Bahrain economy: Cruising along.

A tiny Island off the Saudi Arabian coast, and linked to Saudi Arabia via the famed causeway, an engineering marvel in the sea, Bahrain has come a long way from its nomadic past.

With oil came prosperity, which was, by and large, invested wisely, to create an economic base for the future progress of the country. The oil industry continues to dominate the economy, contributing over 10% to its GDP, 60% of its exports revenues, and over 70% to the Government kitty. It is also the major source of employment for the workforce.

The GDP of Bahrain has been running at a steady rate of 6.5% in 2007, 6.1% in 2008, and expected to be around 6% in 2009. The inflation rate is around 7%, and industrial production growth rate is about 5%. Bahrain is the only Gulf State to have a Free Trade Agreement(FTA) with the United States. Bahrain also scores high on the Heritage Foundation Index of Economic Freedom. For the year 2008, Bahrain was reported to be the 19th freest economy in the world.

Among the major economic activities of the country, apart from the oil and gas industry, are other industries like aluminium, the Banking and Financial Services, including Islamic Banking, and the contruction industry. Bahrain is making special efforts to develop the Island as an international financial center, especially for Islamic Finance and Banking.

It is noteworthy that the Bahraini Banking and Financial services industry has not suffered the same fate as its Western counterparts, mainly because it does not have exposure to toxic assets, and is better regulated.

The problems facing Bahrain in the long run, relate to the depletion of its oil and natural gas reserves, and the social problems resulting from a huge expatriate population.

ISLAMIC BANKING SERVICES:QARD E HASAN

Introduction:  Islamic Banking is based on the principles of the Islamic Religion, of those pertaining to the commercial transactions.   One of the defining principles of commerce in Islam is the absence of Interest in commercial transactions.   Interest is replaced with Profit-sharing as the incentive for commercial activity.

Definition of Qard E Hasan:  Qard e Hasan literally means the beautiful loan.   Or more to the point in commerce, it means, a benevolent loan.   The element of benevolence is incorporated in this type of loan, by eliminating even the profit sharing aspect from it.   That is, Qard e Hasan is a loan that is totally free of cost to the borrower!   The borrower has to repay only the principal amount of the loan, and nothing else.   Profit-sharing, which is the basis of Islamic commercial transactions, is not a part of this loan, because it is meant for the specific purpose of accomodating those sections of the society that cannot afford to borrow at all.

Some authorities hold the view that Qard e Hasan is the only truly Islamic loan!   However, practically speaking, a commercial organisation has to make profits to be in business;  it has to pay remuneration to its employees, it has to incur expenditure for other overheads, etc.   Hence this type of loan is not extended to one and all.

How It Works:  This type of loan, i.e. Qard e Hasan, is part of the Islamic Bank’s social committment to society.   To help the needy and the poor.   That section of the society, that would find it hard to get a loan from a Bank, because they do not have the necessary financial credentials, normally required to obtain a loan from a Bank.  

The Bank sets aside certain portion of funds at its disposal to carry out social activities, free of profit.   These funds are part and parcel of the operational funds utilized by the Bank for carrying out its other activities.   The only difference being that, this part of its funds do not bring in any revenues to the Bank.   Rather this money in spent in social activities, in the path of Allah, as a social and moral obligation.

Every society has a section within that is neglected, for various reasons,  and hence falls back in the matter of economic, social and educational development.   These are people without a regular source of income.   These are people that cannot fall back on social security, and family support.   These are people who might suffer various disabilities-physical and mental.   It is this section of society, that benefit from the Qard e Hasan mechanism.

As pointed out earlier, the Bank allocates a portion of its regular working funds for the purpose of lending under the Qard e Hasan scheme.   Apart from this, the Bank may also contribute funds out of its Zakah funds (charity funds).   Similar contributions may also be made by the general public and institutions.   All of these funds are clubbed together to utilize for the purpose of Qard e Hasan loans.   The poor, the destitue, those affected by natural calamities like floods, Tsunami etc are favored under this scheme.

As such there is no specific list of people that can be financed under this scheme of Qard e Hasan.   Generally speaking, these funds are meant to provide timely relief and funds to the neglected and overlooked sections of society.   This not only takes care of their needs, but also plays a important role in reducing immoral and unethical activities among the people, pushed to a  corner.

For instance, a youngster who could have taken to crime on account of lack of resources for continuing his education, is saved from the wrong path, with a timely loan under this scheme.   A widow without family support, who might have otherwise taken to prostitution to keep her body and sould together, may be saved from this fate by extending a loan to her under the Qard e Hasan scheme.   A physically handicapped person, who would otherwise end up as a burden on his family, and live a life bereft of self esteem, can start a new life confidently with the help of a Qard e Hasan.

   These are some of the examples of how the Qard e Hasan can be, and is being utilized by Islamic Banks, and other financial institutions, for the good of the society.   By any standard it is a commendable feature of Islamic Banking and Finance, worthy of emulation.