Euro-Gulf Information Centre
From Oil to FinTech: Bahrain’s Eye on the Future
By Sophie Smith
On 27 September 2021, Citi — the US-based multinational investment banking company — launched a global technology hub at its Bahrain offices in partnership with the Bahraini government’s labour fund Tamkeen and the Bahrain Economic Development Board (EDB).[i] It is the first initiative of its kind in the region, designed to advance the development of digital solutions to meet the growing demands for electronic solutions. This comes as Bahrain has been focusing on developing its FinTech sector, which champions the use of technology to deliver financial services. Indeed, Bahrain offers an attractive FinTech ecosystem, having introduced several initiatives in recent years to draw in companies in an attempt to boost investment and growth outside of the oil sector.
Bahrain’s FinTech Ecosystem
Bahrain has a long history as a regional financial hub and, in the 1980s, emerged as a leading financial centre.[ii] With the rapid pace of technological advancements over the past decades, it re-centred its efforts towards becoming a digital economy and the region’s FinTech hub through implementing various initiatives and laws to foster a conducive business environment for FinTech industries.
In 2017, the Central Bank of Bahrain’s (CBB) FinTech and Innovation Unit launched the region’s first regulatory sandbox—a virtual space that allows FinTech companies to test and develop their products in a protected environment with temporary lower regulations and financial requirements.[iii] And, in 2018, the Bahrain Development Bank grounded the $100 million Al Waha Fund to support the nascent venture capital community with a focus on technology by providing them with capital to invest in the region and access to expertise and partnerships.[iv] The same year, saw the introduction of the Bahrain FinTech Bay in association with more than 40 partners, including Amazon, Mastercard and many FinTech Associations, including from Scandinavia, France, Belgium and Poland. Most recently, FinTech-Aviv, the Israeli FinTech Association encompassing around 30,000 members, joined the Bay to expand collaboration with Bahrain following the establishment of diplomatic relations between the two countries in 2020.[v] The Bay is the region’s largest FinTech incubator that offers co-working spaces, educational resources and regular webinars to encourage further innovation.[vi] This includes the National FinTech Talent Programme, inaugurated in 2019 in partnership with global FinTech experts, including Georgetown University’s McDonough School of Business, that focuses on developing Bahrainis’ skills relevant for the FinTech sector.[vii] Additionally, the CBB launched the FinHub973 in 2020, the region’s first virtual FinTech platform for the Middle East to stimulate collaboration and investment between financial institutions and FinTechs.[viii] Another more recent regional first is the launch of the electronic Know-Your-Customer (eKYC) by financial institutions, providing them with a national digital identity database to verify and share data.[ix]
Against this backdrop, the CBB has equally introduced a number of laws and regulations in recent years, centred around bankruptcy, personal data protection and crowdfunding, to establish a favourable business environment that nurtures FinTech and innovation. In fact, its regulations on cryptocurrency asset services, introduced in 2019 to regulate and supervise crypto-asset activities, were a first for the region.[x] A year later, the open banking framework — another regional first — also came into force, allowing customers to share their account information and payment history with third parties.[xi] In parallel, Bahrain has sought agreements beyond its borders, entering into the region’s first FinTech Cooperation Agreement with the Abu Dhabi Global Market, the United Arab Emirates’ international financial centre and free zone, in 2018 to promote information sharing and collaboration.[xii]
A Regional Leader in FinTech
Coupling such initiatives with Bahrain’s attractive business environment (low taxes and 100% foreign ownership) and highly skilled workforce (over 70% of tech industry employees are local Bahrainis and 89% hold a university level degree) alongside the relatively low cost of living have positioned the Kingdom as a regional FinTech hub.[xiii] Indeed, Bahrain’s FinTech Bay hosts more than 100 local and international partners and has incubated 15 companies.[xiv] This includes Rain, the first and largest regional cryptocurrency platform, and CoinMENA, the first Sharia-compliant cryptocurrency exchange. And, in 2020, Bahrain attracted $885 million in direct investments, a sum nearly as large (78%) as its GDP.[xv]
As a result, Bahrain is rising the ranks on the global stage. The Global Startup Ecosystem Index by StartupBlink, a startup ecosystem map and research centre, placed the Kingdom in 66th place globally in 2021 (up 9 from 2020) and 2nd place in the Gulf region, after the United Arab Emirates.[xvi] In fact, in 2019, the CBB won the “Most Innovative FinTech Regulator Of The Year” award at the FinX Awards hosted by Fintech Galaxy, a digital crowdfunding platform, in Dubai.[xvii] And, in the previous year, it attained the MENA Fintech Hub of the Year Award.[xviii]
From Oil to the Future
The Kingdom’s FinTech successes align with its larger ambitions to veer the economy away from an over-reliance on hydrocarbons. As the first Gulf country to discover oil in 1932, the government is now shifting toward digital transformation as a key aspect of its economic development plan, Vision 2030. This comes as Bahrain’s debt spiked since the oil price plunge in 2014, which led the country to seek $10 billion financial aid from its Gulf allies in 2018.[xix] The COVID-19 pandemic exacerbated this trend, with debt rising to 133% of GDP in 2020, up from 102% in 2019.[xx] In this turbulent climate, the lucrative FinTech industry has become ever more important to further economic growth and development—especially with the acceleration in digitalisation during the pandemic as the demand for FinTech services, such as contactless payments, expands. Accordingly, the relatively nascent FinTech ecosystem provides much room for expansion and growth, with more companies locating to Bahrain as a launchpad for the wider Middle East market.
26 October 2021
[i] The Bahrain Economic Development Board, ‘Citi Launches Global Technology Hub in Bahrain,’ The Bahrain Economic Development Board, September 27, 2021. https://www.bahrainedb.com/latest-news/citi-launches-global-technology-hub-in-bahrain/.
[ii] The Bahrain Economic Development Board, ‘Bahrain at a glance,’ The Bahrain Economic Development Board, n.d. https://www.bahrainedb.com/why-bahrain/bahrain-at-a-glance/.
[iii] Central Bank of Bahrain, ‘FinTech & Innovation,’ Central Bank of Bahrain, n.d. https://www.cbb.gov.bh/fintech/
[iv] Al Waha Fund of Funds, ‘About Us,’ Al Waha Fund of Funds, n.d. https://www.alwahafund.com/about.
[v] Polly Jean Harrison, ‘Bahrain FinTech Bay and FinTech-Aviv Announce Partnership to Develop Fintech in the Region,’ The FinTech Times, January 13, 2021. https://thefintechtimes.com/bahrain-fintech-bay-and-fintech-aviv-announce-partnership-to-develop-fintech-in-the-region/.
[vi] Bahrain FinTech Bay, ‘Partners,’ Bahrain FinTech Bay, n.d. https://www.bahrainfintechbay.com/partner.
[vii] Tamkeen, ‘Bahrain FinTech Bay and Tamkeen Launch The Middle East Region’s First National FinTech Talent Program (FTP),’ Tamkeen, June 2, 2019. https://www.tamkeen.bh/bahrain-fintech-bay-and-tamkeen-launch-the-middle-east-region’s-first-national-fintech-talent-program-ftp.
[viii] Central Bank of Bahrain, ‘FinTech & Innovation.’
[ix] Central Bank of Bahrain, ‘CBB announces launch of eKYC as part of digital transformation strategy,’ Central Bank of Bahrain, January 30, 2021. https://www.cbb.gov.bh/media-center/cbb-announces-launch-of-ekyc-as-part-of-digital-transformation-strategy/.
[x] Central Bank of Bahrain, ‘Central Bank of Bahrain issues final rules on Crypto-asset services and Crypto-asset exchanges,’ Central Bank of Bahrain, February 25, 2019. https://www.cbb.gov.bh/media-center/central-bank-of-bahrain-issues-final-rules-on-crypto-asset-services-and-crypto-asset-exchanges/.
[xi] Central Bank of Bahrain, ‘CBB launches the Bahrain Open Banking Framework,’ Central Bank of Bahrain, 28 October 2020, https://www.cbb.gov.bh/media-center/cbb-launches-the-bahrain-open-banking-framework/.
[xii] The Bahrain Economic Development Board, ‘ADGM and Bahrain Economic Development Board Sign Region’s First Mena Fintech Agreement,’ The Bahrain Economic Development Board, January 8, 2018. https://www.bahrainedb.com/latest-news/adgm-bahrain-economic-development-board-sign-regions-first-mena-fintech-agreement/.
[xiii] Startup Genome, The Global Startup Ecosystem Report GSER 2021 (San Francisco, Berlin & Delhi: Startup Genome, 2021). https://startupgenome.com/reports/gser2021.
[xiv] Startup Genome, The Global Startup Ecosystem Report GSER 2021.
[xv] The Bahrain Economic Development Board, ‘Bahrain attracts US$885m investment in 2020,’ The Bahrain Economic Development Board, January 18, 2021. https://www.bahrainedb.com/latest-news/bahrain-attracts-us885m-investment-in-2020/.
[xvi] StartupBlink, Global Startup Ecosystem Index 2021 (Haifa, Israel: StartupBlink, 2021). https://www.startupblink.com/startupecosystemreport.pdf.
[xvii] Bahrain News Agency, ‘CBB wins key Fintech award,’ Bahrain News Agency, October 2, 2019. https://www.bna.bh/en/CBBwinskeyFintechaward.aspx?cms=q8FmFJgiscL2fwIzON1+DiKOWiSKbJY0HtPrTsXvaMI=.
[xviii] Bahrain News Agency, ‘CBB wins key Fintech award.’
[xix] Reuters, ‘Bahrain expects $3.2 billion deficit in 2021, 5% economic growth,’ Reuters, March 2, 2021. https://www.reuters.com/article/bahrain-budget-int-idUSKCN2AU2E4; The IMF, ‘Central Government Debt,’ The IMF, n.d. https://www.imf.org/external/datamapper/CG_DEBT_GDP@GDD/BHR.
[xx] The IMF, ‘IMF Executive Board Concludes 2021 Article IV Consultation with The Kingdom of Bahrain,’ The IMF, March 22, 2021. https://www.imf.org/en/News/Articles/2021/03/22/pr2175-bahrain-imf-executive-board-concludes-2021-article-iv-consultation.