Bahrain banks launch R&D firm to drive growth of Islamic FinTech
A consortium of three Bahraini banks will establish a company dedicated to research & development in the sharia-compliant fintech sector as the Arabian Gulf state seeks to position itself as a leader in financial technology.
KFH Bahrain, a unit of the sharia-compliant Kuwait Finance House, Islamic lender Al Baraka Banking Group and Bahrain Development Bank said on Tuesday they will set up Algo Bahrain, which is yet to be fully incorporated. The company is expected to announce the appointment of its chief executive and management board in two weeks’ time.
Headquartered in Bahrain, it will aim to support the regional Islamic banking sector by developing fintech products and other innovative, sharia-compliant banking solutions, before expanding to other emerging markets across the world.
“This is a strategic company we expect to bear fruit over the long term, as the best way to approach the fast-moving fintech industry and ensure Islamic banking stays ahead of the game,” said Abdulhakeem Al Khayyat, managing director and chief executive of KFH Bahrain during a press conference in Bahrain.
The first phase of its existence will be driven and financed by the three founding banks – which declined to give details of their investment – and eight more banks are expected to join the consortium in the second phase.
“The real potential of the Islamic banking industry is easily three to four times more than where we stand today," said Mr Al Khayyat.
“With innovative business models and new revenue and cost structures, the industry should be eyeing an asset base of US$9 trillion within five years, compared to the current $2tn. Anything short would be failing our customers.”
The company's plan is to launch 15 new fintech products or platforms within the next five years. Already, six agreements have been signed in Europe and Singapore, through which companies would work to develop new fintech solutions under the Algo banner.
“We have set an ambitious agenda for ourselves. The combined strength of our market access, customers base and financial resources will make this happen,” Mr Al Khayyat said.
Algo’s first initiative will be a “person-to-small-business” crowdfunding platform that will aim to fuel the growth of Bahrain’s SME sector. The Central Bank of Bahrain has issued regulations for crowdfunding businesses as the sector gains in popularity.
Bahrain also wants to increase the contribution of SMEs to the national economy as it looks to raise GDP and lower public debt. Making technology-related financial services solutions available to start-ups is a key part of this, said Sattam Al Gosaibi, group chief executive of Bahrain Development Bank.
“Technology will change the face of so many industries and Bahrain is taking a lead in this with the establishment of the Bahrain ‘Fintech Bay’ [a new incubator for fintech start-ups,” he said.
“We see Algo as a collaborative initiative that seeks to leverage on Bahrain’s status as a fintech hub to extend technology-related banking solutions to the start-up and SME ecosystem.”
Bahrain-based Finocracy, an organisation that works alongside Islamic banks and financial institutions to implement fintech platforms, is advising on the set-up of Algo Bahrain.
“The banking sector as a whole lacks information and data, and we cannot expand without this,” said Adnan Yousif, president and chief executive of Al Baraka Banking Group.