Bahrain has long played a pioneering role in the field of finance in the Middle East. Despite being one of the first countries in the region to produce oil, its output has never been big enough to drive long-term economic development. Thankfully, it had forward-thinking leaders who prioritised innovation outside the energy sector.
Education was understood to be a key driver of innovation, and as early as the 1920s, many travelled abroad for higher education (the American University of Beirut was particularly popular), forming a solid base of Bahraini professionals who returned home to put their expertise into practice. Over the decades, Bahrain built up financial institutions so strong that citizens of neighbouring countries began to utilise them.
Origins and challenges
In July 1920, Standard Chartered Bank opened its first branch in Bahrain. This early start paved the way for it to become a major financial hub, providing a full range of sophisticated financial and investment management services. The government provided key support to keep these sectors competitive and thriving, which paid big dividends. The economy grew, and jobs were created.
Throughout the 20th century, Bahrain hosted several commercial and Islamic banks. In 1973, the Bahrain Monetary Agency (BMA) was formed and later rebranded as the Central Bank of Bahrain (CBB). At the time, the country had 14 banks. Inspired by other financial hubs such as Singapore, the BMA introduced offshore banking regulations. In 1974, just one year after the new regulations were issued, 26 offshore banks were established in Bahrain, with combined assets of $62bn. These banks played a crucial role in external financing.
Bahrain’s appeal as a destination for offshore banks was further boosted by the outbreak of the Lebanese civil war (1975-1990), which led to the relocation of many banks from there, with Beirut’s status as a regional financial centre hit by the conflict.
