Bahrain fintech model offers blueprint for rest of the region
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Fintech has become an obsession across the Arab region’s key financial centres. Ostentatious conferences, seminars, workshops, hackathons, accelerators and even festivals are popping up at an extraordinary pace, while social media platforms such as LinkedIn and Instagram are abuzz with the latest developments.
Yet while activity that supports digital transformation is well understood as a means to an end, there is a danger that this could become an end in itself if it is not coupled with the necessary foundations to bring about a successful fintech ecosystem.
These building blocks include an open, complete and unambiguous regulatory framework, access to talent and human capital development, corporate and start-up incubation, venture funding and market accessibility.
Moreover, the Arab regional fintech models that in effect import international early-stage start-ups to fill accelerator programmes are skewing the data, at the expense of cultivating indigenous fintech start-ups.
The region’s rudimentary technology at best replicates fintech solutions developed five years ago in Asia, the US and Europe. Arab countries’ financial institutions, despite their support for local innovation, realise that their immediate-term technology needs can only be addressed by procuring reliable solutions that have been proven in other markets.
But the region holds great promise: it has one of the world’s largest unbanked populations, for example, and technology will play a critical role in resolving this.
The obstacles to a more start-up friendly culture are well known — eg a lack of comprehensive bankruptcy regulation, entrepreneurship training and VC funding. But fintech needs to be approached differently to other forms of innovation. If we accept that the financial system of any economy is a critical part of its infrastructure, then the adoption of fintech needs to become part of the national agenda.
There are about 230 fintech start-ups in the Arab world across a population of close to 400m. Poland, by contrast, has 240 fintech start-ups in a country of 38m people, according to figures from data provider Tracxn and Bahrain Fintech Bay, a business hub.
In the Arab world, the Gulf Cooperation Council region continues to lead and has made some commendable strides, but progress has been patchy. Behind the mirage of fintech prowess remains a fairly stilted approach to digital innovation and transformation in finance.
One exception stands out: Bahrain has the most comprehensive fintech strategy in the Arab world and is an exemplary model that is bearing fruit.
Two years ago — through an approach that unified the kingdom’s Economic Development Board and the central bank — Bahrain began putting in place the building blocks for a vibrant fintech ecosystem.
It started with the launch of the region’s first regulatory sandbox whereby ideas could be tested, refined, and licensed within a controlled environment until they were ready for market. The central bank has since set out rules and frameworks that govern things such as crowdfunding, cryptoassets, robo-advice, open banking and insurance aggregation, as well as creating the FinTech and Innovation unit to smooth the process for start-ups.
Bahrain has enacted laws that allow start-ups to innovate without the fear of legal consequences that are typically associated with insolvency in the Arab region. This is alongside a new data protection policy and a push to encourage the take-up of cloud-based services to lower costs and improve competitiveness.
In parallel, Bahrain Fintech Bay, the region’s largest fintech incubator, was formed in association with more than 30 corporate partners, including banks, insurers, payment processors, telecoms and technology companies.
It has also established the National Fintech Talent Program in partnership with Tamkeen, a professional development agency. It aims to create a steady supply of fintech-ready residents — 200 Bahrainis will complete the programme by the end of 2020 — and is certified by US academic institutions such as Georgetown, Berkley, and Michigan university.
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BFB is part of a global network of innovation hubs alongside those located in Silicon Valley and Singapore. Known as the Fintech Consortium, it promotes the free flow of knowledge and market access between these centres of excellence.
Similarly, the Bahrain Development Bank, which supports small and medium businesses in the kingdom, has moved to bridge the venture capital gap through the creation in 2018 of a $100m fund of funds. This allows VC fund managers to apply for capital allocations that in turn must be invested in the region.
The kingdom’s fintech successes are largely down to efforts to build a comprehensive ecosystem, and is a model that should be emulated across the Arab world — not only to stimulate local enterprise but also to power the transformation of those nations’ financial infrastructure.
The writer is chairman at Fintech Consortium for the Middle East, and a board director at Bahrain Fintech Bay