Bahrain takes lead with Shariah digital coin rules, Malaysia plays catch-up

In a significant move that could reshape the global landscape for Islamic finance in the digital age, the Central Bank of Bahrain (CBB) has unveiled comprehensive regulations for stablecoins, positioning the island nation at the forefront of Shariah compliant digital asset oversight.

The bold step, effective the 2^nd July 2025, allows for the issuance of fiat-backed stablecoins in Bahraini dinar, US dollars and other approved currencies – a move that appears to outpace its regional counterparts, including the UAE.

Meanwhile, Malaysia, a long-standing pioneer in Islamic finance, is signaling a shift towards liberalizing its digital asset rules. While Malaysia was the first country to establish a Shariah compliant framework for digital asset trading, its current proposals suggest a more cautious, reactive approach compared to Bahrain's proactive leap into stablecoin regulation.

Bahrain's new Stablecoin Issuance and Offering Module is a meticulously crafted framework, outlining stringent requirements for licensing, operational governance and technical management.

Key provisions include full 1:1 fiat backing, a minimum initial paid-up capital of BHD250,000 (US$664,890) and mandatory transparency through whitepaper publications.

Issuers must also adhere to the International Financial Reporting Standards and the standards set by AAOIFI, headquartered in Bahrain itself.

This emphasis on AAOIFI standards raises an intriguing question: How will the evolving, often speculative, world of cryptocurrencies fully align with the deeply rooted principles of Shariah law, especially concerning concepts like Riba and excessive Gharar?

Bahrain moves ahead with yield-bearing stablecoins

While the CBB has permitted “yield-bearing approved stablecoins” that generate returns from "rewards (for Shariah compliant stablecoins)" earned from reserve asset investments, the precise mechanisms and their full Shariah compliance in practice will be closely watched.

Bahrain’s role as home to the AAOIFI, a leading body for Islamic finance standards, lends significant weight to its regulatory pronouncements, yet the nuances of digital assets within this framework remain an area of ongoing interpretation.

The CBB's regulations go further than simply allowing Shariah compliant stablecoins. They permit yield-bearing stablecoins, a feature not explicitly mentioned in the UAE's regulations, and demand a three-year track record for applicants in the crypto asset domain. Annual license fees are set at 0.25% of operating expenses, with a minimum of BHD5,000 (US$13,300) and a maximum of BHD12,000 (US$31,915).

This comprehensive approach including robust governance, cybersecurity and consumer protection measures, has been lauded by the crypto industry. This sectorial welcome follows on the heels of Bahrain having demonstrated its commitment by approving Binance's subsidiary, BPay Global, as a payment service provider, signaling a strategic embrace of major crypto players.

Malaysia seeks to fix challenges, without breaking new ground

The Securities Commission of Malaysia (SC) is embarking on its own regulatory evolution. The SC aims to foster greater participation from market intermediaries and institutional investors in digital assets, moving the industry from an “entrepreneur-led” to a more “institutional-led” one.

This comes after Malaysia's digital asset industry recorded a total trading value of RM13.9 billion (US$3.32 billion) in 2024, nearly tripling the previous year's figures.

However, Malaysia's proposals, currently in a consultation phase until the 11^th August2025, seem to address existing challenges rather than chart an entirely new territory.

The SC acknowledges that regulated Digital Asset Exchanges (DAXs) face "stiff competition from unregulated platforms" and that institutional participation remains limited due to "risk appetite, and ongoing concerns about credibility and trust."

Proposed amendments in Malaysia include raising the minimum paid-up share capital for DAX operators from RM5 million to RM15 million (US$1.19 million to US$3.58 million) and requiring at least 90% of investors' digital assets to be held in offline (cold) wallets.

While these are prudent steps for investor protection and market stability, they appear to be strengthening existing safeguards rather than pioneering new product categories like yield-bearing stablecoins.

Malaysia's existing Shariah framework for digital asset trading, established in 2019, and its determination that ancillary digital activities like proof-of-stake models are Shariah compliant, underscore its foundational commitment to Islamic finance principles in the digital realm.

Yet, the SC's current focus on liberalizing existing rules and addressing market maturity issues suggests a different trajectory compared to Bahrain's ambitious stablecoin initiative.

The contrasting approaches highlight a fascinating dynamic in the global Islamic finance landscape. Bahrain, a smaller nation with a strategic vision for fintech, is leveraging its position as a hub for Islamic scholarship – through AAOIFI – to carve out a niche in advanced digital asset regulation.

Malaysia, with a more established and broader Islamic finance industry, is focusing on strengthening its existing digital asset ecosystem and attracting institutional investment.

The coming months will reveal whether Bahrain's proactive stance on Shariah compliant stablecoins will truly set a global precedent and how Malaysia's more measured liberalization will impact its digital asset growth.

The interplay between regulatory innovation, Shariah compliance and market adoption in these two key Islamic finance centers will undoubtedly provide valuable lessons for the evolving global digital economy.