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  • AU-1 AU-1 Authorisation Requirements

    • AU-1.1 AU-1.1 Microfinance Institutions Licensees

      • General Prohibitions

        • AU-1.1.1

          No person may:

          (a) Undertake (or hold themselves out to undertake) microfinance services, by way of business within or from the Kingdom of Bahrain unless duly licensed by the CBB;
          (b) Hold themselves out to be licensed by the CBB unless they have as a matter of fact been so licensed: or
          (c) Market any financial services in the Kingdom of Bahrain unless:
          (i) Allowed to do by the terms of a license issued by the CBB;
          (ii) The activities come within the terms of an exemption granted by the CBB by way of a Directive; or
          (iii) Has obtained the express written permission of the CBB to offer financial services.
          January 2014

        • AU-1.1.2

          In accordance with Resolution No.(16) for the year 2012 and for the purpose of Subparagraph AU-1.1.1(c), the word 'market' refers to any promotion, offering, announcement, advertising, broadcast or any other means of communication made for the purpose of inducing recipients to purchase or otherwise acquire financial services in return for monetary payment or some other form of valuable consideration.

          January 2014

        • AU-1.1.3

          Persons in breach of Subparagraph AU-1.1.1(c) are considered in breach of Resolution No.(16) for the year 2012 and are subject to penalties under Articles 129 and 161 of the CBB Law (see also Section EN-10.3).

          Amended: April 2014
          January 2014

        • AU-1.1.4

          Licensees are prohibited from taking deposits.

          January 2014

        • AU-1.1.5

          Only persons licensed to undertake regulated microfinance services can use the term 'microfinance' in their corporate or trading names, or otherwise hold themselves out to be a microfinance institution. Licensees are not allowed to transact with non-residents of the Kingdom of Bahrain, and in foreign currencies. To qualify as a microfinance institution, the person concerned must undertake (as a minimum), the activities of providing credit to eligible beneficiaries.

          January 2014

        • AU-1.1.6

          Licensees are obliged to include the word 'microfinance' in their corporate or trading names and are required to make clear their regulatory status in their letter heads, customer communications, website and other communication as required under Section GR-2.2.

          January 2014

        • AU-1.1.7

          For the purposes of Rule AU-1.1.5, persons will be considered in breach of this requirement if they attempt to operate as, or incorporate a microfinance institution in Bahrain with or without a name containing the word "microfinance" (or the equivalent in any language), without holding the appropriate CBB license or obtaining the prior approval of the CBB.

          January 2014

      • Licensing

        • AU-1.1.8

          Persons wishing to be licensed to undertake regulated microfinance services within or from the Kingdom of Bahrain must apply in writing to the CBB. An application for a license must be in the form prescribed by the CBB as indicated in Chapter AU-4.

          January 2014

        • AU-1.1.9

          The CBB will review the application and duly advise the applicant in writing when it has:

          (a) Granted the application without conditions;
          (b) Granted the application subject to conditions specified by the CBB; or
          (c) Refused the application, stating the grounds on which the application has been refused and the process for appealing against that decision
          January 2014

        • AU-1.1.10

          Detailed rules and guidance regarding information requirements and processes for license applications can be found in Section AU-4.1. As specified in Paragraph AU-4.1.14, the CBB will provide a formal decision on license application within 60 calendar days of all required documentation having been submitted in a form acceptable to the CBB.

          January 2014

        • AU-1.1.11

          All applicants for microfinance institution licenses must satisfy the CBB that they meet, by the date of their license, the minimum conditions for licensing, as specified in Chapter AU-2. Once licensed, licensees must maintain these criteria on an on-going basis.

          January 2014

        • AU-1.1.12

          Licensees must not carry on any other business in the Kingdom of Bahrain or elsewhere other than microfinance business and activities directly arising from or incidental to that business.

          January 2014

        • AU-1.1.13

          Rule AU-1.1.12 is intended to restrict licensees from undertaking any material non-financial business activities. The Rule does not prevent a licensee undertaking commercial activities if these directly arise from their financial business: for instance, in the context of Islamic contracts, such as murabaha, ijara and musharaka, where the company may hold the physical assets being financed or leased. Nor does it restrict a licensee from undertaking commercial activities if, in the judgment of the CBB, they are incidental and do not detract from the financial nature of the licensees.

          January 2014

    • AU-1.2 AU-1.2 Definition of Regulated Microfinance Services

      • AU-1.2.1

        Regulated microfinance services are any of the following activities, carried on by way of business:

        (a) Providing conventional or Shari'a compliant microfinance to eligible beneficiaries; and
        (b) Providing consultancy and information services to its eligible beneficiaries and prospective eligible beneficiaries.
        January 2014

      • AU-1.2.1A

        Where licensees are undertaking regulated activities in accordance with Shari'a, all transactions and contracts concluded by regulated microfinance services must comply with Sharia standards issued by the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI). The validity of the contract or transaction is not impacted, if at a later date, the relevant AAOIFI Sharia standards are amended.

        Added: October 2020

      • Providing Conventional Microfinance

        • AU-1.2.2

          Providing conventional microfinance to an eligible beneficiary is defined as the provision of credit to a person in his capacity as borrower or potential borrower. The maximum amount provided under the microfinance shall not exceed BD 7,000 in aggregate per eligible beneficiary. The repayment period must not exceed 3 years.

          Amended: April 2019
          January 2014

      • Offering Shari'a Compliant Microfinance Contracts

        • AU-1.2.3

          Offering Shari'a compliant microfinance contracts is defined as entering into, or making arrangement for an eligible beneficiary to enter into, a contract to provide finance in accordance with Shari'a principles. The maximum amount provided under the microfinance contracts shall not exceed BD 7,000 in aggregate per eligible beneficiary. The repayment period must not exceed 3 years.

          Amended: April 2019
          January 2014

        • AU-1.2.4

          For the purpose of this Section, eligible beneficiary(ies) means: Low income individuals and small businesses, who are not eligible to secure financing facilities through the banking system that intend to get a credit facility to engage in small economic activities (examples: small farmers, fishermen, related activities etc.).

          January 2014

        • AU-1.2.5

          For the purposes of Rule AU-1.2.1, carrying on a regulated microfinance service by way of business means:

          (a) Undertaking the regulated microfinance service of (a) and (b), as defined in Section AU-1.2, for commercial gain;
          (b) Holding oneself out as willing and able to engage in such activities; or
          (c) Regularly soliciting other persons to engage in transactions constituting such activities.
          January 2014

      • General Exclusions

        • AU-1.2.6

          A person does not carry on an activity constituting a regulated microfinance service if the activity:

          (a) Is carried on in the course of a business which does not ordinarily constitute the carrying on of microfinance services;
          (b) May reasonably be regarded as a necessary part of any other services provided in the course of that business;
          (c) Is not remunerated separately from the other services; and
          (d) Is carried out by a government entity in Bahrain authorised to provide such activity by Royal Decree or relevant legislation or a non-government organisation (NGO) registered with the Ministry of Social Development for that purpose.
          January 2014

    • AU-1.3 AU-1.3 Shari'a Compliant Transactions Offered by Conventional Licensees

      • General Requirements for all Conventional Microfinance Institutions

        • AU-1.3.1

          Conventional licensees may not hold themselves out as an Islamic microfinance institution. Conventional licensees are allowed to enter into activities listed in Rule AU-1.2.1 under the conditions outlined in the remainder of this section.

          Amended: October 2014
          January 2014

        • AU-1.3.2

          When offering any of the Shari'a compliant activities listed in Rule AU-1.2.1, conventional licensees must have staff trained in Shari'a compliant financing business. The licensee must also disclose in the notes to its Annual Report/Financial Statements all quantitative and qualitative disclosures on its Shari'a compliant business as required by AAOIFI accounting and auditing standards.

          January 2014

      • Additional Requirements

        • AU-1.3.3

          Conventional licensees may provide Shari'a compliant activities listed in Rule AU-1.2.1, subject to the limits under Paragraph AU-1.2.3 in Bahraini dinars to Bahraini resident individuals subject to the following conditions:

          (a) Shari'a compliant financing transactions to be undertaken through a special counter or branch as deemed necessary by the licensee;
          (b) The licensee must maintain separate books for Shari'a compliant financing activities to ensure no co-mingling of conventional and Islamic funds;
          (c) The licensee must have a Shari'a Compliant Reviewer;
          (d) The licensee must appoint a minimum of one Shari'a Scholar who has authority for all Shari'a compliant business; and
          (e) The total Islamic assets of the conventional licensee must not exceed 20% of the total assets of the licensee.
          January 2014

    • AU-1.4 AU-1.4 Approved Persons

      • General Requirement

        • AU-1.4.1

          Licensees must obtain the CBB's prior written approval for any person wishing to undertake a controlled function at a licensee. The approval from the CBB must be obtained prior to their appointment.

          Amended: January 2016
          January 2014

        • AU-1.4.2

          Controlled functions are those functions occupied by board members and persons in executive positions and include:

          (a) Director;
          (b) Chief executive or general manager and their deputies;
          (c) Head of function; and
          (d) Compliance officer/Money Laundering Reporting Officer (MLRO).
          Amended: January 2016
          January 2014

        • AU-1.4.3

          Combination of the above controlled functions is subject to the requirements contained in Modules HC and RM.

          January 2014

      • Basis for Approval

        • AU-1.4.4

          Approval under Paragraph AU-1.4.1 is only granted by the CBB, if it is satisfied that the person is fit and proper to hold the particular position in the licensee concerned. 'Fit and proper' is determined by the CBB on a case-by-case basis. The definition of 'fit and proper' and associated guidance is provided in Sections AU-3.1 and AU-3.2 respectively.

          January 2014

        • AU-1.4.5

          The chief executive or general manager means a person who is responsible for the conduct of the licensee (regardless of actual title). The chief executive or general manager must be resident in Bahrain. This person is responsible for the conduct of the whole of the firm.

          January 2014

        • AU-1.4.6

          Head of function means a person who, under the immediate authority of a director or the chief executive or general manager exercises major managerial responsibilities, is responsible for a significant business or operating unit, or has senior managerial responsibility for maintaining accounts or other records of the licensee.

          January 2014

        • AU-1.4.7

          Whether a person is a head of function will depend on the facts in each case and is not determined by the presence or absence of the word in their job title. Examples of head of function might include, depending on the scale, nature and complexity of the business, a deputy chief executive; heads of departments such as Risk Management, Compliance or Internal Audit; or the Chief Financial Officer.

          January 2014

        • AU-1.4.8

          Where a licensee is in doubt as to whether a function should be considered a controlled function it must discuss the case with the CBB.

          January 2014