Fintech bolsters Bahrain’s bid to revive finance hub status
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Bahrain rose to prominence as a financial centre during Lebanon’s civil war more than 30 years ago, usurping Beirut as regional hub by positioning itself as a global offshore banking centre with easy access to Saudi Arabia. But Dubai wrested this position from the kingdom a decade ago. “Dubai stole the services sector away from Bahrain,” in the words of one banker.
Despite the global financial crisis hitting both centres hard, the pro-democracy protests in 2011 dealt a further blow to Bahrain’s credentials.
Bahrain’s banks’ aggregated balance sheet of $188bn, or five times gross domestic product, compares with $200bn, or nine times GDP in 2011, and about $270bn, or 17 times GDP, in 2008. Regional rivals, such as Abu Dhabi, are staking separate claims as financial hubs. In Saudi Arabia, the region’s economic giant, reform plans include developing Riyadh’s King Abdullah Financial District, where dozens of empty skyscrapers seek tenants.
Yet finance is once again a central talking point in the sales pitch of the tiny kingdom where 400 financial institutions constitute the largest non-oil contributor to the economy.
Officials are trying to differentiate Bahrain from its larger neighbours, arguing that its well-trained population plus an innovative regulatory environment can create ideal conditions for back-office functions and financial technology firms. In 2015, Citibank moved its call centre from Dubai to Manama, where 100 staff — about 90 of them Bahraini — serve customers in the region.
“Investors are smart,” says Khalid Al Rumaihi (pictured), chief executive of the Economic Development Board of Bahrain, the kingdom’s investment promotion authority. “I’m selling Bahrain with these advantages, with these sectors that make sense.” Global institutions, he adds, are unlikely to shift their investment banking teams from the globally connected hub in Dubai. The Dubai International Financial Centre plays host to companies employing a combined workforce of more than 22,000.
Bahrain, with about 14,000 financial sector workers, can offer cost savings of up to 40 per cent over the more expensive city of Dubai: “I’m going to talk to [companies] about middle office,” Mr Rumaihi says. “I’m going to say, do you need your 200 legal team in Dubai or in Abu Dhabi? Look at the cost advantages of Bahrain.”
Hisham Al Rayes, chief executive of GFH Financial Group, says the potential for oil revenues from the shale discovery in the spring could transform the outlook. “Asset valuations now form a great opportunity to invest,” he says. “Now is the opportunity — we are undertaking acquisitions here, in education, healthcare, commercial property and housing.”
GFH, a financial services group in which Abu Dhabi Financial Group has a 14.4 per cent stake, is rebuilding a reputation besmirched by its former incarnation, Gulf Finance House, which underwent a restructuring in 2010 after the collapse of its real estate-focused private equity model. “We identified weaknesses and took quick action,” Mr Al Rayes says. “The new model is more resilient.”
As well as the rejuvenation of problem companies, Bahrain is seeking to reinforce its role in financial technology innovation. Bahrain FinTech Bay, a co-working space in the capital’s distinctive Arcapita building, was launched in February to help early-stage companies reach commercial viability and encourage global companies to establish regional bases there.
A partnership between the EDB and FinTech Consortium, a global incubator, the hub has attracted 30 companies since its launch in February, with a target of 50-60, says board member Maissan Almaskati, who is also chairman of FinTech Consortium Bahrain.
The central bank last year set up a regulatory “sandbox” framework to allow fintech firms to test products on a limited number of customers.
Modelling itself on a light-touch regulatory environment akin to Singapore’s, the central bank is open minded and progressive compared to other regional jurisdictions, Mr Almaskati says. “There is nothing else like it on an onshore basis within the GCC,” he asserts.
Bahrain has been approached by a payment processing start-up in a competing Gulf country that had required it to sell a major stake to a regulated firm before handling money, according to Mr Almaskati.
“What start-up would do that when you are just getting started?” he says, without naming the company.
Yet competing regional financial centres all have their own initiatives.
Dubai, Abu Dhabi and Riyadh stake similar claims to financial innovation. Bankers in the region say other factors, such as an inability to attract young global talent, could undermine the attempt to establish the kingdom as the preferred gateway into the region.
Financial services institutions with a presence in other Gulf centres say they are more likely to devote resources locally.
The kingdom is seeking to revive its fortunes through a recently discovered oilfield and plans to become a regional financial hub. Plus: the country’s Shia majority complains of exclusion from the political process