Launch Partners

Launch Partners

Bahrain: Diversifying economy to draw more Islamic investments

Key highlights

  • Economic catalysts include oil-based wealth and AAOIFI standards
  • Bahrain’s publicly traded Islamic funds focus on equities and real estate
  • GCC Funds Passporting Regime and cryptocurrency funds could further enhance Bahrain’s appeal to investors

Overview

Bahrain punches well above its weight in the Islamic investments landscape due to two key factors: its aggressive economic diversification measures and it hosting prominent international Shariah finance bodies such as AAOIFI.

As this tiny Arab nation has taken significant measures to diversify its economy away from reliance on oil revenues, Bahrain’s Ministry of Finance and National Economy reported that as at Q3 2024, financial and insurance activities made up 17.7% of economic contributions to the nominal US$44 billion GDP while the crude oil and natural gas sector made up 13.7%.

With just 41 stocks listed on the Bahrain Bourse at the end of 2024, much of the local investment activity is outward-looking. At the end of 2024, the Central Bank of Bahrain (CBB) oversaw 1,741 mutual funds but only 61 were domiciled within Bahrain, out of which 31 are Islamic. There are 121Shariah compliant foreign-domiciled funds – a CBB definition that incorporates those of Bahraini-owned[VT1]  firms legally established abroad – bringing the total of Islamic funds offered in Bahrain to 152.

With a strong internal regulatory framework and a robust banking infrastructure, plus the adoption of AAOIFI standards, Bahrain continues to foster financial innovation – reinforcing its status as an investment hub in the Middle East.

Capital markets and regulatory framework

The CBB regulates Bahrain’s financial sector, including collective investment undertakings (CIUs) – which covers retail, expert and exempt funds. While retail funds are open to all investors, expert CIUs have a US$10,000 entry point while the exempt CIU is offered to ‘accredited investors’, needing a minimum US$100,000 initial investment.

Private investment undertakings offered to high net-worth individuals and institutions are also subject to CBB’s monitoring.

Expanding Bahrain’s capital outreach, the CBB launched a new category of investment firms under its Investment Business Regulations in September 2023. This initiative allows family offices to provide regulated investment and wealth management services.

AAOIFI Shariah standards are adopted as mandatory regulatory requirements in Bahrain.

Asset management

Of the 152 Islamic funds offered within Bahrain, the bulk are exempt and private funds which do not publicly reveal key performance statistics, therefore limiting accurate data monitoring. IFN Investor Funds Database currently tracks three publicly traded Shariah compliant funds domiciled in Bahrain with a combined assets under management (AuM) of US$69.42 million as of the 30th December 2024. The primary asset classes for these Islamic funds are real estates and equities.

Chart 1: Islamic funds breakdown by asset class 

Source: IFN Investor Funds Database

The National Investment Company is a Kuwait-headquartered company which launched the Al Mada Investment Fund. This equity fund is largest Islamic equity fund domiciled in Bahrain with an AuM of US$32.82 million. This is followed by the IIAB Islamic Middle East and Africas Fund, launched by Al Arabi Investment Group, and Eskan Bank’s Eskan Bank Reality Income Trust.

Table 1: Islamic funds in Bahrain by AuM

Fund nameFund manager AuM (US dollar)
Al Mada Investment FundNational Investments Company32.82 million
Eskan Bank Realty Income TrustEskan Bank29.97 million
IIAB Islamic Middle East and Africas FundAl Arabi Investment Group6.76 million
Source: IFN Investor Funds Database 

Outlook

Bahrain is steadily increasing its appeal to investors as the country’s investment management industry is evolving, supported by government incentives and regulatory improvements aimed at building a more diverse economy.

Recent regulatory changes, such as the GCC Funds Passporting Regime and continued AAOIFI recommendations, are helping Bahrain integrate more closely with regional markets. These efforts not only enhance economic cooperation within the GCC but also reinforce Bahrain’s position as a leading destination for Islamic finance and Shariah compliant investments.

Bahrain is also emerging as a regional leader in financial technology and cryptocurrency. The National Bank of Bahrain recently collaborated with ARP Digital to introduce the Gulf’s first Bitcoin-linked structured investment fund, marking a milestone in the region’s cryptocurrency landscape.

Categories:
Key highlights Economic catalysts include oil-based wealth and AAOIFI standards Bahrain’s publicly traded Islamic funds focus on equities and real estate GCC Funds Passporting Regime and cryptocurrency funds could further enhance Bahrain’s appeal to investors Overview Bahrain punches well above its weight in the Islamic investments landscape due to two key factors: its aggressive economic diversification measures and it hosting...

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