Trends, challenges and opportunities in Islamic Finance in Bosnia and Herzegovina


Islamic finance made inroads in Bosnia and Herzegovina (BH) in 2000 when Bosna Bank International (BBI) was established. This was the first and remains the only fully-fledged Islamic bank in Bosnia and the region. EDIB SMOLO writes.

Islamic finance made inroads in Bosnia and Herzegovina in year 2000 when Bosna Bank International (BBI) was established. This was the first and remains the only fully-fledged Islamic bank in Bosnia and the region.

As of now, there are no laws or regulations addressing Islamic finance. Hence, BBI operates under conventional laws and is subject to the same rules and regulations as their conventional counterparts.

Banking and finance

As mentioned earlier, BBI is the only commercial bank whose operations and activities are carried out in line with Shariah principles. Apart from BBI, there are 23 more commercial banks in BH.

Despite the indifference of the Bosnian government when it comes to the promotion of the Islamic finance sector and the fact that the current legal and regulatory framework is entirely conventional, BBI has achieved remarkable success so far.

Over the last accounting period, BBI experienced significant growth rates in all of its activities. Based on available data from the Central Bank of Bosnia and Herzegovina (CBB), the total growth of BBI’s financings was 17.91% year-on-year (y-o-y) as at the 30th June 2016, while the market rate in BH was 1.32%, down from 2.38% at the end of the year.

During the same period, BBI’s retail growth rate was 21.12% y-o-y and the corporate growth rate was 16.14% y-o-y compared to 2.85% and 0.02% respectively for the BH market.

This aggressive market push led to an increase in BBI’s market share by 44bps y-o-y as at the 30th June 2016 and stood at 3.12% compared with 2.68% a year ago.

Islamic index

In September, the Sarajevo Stock Exchange (SASE) and BBI collaborated to create a list and an index of companies that are traded on the SASE and whose business activities are in line with Shariah principles.

BBI first created a list of companies from those traded on the SASE, whose business activities and operations are Shariah compliant. This list is called the ‘BBI list of companies – in cooperation with the SASE’.

Initially, 177 companies were analyzed and screened by the Shariah Board of BBI. After both qualitative and quantitative screening, 117 companies or 66% of analyzed companies qualified to be included in the index.

Out of 117 companies that passed Shariah screening tests, a number of them were included in the Islamic index called the SASE Islamic Index Co-Created with BBI.

The SASE Islamic Index Co-Created with BBI consists of the following:

  • A price index
  • A benchmark index which aims to provide investors and analysts with an assessment of general movements in the stock prices of companies that meet the requirements of BBI’s Shariah methodology and which are among the companies with the highest market capitalization and turnover.
  • A weighted index adjusted to the market capitalization of issuers who are included in the index, with the adjustment factor (capping factor) 15% of the total market capitalization of the index.

It is hoped, according to BBI and the SASE, that this project will encourage additional investment and interest in companies and the capital market of BH.


Although there are currently 25 conventional insurance companies operating in Bosnia, there is no Takaful operator yet. This, however, does not mean that no steps are being taken in order to come up with a viable solution. Talks and discussions have been carried out in a number of instances and among various groups.

There are some rumors that a feasibility study is already being carried out and that a big investor is ready to back this project once a well-established operator is ready to enter the market.

However, the lack of necessary laws and regulations, the political instability of the country and the small market size are obvious obstacles for this to happen in the near future.

It should be noted, nevertheless, that although the Bosnian market is relatively small, it should be seen as an entry level for a bigger, better European market.

Outlook and challenges

Islamic banking in Bosnia is growing despite the lack of political will to promote this sector. The lack of Takaful operators and the existence of only one Islamic bank can be seen as a result of the current business environment that does not cater to the industry’s special needs or potential opportunities for new market players.

Nonetheless, to make this industry grow further and to make it more viable, two issues need special attention as follows.

Firstly, it is necessary for the government to have a better and clearer role when it comes to the promotion of the industry and the creation of an appropriate legal and regulatory framework that will facilitate the industry’s development and make it easier not only BBI but also other Islamic banks and financial institutions that would like to enter the BH market. Secondly, there should be a strategic approach to educating the public and to marketing with regards to the industry and its principles. This is probably the biggest obstacle to the further development and success of Islamic finance in BH and beyond.