Near a window in the offices of Bahrain FinTech Bay sits a kiosk that at first glance looks like a regular cash machine, but is in fact a ‘crypto ATM’ where bitcoins can be cashed in.
Khalid Saad, CEO of the fintech hub located in Manama, demonstrates how it works, explaining that Basket, the company that produced it, is one of many that are testing out new innovations as part of Bahrain’s fintech regulatory sandbox. “It represents one of the many new developments that would have not been possible if there wasn't the right regulatory framework and open-mindedness from the regulator here,” he says.
Young and flourishing
Basket is far from alone. The number of fintechs in Bahrain is expected to hit 100 by the end of 2019, according to Mr Saad.
The country’s foray into fintech formally started in 2017, when the central bank established a fintech and innovation unit, which is primarily responsible for market research, development and is ensuring that regulations are always updated and sufficiently progressive.
A regulatory sandbox was introduced in Bahrain that same year, which is considered the Middle East's first onshore financial sandbox. So far, 35 companies have been admitted to the sandbox; two have successfully graduated and both of them now have full operational licences.
Yasmeen Al Sharaf, head of the fintech unit at the Central Bank of Bahrain, says: “To date, we’ve issued a number of innovative regulations. We issued regulations for crowdfunding, which gives companies easier access to liquidity; we’ve issued regulations on crypto-assets and the trading of crypto-assets; and issued regulations on digital financial advising known as 'robo-advisories'.
“We have regulations on insurance aggregators and we also licensed the first insurance aggregator in Bahrain, Soqualmal, and we have the first licensed crypto-asset trading company [in the Middle East].”
Bahrain was also the first country in the Middle East and north Africa region to issue open banking regulations, following in the footsteps of other established jurisdictions, such as the UK and the EU. This required that all regional banks in Bahrain must be fully open banking-compliant by July 2019.
“We are working to introduce more regulations and more innovation within the financial services sector, so it’s a progressive project for us,” says Ms Al Sharaf. The central bank is considering regulation for enabling fully digital virtual banks to be established in Bahrain.
The country's regulatory environment is primed for fintech to flourish, but questions have been raised over whether Bahrain's talent pool is deep enough. On this, despite the small population size, there are encouraging efforts, with an increase in technical training courses and upskilling programmes at the institutional level.
“It’s a multi-year effort. It started a few years back and we are starting to see tech talent developing. But I think, not only here in Bahrain or in the region, but globally, the need to widen that talent pool is obviously growing as these technologies keep evolving day by day,” says Mr Saad.
Tech skills across the board are a high priority for government development agency Tamkeen, which was set up 12 years ago as part of a broader labour market reform linked to Bahrain’s 2030 economic diversification programme. Meeting the needs of digitalisation on the human capital front is “if not a gap, then at least an existing and growing structural need”, says Dr Jarmo T Kotilaine, chief planning and monitoring officer at Tamkeen.
“But what is very clear is that education and training are now recognised as critically important. What that means is when a company comes in [to invest or expand in Bahrain], we can respond to its needs pretty quickly. We have become quite responsive to market needs,” he adds.
As the only country in the immediate region where the majority of the local population works in the private sector, Bahrain also has a reputation for openness and inclusion that contrasts with some of its neighbours. “Bahrain is a forward-thinking place and people are open to new ideas here,” says Susan Hunter, managing director of port operator APM Terminals Bahrain, the operator of Khalifa Bin Salman Port, which went public a year ago.
The Bahrain Economic Development Board (EDB) counts on Bahrain’s liveability, skills, relative cost effectiveness and its small and nimble stature to help it compete with larger more established rivals, along with its regulatory framework.
There are also hopes the fintech success model can be replicated in other areas, according to David Parker, co-chief investment officer, financial services, ICT, start-ups and international offices, at the EDB. “What’s worked best for us with fintech is, one, we have a legacy of a financial industry that we’ve built on and, two, we’ve played on the fact that we’re such a small island, and small is beautiful. You can come here [because of our] innovation-friendly regulators and test new ideas and products. Then we thought about what other industries might that model translate to,” he says.
One of those is proptech, which brings together the strong local real estate industry in Bahrain and the tech community; another is Industry 4.0, which marries manufacturing and technology.
Nearby Dubai looms large over Bahrain. As the regional investment magnet and financial centre, it is not going anywhere any time soon. But Bahrain believes it can carve out its own space.
“I think they’re very different,” says Mr Parker. “I would describe Dubai as an alpha city: a London or Manhattan. But think about Manhattan: a lot of techies actually started launching their businesses in Brooklyn instead, because it is a more cost-effective option. And guess what happened? Suddenly Brooklyn has become a more appealing place to launch a start-up than Manhattan.”