institutions seeking to pursue islamic banking services. in the past decade the sector has grown strongly along with the number of licensees. total assets jumped from us $ 1. 9 billion in 2000 to us $ 26. 3 billion by june 2009, an increase of over 12 times. the market share of islamic banks correspondingly increased from 1. 8 % of total banking assets in 2000 to 11. 1 % in june 2009. there are now 26 islamic banks and 19 islamic insurance companies ( takaful ) operating in the kingdom. given the large regional share of islamic financial institutions which are based in the kingdom of bahrain, it is clearly essential to create an appropriate framework for regulating and supervising the islamic banking sector. this is an important function of the cbb. the cbb is the single regulator for the financial services sector in bahrain. we are the only central bank in the region with responsibility for regulating all banking, capital markets, fund management and insurance business under one roof. we have a policy of following international standards very closely, and in the area of islamic finance, we have been a pioneer in developing prudential standards. we apply the same principles of sound regulation and supervision to islamic banks as are applied to conventional banking. we pursue a duel banking system, where islamic banks operate side by side with their conventional counterparts. in fact, the emergence of islamic banks in bahrain drew on the same environment that led to the development of bahrain as an international financial centre. the cbb affords equal opportunities and treatment for islamic banks as for conventional banks. the cbb prides itself, in fulfilling its regulatory responsibilities, on the innovative approach it has taken, applying international best practices and ensuring transparency throughout the whole regulatory process. the cbb has introduced the first comprehensive prudential and reporting framework that is industry - specific to the concept of islamic banking and finance. in addition to the application of rigorous regulatory standards, the cbb has also pioneered a range of innovations designed to broaden the depth of the islamic financial market and to provide islamic institutions with wider opportunities to manage their liquidity. to ensure that these objectives are achieved, bahrain hosts the recently created liquidity management centre ( lmc ) and the international islamic financial market ( iifm ). the cbb also acts as the agent of the government of the kingdom of bahrain in implementing a regular issuance programme of shari ’ a compliant short - term government securities. a series of government long - term leasing sukuk have also recently been launched.

the leasing sukuk are the first of their kind to be issued by a central bank. let me turn now to the future prospects for islamic finance. the global economic crisis has forced the financial industry as a whole to reassess its growth prospects for the years ahead. the islamic financial industry has not been exempted from this reassessment, although there are those who argue that the prospects for shari ’ a compliant finance have improved as a result of the crisis. it has been pointed out that islamic financial institutions have escaped relatively unscathed from the severe downturn which is affecting most conventional financial institutions. this certainly presents the industry with an opportunity to continue its rapid and successful growth of recent decades. because interest - based transactions are prohibited, islamic finance encourages business and trade activities that generate fair and legitimate profit. the prohibition on speculative activity also helps to ensure that there is a close link between financial flows and productive activities. these intrinsic properties of islamic finance have contributed towards insulating it from the potential risks resulting from excess leverage and speculative financial activities. for example, shari ’ a compliant financial institutions were unable to invest in the cdos and other structured financial products – the “ toxic assets ” – which have been at the centre of the current crisis. this is not to pretend that the islamic financial industry does not face some important challenges. some of them are specific to global economic conditions, as the clients of islamic financial institutions are no more immune to the global recession that are the clients of conventional banks. however, some of them are more specific to islamic finance. first, islamic finance in its modern form is a relatively young industry. the first islamic banks were licensed little more than 30 years ago. of the 26 islamic finance entities operating in bahrain, nearly half have been licensed within the past 5 years, and nearly three quarters have been licensed in the past 10 years. this has several consequences : few shari ’ a compliant financial institutions have yet been able to achieve significant economies of scale. many remain comparatively small and focused on niche markets. newer entrants to the industry have also exhibited a tendency to copy the business models they see being successfully pursued by their more established competitors. as a result we have an industry which comprises many small - scale firms engaged in very similar activities and with comparatively high concentrations of risk. for the long - term health of the industry it will be important to generate greater scale and diversity. secondly, one of the major constraints on generating scale economies is the difficulty in