Bahrain: Proving Ground

April 9, 2019

Bahrain is nurturing its fintech sector with agile and progressive regulation, seeking to build a strong regional hub for innovation.



It might seem out of character, but bank regulators in Bahrain are leading their country through a dizzying series of reforms and initiatives designed to encourage innovation and entrepreneurship in fintech.


The Central Bank has created a new fintech and innovation unit, along with a regulatory sandbox for fintech firms. It has released new regulations for crowdfunding and draft rules for cryptoassets. It intends to roll out open banking before the end of this year. The initial phase of a national online know-your-customer system is on the horizon.


“The Central Bank and the authorities have been looking to bring about changes,” says Gurumurthy Jayaraman, who goes more often by Guru Jay, group head of technology at Ahli United Bank, a top local institution.


“The last two years or so, things have been happening,” says Khalid Saad, CEO of Bahrain FinTech Bay (BFB), a hub launched as a public-private partnership a year ago. The goal, he adds, is “to futureproof the financial sector and reposition the country as an innovator.” It is also part of a broader effort to diversify the economy of the Middle Eastern island nation and reduce its vulnerability to fluctuating oil prices.


Regulatory changes are encouraging the embrace of fintech, Rasheed Al Maraj, governor of the Central Bank of Bahrain, said at the Gateway Gulf Investor Forum in Manama, the capital, last year. But ultimately, he added, “what matters is the value [new technology] brings to improve the quality of people’s lives.” Beyond economic diversification and growth, broader goals include job creation and financial inclusion.


There`s a long way to go, but early returns show progress. BFB has over 50 established partners, including big names such as American Express, Cisco and Microsoft. Of its 28 associated startups, two have “graduated” beyond the hub—one in open banking, the other a cryptoasset exchange. While numbers are not broken out for fintech specifically, the kingdom’s Economic Development Board reports foreign direct investment in Bahrain reportedly saw year-on-year growth of 138% during the first nine months of 2018. “One of the biggest successes has been a mindset shift in the last year,” says Saad.


Jay described Bahrain`s regulatory environment for fintech as “progressive” and “friendly.” Some new rules, such as those for crowdfunding, have been drawn up in collaboration with the industry, with the help of the Bahrain Economic Development Board (EDB), according to Dalal Buhejji, senior manager for Financial Services, Business Development, at the public agency, and chairperson of the Women in Fintech Initiative. That collaboration has led some analysts to assume regulators will go easy on the sector.


The IMF offers praise while encouraging vigilance. “Ongoing efforts at supervisory and regulatory vigilance, and to further enhance the AML/CFT [Anti-Money Laundering/Countering Financing of Terrorism] framework, are welcome,” says Bikas Joshi in his report as head of an IMF mission that visited Manama in February. “Bahrain has been a leader in fintech, promoting opportunities while revising regulations and collaborating with other regulators.”


Indeed, clear rules