– Amol Dethe, Editor, FinBizness 

Bahrain, the country of white sands and blue waters, is turning attractive also for foreign Fintechs. The smaller Arab island country is shaping itself to become a Fintech hub, competing with UAE which has already made strides in nurturing startups. Even as most of its neighbors are chasing sectors beyond oil production, they have chosen
related sectors like refining et cetera. Bahrain is a chasing futuristic branch growth in the Fintech sector, and desires to become the platform for technology-related innovation in the Gulf. Over time, Bahrain hopes that its home-grown startups can cater to Middle East and well as African markets.

But, why Fintech? Bahrain has always been a banking hub and is home to 406 financial
institutions, the highest in the Middle East. Its 113 banks have an envious asset size of $192 billion. In addition to banks, other financial institutions like investments firms, insurance companies, and broking firms, together contribute 17% to the country’s GDP. It is the second largest contributor to the economy, as oil makes up for 20%.

In spite of its large base, technology-driven innovation in the sector has been abysmally low. There are less than ten Fintech companies in the country, and its population continues to rely on bank-based offerings in payments and other Fintech areas, far away from the revolution that other parts of the world are experiencing. While a few global Fintech firms operate in Bahrain, there is neither large-scale innovation nor growth, in
the area.

The Kingdom wants to change this. A. Rahman Moh’d Al Baker, Executive Director (Financial Institutions Supervision) of CBB, the central bank of Bahrain is leading this change. “We might be a small country, but we have big ideas for growth,” he says as he rolls up his sleeves before he takes a sip out of his black tea. He wants the country’s financial systems to experience the best of global technology, and he has something to offer them too. “We want Fintechs from all over the world to join us. And, if they come to Bahrain, they will get an entry point into all countries in the Gulf,” he adds.

Bahrain has never been about small talk. The land which is now home to skyscrapers, was once reclaimed from the sea. It now has skyscrapers with offices of multinational companies, hotels, and luxurious cars. It has never remained exclusively dependent on oil earnings either and has carefully orchestrated its growth in a diverse and balanced manner. Its manufacturing sector is the third largest contributor to GDP at 14%, and government services comes a close fourth at 12%. Few countries across the world can boast of a similar equitable spread of sectors. “The structural growth drivers of Bahrain are robust and its economy is the most diverse of those in the region. The government also has a big pipeline for infra projects which will flourish in coming years,” says UK-born Dr. Jarmo T. Kotilaine working as Chief Economist Advisor to Economic Development Board of the country. Now, Bahrain wants to add a rapidly evolving sector to ensure that its economy remains on the growth path.

Testing Waters
To build a conducive environment for Fintechs to come, grow and test their products,
Bahrain has set-up a regulatory sandbox. A sandbox, in regulatory terms, is a safe space
wherein Fintechs can test their innovation, products and technology with less or no
hassle from regulators, their permissions and licences. In a sector where entry barriers
are tall and thorned, this relaxation is a huge relief for innovators who want to
experiment on permutations and combinations of existing technologies without
attracting whiplashes and fines.

To be a part of the sandbox, a product has to be truly innovative or significantly
different from existing offerings or offer new use for existing technologies. The solution
should offer identifiable direct or indirect benefits to customers. “While regulators will
go slow on these startups, the applications too must ensure that their products have
well-developed regulatory testing plans and sufficient safeguards to protect their
customers. They should possess complete knowledge of the key risks that their solution
could present and must possess information on how to mitigate them,” according to the CBB regulations.

Let there be space!
The government is all set to open a dedicated Banhrain Fintech Bay by February 2018.
The 10,000 square feet hub will provide all the infrastructure facilities including work
stations, communal areas etc for aspiring startups. EDB has also partnered with globally
renowned incubator, Fintech Consortium (FTC). Bahrain will be the third location for the
body, which operates in London and Singapore only.

In addition to attracting investors, Central Bank is also lining up a list of progressive
regulations that allow crowdfunding of new ventures. Since banks are still wary of
lending to startups in general, crowdfunding will add an extra source of funds for
Fintechs who now depend exclusively on venture capital. With many backers, Fintechs
can wrest fuller control of their innovation, aiding better growth.

Ready customers
Even with its small base, Bahrain has proven itself to become a mature Fintech market.
Its homegrown payment aggregator PayTab was founded in Bahrain by a Saudi
innovator. The startup showed extensive growth as its workforce swelled three-fold in
eight months. PayTab also quickly expanded to 17 countries, even to India. They
recently raised $20 million in its second round of funding, with an aim to strengthen its
cross border payment transaction business. “When you are Bahrain you are not only
connected to the Gulf but also UK and Europe,” explains Vinod Nagar, Vice-President of

Like in India, banks too are cautiously but excitedly waiting for innovation to change the
face of banking. The banking sector, Rasheed Mohammed Al Maraj, Governor of Central
Bank of Bahrain predicts, “will grow at five percent for the next few years, and are
poised for newer areas of growth”. Al Maraj spoke at the 24 th WIBC, World Islamic
Banking Conference held at ART Rotana, Amwaj Island. Importantly the focus of the
conference was not only about the banking growth but Fintech. With enough
government support, they are ready to swell their offerings be it mobile wallets and
other technologies. “While we are developing our own technology, we are also open to
embrace any Fintech that we like,” says Hassan Amin Jarrar, the head of Bahrain Islamic
Bank (BISB), the oldest Islamic bank in the country.

However, there are roadblocks for growth as well. Western innovators are wary of the
strict Shariya law, which financial institutions should comply with. Banks, on one hand,
have been working around the law for years, and few Fintechs, especially globally
originated Fintechs could posses the expertise. Yet, Bahrain is confident. After all,
startups are woven around the problem and solution principle. The Shariya law has also
become a seedbed for innovation like in the case Sukuk bonds which has hugely
successful and popular. Bahrain is awaiting many such success stories.

BOX: Central Bank’s Special Sandbox rules
The government has also relaxed the fees for applications, and is at $250 or (BD 100)
per application.

CBB responds to the applicant within 15 days and depending on the case of applicant
CBB determines which laws can be relaxed.

Applicants must adhere to KYC, Anti Money Laundering (AML) and countering Financing
of Terrorism (CFT) rules.

Applicant must share a proposed Sandbox exit strategy, including plans for growth and

CBB has framed the time line of 9-months for the Sandbox.

Applicant can apply for a maximum extension of up to three months if needed.
CBB grants such extension on a case-to-case basis.