Interview: Khalifa bin Ebrahim Al Khalifa
What products and reforms would help to increase the liquidity and sophistication of the BHB?
KHALIFA BIN EBRAHIM AL KHALIFA: Increasing liquidity is one of our strategic goals and we have launched several initiatives. We recently introduced an online trading incentive programme to encourage retail and private participants to trade on the exchange, the first such initiative in the Middle East. The aim of this is to incentivise brokerage houses to facilitate retail investors to start trading online from as little as BD100 ($265). Given Bahrain’s position as one of the world’s main centres of Islamic finance, we are among the first to introduce murabaha (sharia-compliant sales contracts) through equity services in the region, and one of the first viable and practical sharia-compliant financial instruments currently in use in the sector.
We expect this initiative to have a significant impact on raising liquidity and strengthening Bahrain’s Islamic financial services market. Finally, the new market rules include a new concept called external membership. This will give direct market access to regional and global investors without the need to be based in Bahrain, as long they have a local clearing agent.
How can small and medium-sized enterprises (SMEs) be further enticed to list on the BHB?
AL KHALIFA: The strategy to encourage market listings began in 2011 and is constantly being monitored and reviewed. From the beginning, the initiative was not necessarily aimed at SMEs, but rather at companies of any size that are at the growth stages of their business cycle and need to raise capital. Over the last three years the BHB has undertaken the development of a whole new market called the Bahrain Investment Market (BIM). The regulations of the BIM were finalised at the end of 2014 and the market is set to begin accepting listings in quarter one of 2015. The new market will enable companies to raise growth capital through fixed income securities or equity sales, which will act as a new alternative to bank loans or private borrowings.
In consultations with private businesses, we have simplified listing requirements, reducing the entire process to 21 days. There are no capital requirements, and only a limited set of rules to protect investors. To minimise costs, the reporting requirements are to be done annually and not quarterly, and will follow the international financial reporting standards for SME accounting. In addition, the BHB will act as the only agent, removing any bureaucratic obstacles in dealing with different government bodies.
In your opinion, what is an effective capital raising framework for SMEs, and is over-regulation discouraging companies from coming to market?
AL KHALIFA: I believe over-regulation is the main reason SMEs look for alternative financing solutions in unregulated environments. The traditional role of the stock exchange is to set up a legal framework to protect investors without restraining economic growth. The new BIM is being created to help entrepreneurs succeed through less expensive and simplified listing procedures, while also making sure that investors are protected. We noticed that the implementation of the latest Basel III banking requirements are inadvertently forcing SMEs out of the banking sector’s reach. Therefore, the essence of the BIM is to act as a trigger for established companies with a proven track record to move up the ladder; to help small companies become medium-sized, and medium companies become larger corporations and greater assets to the economy.
How do you assess the BHB’s position in terms of globalisation and interconnectivity?
AL KHALIFA: We are privileged to be positioned at the centre of the GCC. The GCC is one of the fastest growing areas in the world, and this is our biggest competitive advantage. In anticipation of future potential, we must continue to build the most robust and progressive financial ecosystem to attract foreign investment and support the economic growth of the kingdom.
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