I have not found the right way to approach the current protests and violence in Bahrain and throughout the Middle East and North Africa, mostly because I have not found a strong enough connection to the subject of the blog, Islamic finance. Bahrain presents an interesting example of the contradictions in Islamic finance and its stated goal of improving society, in part through providing inclusive and fair financial services.
Bahrain is a small economy and country with a disproportionately large footprint in Islamic finance, both in the number of Islamic financial institutions based in the country as well as by hosting some of the most important institutions to Islamic Finance (e.g., the International Islamic Financial Market and AAOIFI). However, much of the Islamic finance industry, both in Bahrain and globally is focused on the highest income people. Many of the people (40-50% or more) working in Bahrain (in Islamic finance and elsewhere) are not native Bahrainis. Many of the projects financed by Islamic finance in recent year are not generally made to benefit Bahrainis and the economy relies of finance (both conventional and Islamic) for over one-quarter of its GDP (based on data I could find from 2005). This is significantly higher than the US--the share in the US was 5.8% of GDP prior to the crisis--where critics allege the economy has become too 'financialized'.
That is not to say that the country would be better off by kicking out all the foreigners and banks and shifting towards another industry. That is not practical. However, it does explain part of the frustration coming into the headlines in the last week. Despite a thriving financial sector, Bahrain's youth unemployment rate is nearly 20%. The growth in Islamic finance does have a benefit and does provide some employment, but it is unlikely that the youth unemployment rate will drop significantly just based on financial services targeted at high-net worth individuals. Besides requiring specialized skills and education, it is not a career that is labor intensive and therefore growth in the financial industry leads to a much smaller reduction in the unemployment rate.
However, finance (including Islamic finance) does play a role in allocating financial resources into industries that can have a significant impact on the unemployment rate. Creating the newest bells and whistles for new sukuk or structured products is probably not the most productive use of resources in finance. Islamic finance is supposed to have a social goal and finance for the sake of the financial sector does not fit in well with that ethic. I lack enough knowledge about the specifics of the Bahraini economy (and it would not really be too useful if I went in and told them how to run their economy) but there are plenty of Bahrainis I am sure who are much better aware of business opportunities and needs that can be filled who may only need some finance and some assistance to create businesses that can employ others.
Perhaps it is naive to take this lesson from recent protests, but if they continue they will strangle the banking system which makes up such a large part of the economy. It is not enough for the government to try and buy off the current complaints; they will only reappear. If Islamic finance is not up to the task of assisting the creation of employment-creating businesses, than what has all the work really accomplished?