The early attempt to open a modern bank in Bahrain dates back to 1900.
In June, 1900, Mr. Van Linip, the branch manager of the British Imperial Bank in Iran visited Bahrain to see the possibility of opening a branch for the bank. Thus, as Lauremer mentioned in “Gulf Guide”, he opened a small office in Manama and appointed an Arab citizen and a subject of Britain, to manage the office. But Indian traders convinced the Governor to discourage the opening of the bank and the office was closed after two months.
Despite the fact that the experience of this office came to an end shortly, even though it was an assessment office, which did not practice any real banking, yet this early experience has shaped the economic importance of Bahrain and its important role in the Gulf.
After this trial, many foreign banks actively tried to open their branches in Bahrain, the most important amongst them was made by the Persian Imperial Bank. But its effort failed due to the British refusal which was represented by the British Political Agency in Bahrain.
After the failure of such attempts, the Oriental Bank tried to open its branch in Bahrain. In July 1916, the Oriental Bank presented its first application to open a branch in Bahrain. The bank’s branch in Basra, Iraq, approached the British Political agency to open a branch in Bahrain after receiving a formal application from the main branch of the bank in India.
After few days of receiving their application, the Political Agent sent a cable to the British Foreign Office informing them about the bank’s application. In his cable he said: “For political and economic reasons, I strongly support the idea that we should encourage the opening of this Bank in Bahrain immediately”.
“We should also support them in all financial issue in addition to the following:
After a certain period of receiving the bank’s application, the British Foreign Office decided to encourage the opening of this bank specially when the bank is established and owned by Britain. The Foreign Office realized that by encouraging and supporting this bank, it can find justifications for refusing licenses to any foreign banks which intend to open branches in Bahrain in the future as the bank is expected to meet the banking needs of the country and there will be no room to set up any other bank.
After few months of obtaining official license from Britain, the bank dispatched its official representative, Mr. Macfill to Bahrain on 12th February 1917. The following day, the Political Agent and the bank’s representative visited the late Shaikh Isa Bin Ali Al Khalifa, the ruler of Bahrain at that time.
A day after the visit, 14th February, the Political Agent wrote a letter to Shaikh Isa which reads as follows: “As your Highness is aware, there is no bank in Bahrain. This issue creates difficulty for general traders and pearl traders in sending money to India in order to pay for imported goods, in addition to other facilities, which will be provided to them by the bank. We also inform your Highness that the Oriental Bank is a well-known British company with good reputation. The visit of Mr. Macfill, the Banks’ representative, is to open a branch in Bahrain after they had received approval from the British Government. In view of the benefits and facilities which will be provided by the bank to Bahrain traders, I hope you approve the application of the bank.”
After few days of receiving the Political Agent’s letter, Shaikh Isa held a meeting with major Bahraini traders and informed them about the issue. The result of the meeting is mention in a letter sent by him to the Political Agent in which he said: “In this day I have taken the view of some business leaders in Bahrain. They have disapproved the idea of establishing a bank in Bahrain for many reasons but the most important amongst them is that the bank’s business is limited to usury, which is unlawful in our Islamic Shariah. On the other hand, as your Excellency is aware that the country’s courts are Shariah courts and as such they will not rule in favor of the usurer therefore, it is not possible to allow opening a branch for the said bank”.
With this letter from Shaikh Isa, new chapters begun in the story of setting up the first bank in Bahrain and the Gulf. The refusal letter was never expected by the bank and the British Agency. The Agency made arrangements with some cooperating major traders to convince other traders to approve opening of the bank before their meeting with Shaikh Isa. But the result came contrary to this arrangement.
In the first counter move by the Political Agency, the Political Agent wrote a long letter to Shaikh Isa dated 23rd February 1917 which reads: “As your Highness is aware it is our tradition to respect the Islamic Law in your country”.
He added: “I am writing to your Highness to assure you that setting up the bank will never violate any of the major principles of the Islamic religion. The bank is ready to provide your Highness and the Agency with strong guarantees that the bank’s activities will be compatible and respectful of Islamic religion and laws. The bank will also be subject to the laws practiced by local courts in Bahrain which is in line of Islamic Shariah.
The establishment of the bank will achieve a lot of benefits for the commercial position of Bahrain. In general, the benefits are plenty and well known, but I will inform your Highness of the most important issues in the following order:
Moreover, I would like to draw your Highness attention that any development in commercial services here will certainly increase the volume of trade in this country and eventually will increase custom revenue”.
Although this letter is considered an immediate answer to the local refusal, yet the ignorance accorded to the letter and the deceit of some local traders who failed to obtain approval of traders, has prompted the British Political Agency to look into the issue more carefully and started investigating the issue and discovered many clues behind the opposition and its personalities.
The first fact which was unveiled by the British is that some transactions of the bank already exist in Bahrain and it was handled by a group of traders who served the Agency before. Those traders were receiving deposits of the pearl traders and keep them in safes in their large shops. In 1919, amounts deposited with them were estimated at 2 million Rupees. Not satisfied with deposits in Bahrain, the traders opened branches for their companies in Bombay where local pearl traders can deposit their money there and send them to Bahrain in addition to other banking procedures.
In view of such huge economic interests for those traders, the British missed to understand that they will never agree to such a bank as it is going to threaten their business and personal wealth despite their friendship and cooperation with the British Agency.
Those traders not only opposed the bank but they have done more than that. Instead of arranging the approval of the traders before their meeting with Shaikh Isa – as they have agreed with the British – they have instigated the refusal of the bank and mobilized a big group of them to oppose it as it represents a direct threat to their interests. Besides, they decided to play a double role. In one hand they informed the British that they are with them and they are pushing traders to accept it and on the other hand they urged traders and dignitaries to oppose this project strictly. A significant number of Bahrain traders, particularly pearl traders, were part of the local opposition group. The view of the senior pearl traders was based on the fact that the setting up of the bank will create a new group of traders by providing loans to them in addition that other traders are going to enter the pearl market.
A way from these opposition groups, lot of gossips and rumors spread in the markets. The rumors included that the establishment of the bank would lead to the bankruptcy of all traders within 4 years and that to accept the bank is to accept the end of the pearl trade.
In the strong opposition faced by the bank, what was strange is that the religious opposition related to interests or usury was forgotten although it was the main objection which was mentioned in the Shaikh’s letter and the traders meeting. In fact the religious objection was a winning card in the hand of the opposition, which can be used to reject the bank by broadening the opposition base to include the local people who oppose any practice which violates the Islamic Shariah and also through mobilizing local religious scholars to reject the project and mobilize the people against it.
But this never happened and the winning card was never utilized due to the following reasons:
It is natural that the first British response was to summon those traders. On March 10th, 1917, they were summoned by the Political Agent himself and he told them: “I have clear cut evidence that you were attacking the bank and doing your best to influence other traders to attack the bank before Shaikh Isa. Meanwhile you were telling me that setting the bank is a good idea and it would be helpful to you in your business”.
The British Agency threatened the opposition traders and warned them to immediately stop their opposition and interference into this matter or strong procedures would be taken against them.
The strong action of the British Agency against local opposition heads and their submission was a strong blow which allowed the Agency to win a temporary respite after the huge uproar which was created in Bahrain streets against the establishment of the bank.
The Political Agency utilized the calm situation and the end of provocation against the bank to study the issue further and put new plans in order to win the next round against the opposition which became in a weak position after its leadership gave in to the Agency’s threats.
The result of this study and the Agency’s consultation with the Foreign Office appeared to gamble on the time factor by waiting for reasonable period until the uproar is over after which a second application to open the bank may gain success.
By the mid of 1918, the time plan was more than successful. The bank issue was completely forgotten and the period was enough to convince the local opposition that they succeed in rejecting the bank. Besides, it was a golden opportunity to launch new plans by the middle of the year.
In July 1918, the Agency succeeds, through individual meetings with a large number of traders, in convincing the trades to approve the setting up of the bank. On 8th August about 30 Bahraini traders signed a petition demanding the opening of the bank and this petition they said: ” We the undersigned, subsequent to our memorandum with regard to the current financial situation in Bahrain, we demand the quick opening of the Bank in Bahrain.
We, therefore, request our Ruler Shaikh Isa bin Ali Al Khalifa and His Excellency Balirs to take fast steps in liaising with the British Government in order to open a branch in Bahrain’.
As the petition reached Shaikh Isa, the local opposition came to and end. Four days latter the British obtained the formal approval letter from the Ruler Shaikh Isa containing some conditions set out by him such as that no one in Bahrain shall deal with the bank except by his personal approval in addition to the importance of respecting the laws of the country.
After securing formal procedures related to the approval, the Political Agent sent a letter to his colleague at Baghdad Political Agency on 19th August in which he said: ” Due to the importance of the matter, the bank representative must be sent as soon as possible to open the bank and arrange the import of not less than 2 Million Indian Rupees from India or Basra. The bank employees must follow my advice with regard to local dealings in order to win the trust of the locals. At the end, the bank must be opened very quickly as any delay will be harmful to the bank”.
Despite securing approval for the bank and the end of the political opposition, the bank’s opening has been delayed without any damages caused to the bank as the Political Agent in Bahrain expected.
Provision of competent employees, the special procedures needed to provide the bank’s administrative and financial requirements in addition to getting a suitable office in Manama were among the main factors which delayed the opening of the bank until 1920.
In early January 1920 the first letter from the Oriental Bank Management in Basra was sent to the Political Agency informing it of the bank’s readiness to open its branch at the earliest opportunity.
In July 3, 1920, the bank’s premises was opened officially although banking services started only on July 20 of the same year. At that moment the Political Agent of Bahrain recorded the following passage in one of his letters: “The opening of the Oriental Bank in Bahrain is the most relieving news here. It is an indication that Bahrain has entered a new age of prosperity, I wish”.
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