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Fatima Alali
Partner
Fatima Alali is a partner heading the corporate, insurance and telecommunications teams at Hassan Radhi & Associates, and is a certified arbitrator. She provides legal advice on various legal matters and has led a number of due diligence projects, incorporation of various types of companies, including financial institutions licensed by the Central Bank of Bahrain, mergers and acquisitions, restructuring and liquidation projects, in addition to her work in dispute resolution, including local and international arbitration. Fatima has been published on the topics of doing business in Bahrain, foreign direct investment and consumer protection.
Saifuddin Mahmood
Senior Legal Consultant
Saifuddin is a Barrister-at-Law, currently working as a senior legal consultant at Hassan Radhi & Associates, where he advises on transactions across capital markets, mergers and acquisitions, and banking and finance. His broader experience spans Banking and Finance Law, Investment Management, Company Law, Commercial Law, Labour Law, Maritime Law and International Arbitration. Saifuddin is the co-author of the Doing Business in Bahrain chapter, a project of The World Bank, and has contributed to numerous legal articles and research.
Yasmeen Jawahery
Associate
Yasmeen Jawahery is an associate at Hassan Radhi & Associates, where she assists the team on corporate and commercial matters, including mergers and acquisitions, banking and finance, as well as Company Law and Commercial Law. She holds a Master of Laws (LLM) from Queen Mary University of London, where her academic focus refined a strong interest in corporate law, with emphasis on artificial intelligence and financial technology. Her work reflects a keen engagement with challenges at the intersection of emerging technologies and law.
Regulatory Integration and Financial Innovation: The Evolution of Bahrain’s Banking Sector
Bahrain has long positioned itself as a regional financial gateway, leveraging its strategic location, progressive regulatory architecture and open-market policies to cultivate a sophisticated and internationally connected financial services sector. Over several decades, the Kingdom has developed a diversified banking ecosystem that supports domestic economic activity while facilitating cross-border financial flows across the Gulf and beyond.
Financial Services Industry
The largest non-oil contributor to Bahrain’s economy is the financial services industry. Bahrain’s financial system is predominantly bank-centric, with both conventional and Islamic institutions forming the core of the sector. Banking represents more than 85% of total financial assets in the Kingdom, making it the primary driver of financial intermediation and capital allocation.
As of September 2020, Bahrain was home to 376 licensed financial institutions. These included 31 retail banks, 62 wholesale banks, 17 branches of foreign banks and 8 representative offices. The wider financial ecosystem also comprised 34 insurance companies, 53 investment business firms and 86 specialized licensees, reflecting the breadth and sophistication of the sector.
The banking industry has been central to Bahrain’s development as a regional financial centre. By July 2020, total banking sector assets exceeded US$212 billion, a figure more than five times the Kingdom’s annual GDP. This scale underscores the systemic importance of the sector within the domestic economy and its broader regional footprint.
Bahrain’s growth as a financial hub has been underpinned by several structural advantages. These include an open and liberalised market environment, prudent macroeconomic and fiscal management, a regulatory regime aligned with international standards, and a skilled workforce drawn from both local and expatriate talent pools. Together, these factors have enhanced investor confidence and attracted a significant number of foreign banking institutions to establish operations in the Kingdom.
Islamic Finance
Bahrain occupies a prominent position in the global Islamic finance landscape and hosts one of the highest concentrations of Islamic financial institutions in the Middle East. The Kingdom also serves as the headquarters for several internationally recognised Islamic finance standard-setting bodies, such as Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI), International Islamic Financial Market (IIFM) and Islamic International Rating Agency (IIRA), reinforcing its institutional influence in the sector.
Islamic financial services in Bahrain are delivered through a diverse range of institutions. These include six Islamic retail banks, six Islamic wholesale banks, two wholesale branches of foreign Islamic banks, nine Islamic windows operated by conventional banks, five Takaful companies, one Re-Takaful operator and one Islamic financing company. Bahrain has also established itself as a leading jurisdiction for the issuance of Sukuk, encompassing both short-term government instruments and longer-term sovereign and corporate issuances.
Moreover, the Central Bank of Bahrain (CBB) has played a proactive role in facilitating and structuring these instruments. The Kingdom of Bahrain’s monetary and financial stability is upheld by the CBB, the sole regulator of Bahrain’s financial sector.
The CBB is entrusted with safeguarding monetary and financial stability and acts as the unified regulator of Bahrain’s financial services industry, including banks, insurance companies, investment firms and other licensed financial institutions. Beyond its supervisory mandate, the CBB has also played a central role in developing domestic financial markets, including supporting the issuance and regulatory structuring of conventional and Islamic debt instruments, thereby reinforcing liquidity management and market confidence within the banking sector.
The expansion of Islamic banking in Bahrain has been substantial over the past two decades. Total assets in the Islamic banking segment grew from approximately US$1.9 billion in 2000 to US$61.7 billion by June 2024, representing an increase of over 32 times. Over the same period, Islamic banks’ share of total banking assets rose from 1.8% to 25.3%. This growth trajectory reflects not only increasing market demand, but also regulatory and institutional support.
A key enabler of this development has been the CBB’s establishment of a distinct regulatory framework tailored specifically to Islamic finance. The Islamic Banking rulebook addresses Shari’ah governance, licensing standards, capital adequacy requirements, risk management frameworks, conduct of business, financial crime controls and disclosure requirements. These frameworks were among the first comprehensive regulatory regimes for Islamic finance in the region.
To further strengthen industry capability and promote market development, the CBB collaborated with industry participants to establish the Waqf Fund. Since 2006, the Fund has supported training, education and research initiatives in Islamic finance. Its programmes are designed to enhance expertise across different levels of institutions, including boards of directors, senior management, Shari’ah scholars and operational staff.
Collectively, these regulatory, institutional and market developments have consolidated Bahrain’s position as a leading and mature Islamic finance jurisdiction, embedding Shari’ah-compliant banking as a core and systemically significant component of the Kingdom’s overall banking environment.
The Benefit Company
The Kingdom of Bahrain has also accelerated its digital transformation agenda within the financial sector, strengthening payment infrastructure and advancing electronic settlement systems to support a modern, technology-driven banking environment. The Benefit Company serves as the conduit for all electronic financial transactions throughout Bahrain and plays a foundational role in the Kingdom’s banking system. Through its Electronic Funds Transfer System (EFTS), Benefit facilitates regulated interbank transfers, instant payments and electronic bill settlement services across licensed banks and digital platforms. The EFTS integrates Bahrain’s principal payment channels, including Fawri (real-time transfers), Fawri+ (instant account-to-account payments) and Fawateer (bill payment services), operating through both bank platforms and the BenefitPay mobile application.
In 2025, the EFTS processed 494 million transactions, reflecting a growth of 10.7% in comparison to the previous year. The total transaction value reached BD 37.5 billion, marking a 12.6% increase compared to the previous year. These figures demonstrate the expanding reliance of retail, corporate and SME customers on electronic banking channels and the continued shift toward digital settlement infrastructure within the domestic financial system.
A substantial proportion of system activity was driven by the BenefitPay platform, which recorded 466 million transactions across all EFTS services, valued at BD 10.2 billion. This represents annual growth of 10.6% in volume and 9.5% in value, underscoring sustained adoption of mobile-based banking services.
Beyond payments, Benefit supports core banking compliance and risk infrastructure. The electronic Know Your Customer platform processed approximately 1.1 million verification transactions in 2025, reflecting strong growth in digital onboarding across financial institutions. In parallel, the Bahrain Credit Reference Bureau, operated by Benefit, issued over 541,000 credit reports, reinforcing centralized credit risk assessment within the lending market.
Furthermore, Benefit also supported implementation of the Wage Protection System in partnership with the Labour Market Regulatory Authority, embedding regulated banking channels into salary disbursement processes. This initiative enhanced transparency, compliance monitoring and financial inclusion.
Overall, Benefit functions as a critical payment and data infrastructure utility underpinning Bahrain’s banking sector, bolstering regulatory compliance and the continued digital transformation of financial services.
Open Banking and Digital Payments
In addition, the adoption of the Bahrain Open Banking Framework (OBF), in conjunction with the ongoing development of Bahrain’s digital payments infrastructure is another distinctive aspect of the Kingdom’s recent developments. Bahrain was among the first countries in the region to embrace a regulated approach to data driven financial services, with the introduction of Open Banking rules in 2018, and the subsequent launch of OBF in 2020. The Kingdom’s strategy is unique as it incorporates payments innovation and open banking into a single legislative framework. The framework reflects a legal landscape that modernizes financial services through safe data exchange, while upholding market integrity, consumer protection, and regulatory control.
Moreover, in Bahrain, banks are mandated to provide third party providers with standardized and safe access to customer data, core principles of Open Banking. FinTech services like account aggregation, payment initiation, and data enabled financial products, are a result of Open Banking, while maintaining strict guidelines for accountability, data security, and consumer consent. Furthermore, OBF launched an “account information service,” which gives consumers access to all bank account details using a single platform, as well as “payment initiation service,” which permits authorized third parties to begin the initiation of payments on behalf of clients, facilitating smooth transfers between various client accounts, using a mobile application.
As a result, Bahrain has strategically aligned banking innovation with regulatory rigor, enabling the development of scalable and customer-centric financial services within a coherent supervisory framework.
The Crypto-Asset Module
Moreover, the introduction of the Crypto-Asset Module (CRA Module) into Volume 6 of the CBB Rulebook in 2019 represents a significant development within Bahrain’s banking and financial regulatory framework. The CRA Module establishes licensing, governance, risk management, customer due diligence, and AML/ CFT requirements for crypto-asset service providers. This ensures that virtual asset activities operate within defined prudential and supervisory parameters, thereby mitigating systemic, operational, and financial crime risks that could otherwise affect the banking sector.
From a banking perspective, the framework enhances regulatory certainty for both traditional financial institutions and FinTech firms, facilitating controlled interaction between licensed banks and crypto-asset businesses. By embedding crypto regulation within the CBB Rulebook, Bahrain has reinforced financial stability while enabling innovation, positioning the Kingdom as a jurisdiction that supports digital finance development within a structured and credible banking regulatory environment.
Environmental, Social and Governance (ESG)
Environmental, Social and Governance (ESG) considerations are set to play a defining role in the next phase of banking development in Bahrain. On 5 November 2023, the CBB issued dedicated Environmental, Social and Governance (ESG) Requirements applicable to all listed companies, banks, financing companies, insurance firms and Category 1 and 2 investment firms.
The framework forms part of the CBB’s broader objective of strengthening transparency, corporate governance and risk management within the financial sector. By introducing standardised ESG reporting requirements, the CBB has aligned Bahrain’s regulatory environment with evolving international sustainability standards while reinforcing market discipline and investor confidence.
The module also reflects Bahrain’s commitment to sustainable development under the Bahrain Economic Vision 2030 and the UN Sustainable Development Goals, encouraging regulated entities to integrate ESG considerations into governance structures and risk frameworks rather than treating them as purely voluntary disclosures. Accordingly, the introduction of the ESG Requirements represents a significant step in embedding sustainability, risk awareness, and enhanced disclosure standards within Bahrain’s banking sector.
To conclude, Bahrain’s banking sector reflects a model of deliberate regulatory integration, where innovation is consistently embedded within a unified supervisory framework under the Central Bank of Bahrain. Across Islamic finance, digital payments, open banking, crypto-asset regulation and ESG disclosure, the Kingdom has balanced financial modernisation with prudential discipline. In an increasingly competitive and digitised global environment, The Kingdom of Bahrain’s strength lies in regulatory coherence, institutional maturity and its role as a credible cross-border financial hub within the region and the wider international banking system.
