Bahrain’s Economic Development Board (EDB), which recently partnered with the Singapore Fintech Consortium to drive fintech development in the kingdom, is confident in developing itself as a regional centre for financial technology and a gateway for enterprises that are keen to tap the capital markets and economic opportunities of the Middle East.
This development comes amid a wave of initiatives by countries in the region to transition to a post-oil economy, as shown by the UAE. The Kingdom of Bahrain has been engaged in an overhaul of its economy as it attempts to diversify its economy amid a continued slump in oil prices.
In an interaction with DEALSTREETASIA, Khalid Al Rumaihi, Chief Executive of the Bahrain EDB, discussed the partnership and his views on the capital markets of the Middle East and the current state of Islamic fintech.
At the end of March, the Bahrain EDB partnered with the Singapore Fintech Consortium. What are the contours of this relationship and where do you see it heading in the 2017-2020 period? What are the overarching objectives in the long term, especially with regards to the Islamic finance segment?
The aim of the partnership is to build on our ambition in becoming the region’s fintech powerhouse. This will include support in developing related commercial and legal infrastructure required to initiate, nurture and sustain Bahrain’s fintech ecosystem and potentially other initiatives such as a dedicated fintech hub, an incubator/accelerator platform and fintech-focused venture capital.
We are incredibly excited about what Singapore has achieved in fintech and we believe there is a great deal we can learn from. At the same time, we also believe there are great opportunities within the Gulf for international entrepreneurs. Islamic fintech is one of those opportunities – and clearly, an area where there are also opportunities in Southeast Asia. Bahrain’s expertise in Islamic finance means we are well-positioned to help businesses that are looking at the sector.
We look forward to continuing to work with SFC and also to welcome Singaporean investors and entrepreneurs to the region.
How does Bahrain compare to destinations such as Dubai or Abu Dhabi as a gateway to the Middle East?
We believe that Bahrain offers businesses an excellent location from which to access the opportunities across the region. Our central location in the Gulf and strong connectivity – including a 25km causeway linking Bahrain to Saudi Arabia – make it easy to reach the key markets, our liberal business environment and low operating costs make it easy to start and operate a business and our highly skilled bilingual local workforce means that companies can open and expand their operations with ease.
Is there a corpus of funds that is being deployed to finance and develop this initiative?
There are already funds in Bahrain that look to support entrepreneurs and SMEs and it is something we are actively looking at increasing its reach and volume. We recently introduced several new regulations in the financial sector which should help in the establishment of VC funds and we are keen to attract new sources of capital. Some of these regulations include the Trusts law, Investment Limited Partnership law and Protected Cells Company law.
We have also recently seen the launch of the Bahrain Investment Market – an innovative equity market which provides fast-growing companies in Bahrain and the wider MENA region an alternative cost-and-time-effective means for raising capital. This will be through listing their company for funding on Bahrain Bourse.
We know that access to finance is one of the most important factors in supporting growth companies so we are working to make sure that there are as many potential sources of funding for different stages of a business’s development.
What is the outlook on the Middle East economically until 2030, given that a substantial part of the global perception of the Middle East/Western Asia is a region currently subject to significant social unrest and turmoil? What’s the outlook for fintech startups?
The next decade or so is likely to see considerable economic transformation – particularly in the Gulf where countries look to move from a government allocation model of growth to one driven by the private sector. At the same time, there are changes that impact every country in the world – such as the growth in fintech and the technological-driven changes in the sector.
We think these transformations are creating exciting opportunities for businesses and investors in the region and we think ASEAN businesses can have a big role to play in this.
As part of these wider trends, we believe that the opportunities for fintech startups are particularly strong. The Gulf has a young, growing and technologically adept population, with a growing demand for sophisticated financial services and products. So far, it is probably fair to say that the region is playing catch up a bit, but the opportunities for the future are very exciting.
The Middle East, given the petroleum industry and the many wealthy families and associated high net-worth individuals (HNIs), has significant amounts of capital. How should VCs and PE firms go about accessing and cultivating these relationships and what is the sort of LP-GP relationship that emerges for PE/VC players, particularly when dealing with wealthy families and HNIs based in Bahrain?
I think this is a real challenge for us and also a real opportunity. There is significant capital in the region – our challenge is to find ways to connect that capital to economic activity in the region. I think it is something that we have seen more of in recent years and more interest from investors in the Gulf in investing within the region, but we are committed to doing more to try to increase that.
Initiatives such as attracting and developing VC funds and angel investors, enhancing local capital markets and so on will help to attract that capital. But we also need to make sure we have the right ecosystem for growth companies to develop – you can’t attract the investors if they don’t have the opportunities.
Any take on the opportunity for Islamic fintech?
Islamic fintech is currently aspirational more than tangible – but when you look at the transformation made already in the conventional sector and the scale, growth and potential of Islamic finance we can see clear opportunities for Islamic fintech and are keen to play our role in leading that development.
Of course, there is a long tradition of innovation in financial technology in the Muslim world. The modern cheque comes from the Arabic saqq, a written vow to pay for goods when they were delivered, to avoid transporting money across dangerous terrain. In the 9th century, a Muslim businessman could cash a cheque in China drawn on his bank in Baghdad.
So in many ways, fintech is not an alien idea to Islamic finance, but something that has been around for a long time.
Gobi Ventures has termed ‘Taqwatech‘ an emergent business domain that could see developments in the Southeast Asia region. In the context of Western Asia, what are the sort of opportunities?
We see opportunities in a number of areas. For example, we have already seen successes in sectors such as payments – with companies like PayTabs, a payment processing solution and fraud prevention system for businesses.
As the region changes over the coming decades, we expect to see fintech play an important role in areas such as insurtech – the GCC is a region with very low insurance penetration rates by global standards – and digital wealth management. The fast-growing, affluent population in the region will increasingly look to private – rather than solely government – provision for long-term savings.
For digital currencies/cryptocurrencies like Bitcoin and Ethereum, what is the market opportunity in Islamic financial markets? What is the view on Bitcoin in balance and its prospects as an Islamic finance instrument?
I think the industry’s position is still evolving on that – at the moment it would be hard to say what the prospects for Bitcoin are in the conventional financial sector and the same is true for Islamic finance. It’s certainly something that is being discussed in Bahrain and around the region, but for now it would be hard to give a firm answer because the market itself is still evolving.