A Financial center

His Highness Sheikh Khalifa Bin Salman had an important role during his presidency of the board of directors of the Bahrain Monetary Council since its establishment in 1964 and until it was changed into the Bahrain Monetary Corporation in 1973, in driving Bahrain to occupy a global position as an advanced financial and banking center comprising more than 20 commercial banks, 125 offshore banking units and representation offices.

His Highness Sheikh Khalifa believes that the selection of such a large number of banks and international banks of the State of Bahrain to be their headquarter or for their branches or subsidiaries did not come by accidentally but it was the result of careful studies that confirmed Bahrain’s status in the light of highly competitive conditions in the region and many other areas of the world.

The story of attracting banks and offshore units to Bahrain dates back prior to 1975, when Sheikh Khalifa began implementing an integrated plan, which he gave his most attention and care. That plan included the approval of incentives and competitive rewards, completion of economic and banking legislation, making sure that these legislations be durable and provide protection and security desired by any bank or financial institution that wishes to open a branch in Bahrain, in addition to continuing to work to complete the infrastructure to provide all the facilities and services needed by these banks. Thus, Bahrain became an attracting point for different banks and banking institutions.

The inauguration of the offshore banking units project in the mid-1970s is considered the first major step made by Bahrain to build a modern banking system. This project was established in order to turn Bahrain into an international market within three years, and before the end of these years, this pioneering institution became a provider of work licenses to many well known international banks to open branches in Bahrain. The number of banking units, in the country did not exceed 18 units at the beginning of this project but became 64 offshore banking units, in addition to 47 representation offices for banks from different parts of the world and eight investment banks, within a short period of time.

Sheikh Khalifa Bin Salman, as Board Chairman of Bahrain Monetary Corporation, always stressed the need for accurate and comprehensive studies before granting licenses for the establishment of branches of banking units in the country. This has resulted in new development of the banking activities where new financial institutions for investment were created aiming at financing new projects in Bahrain.

It is necessary to indicate in this context that the keenness of the international banks to operate in the region came in the beginning as a natural result of the substantial increase in the oil revenues of the Gulf states, and as an impact of the hike in oil prices following the war in October 1973. Accordingly, there was a need to re-employ these funds in the context of the global economy.

At the time when the banking units were investing these funds in the local projects and in the international monetary markets, the presence of branches of major international banks in Bahrain was tantamount to strengthening the international financial market activity in the Gulf. In order to achieve the benefit of the activities of these financial institutions, the State has always supported and encouraged its work and production. The government provided them with many facilities and privileges, the most important of which is enjoying some sort of tax exemption, according to which only ten thousand dinars shall be paid as an annual tax and also to exempt them from depositing reserve balances with the Bahraini Monetary Corporation and providing official liquidity, as is the case in commercial banks. The only obligation, which these institutions had to fulfill, was only providing a detailed monthly statistics of the budget statement and a detailed calculation of profit and loss account to the Bahraini Monetary Corporation.

As a result of the State's efforts to support the banking activities, the prosperity of the Bahraini financial market was natural; with the arrival of these financial institutions, Bahrain received international transactions based on strong and flexible foundations that led to flourishing the market. This brought countless benefits to the country as well as job opportunities for employing of Bahraini expertise and manpower; it also contributed to the prosperity of the real estate market, attracted capitals needed for development, supported the monetary foundations of the state and development of the industry and attraction more projects and companies to operate in the country.

By and large, the existence of such financial market based on solid foundations and firmly – established, international banks, would help to support the country's ability to deal with the various developments and economic fluctuations, both at the regional or international levels. In confirmation of this economic position enjoyed by Bahrain, the "National Heritage Foundation of America," one of the world distinguished economic institutions, has placed Bahrain as the third most open economy in the world in a survey conducted by it in early 1995, which covered finance, economy and investment sectors with its diverse branches in more than one hundred countries in the world.

This survey is of great importance being issued by an economic, outstanding and specialized institution. In addition, it relies on objective standards such as advanced laws and regulations and the extent to which they keep with the changes occurring in world economy, free tax economy, freedom of foreign investment, property rights and regulatory frameworks of the economy and the size of the informal economy.