities is a challenge for banks, as these businesses can have high risk and large cash outflows, requiring close monitoring. The current banking models may not be sufficient and we must learn from successful models in other parts of the world to support start-ups.