Bahrain’s central bank has presented a five-year strategy including the introduction of a ‘digital dinar’ and a focus on encouraging fintech investment.
Central Bank of Bahrain (CBB)’s ‘Financial Services Development Strategy (2022-2026)’ straddles five priorities: job creation; legislation and policies; financial markets; financial services and financial technology (fintech); and also the insurance sector.
The authority’s announcement of the strategy [Arabic language] references numerous proposed improvements to the nation’s regulatory and payments infrastructures, with digital investment among the cross-cutting themes.
The use of SupTech (supervisory technology) by regulators; encouragement of ‘new business models’ to combat money laundering and terrorist financing; supporting ‘promising’ sectors such as fintech, artificial intelligence (AI) and cyber-security; and the ‘strengthening of financing mechanisms’ available to small- and medium-sized enterprises (SMEs) are among the measures listed.
Other priorities in the strategy, which was presented on 5 December, include the upgrading of electronic remittance infrastructure and linking more retail banks to the AFAQ payment system (Arabian Gulf System for Financial Automated Quick Payment Transfer), which connects real-time gross settlement (RTGS) systems across the Gulf. The first batch of Bahraini retail banks were onboarded to AFAQ, which is operated by the Gulf Payment Company (GPC), eight months ago.
Open banking and finance among priorities
Bahrain, which has a population of about 1.7 million, ranked third in a regional fintech index tracking the development of the fintech sector in Arab countries published earlier this year.
United Arab Emirates (UAE) topped the Arab Monetary Fund (AMF)’s ‘FinxAr’ index (‘Index of Modern Financial Technologies in the Arab Countries’), with Saudi Arabia in second position.
Bahrain was also one of 10 nations featured in the second edition of the ‘Arab Region Fintech Guide’, published by the AMF four months ago. It is the first country in the region to mandate that all retail banks comply with open banking regulations, according to the guide.
CBB’s five-year strategy includes the launch of open banking services ‘in the first and second stages’ as well as an open finance framework.
Open banking enables bank account holders to share information with third-parties such as fintech companies through what are known as open APIs (application programming interfaces). Open finance channels the spirit of open banking into a wider range of sectors and products. The overall ambition of both open banking and open finance is to boost financial services competition and innovation.
Other measures included in the CBB’s newly released strategy include regulations related to the increasingly hot topic of green finance and, separately, educating 3,000 trainees annually in financial services by the end of 2024.
The central bank’s governor, Rashid Mohammed Al Maraj, raised the prospect of a digital dinar in 2018 and said almost two years ago that CBB planned to pilot a World Economic Forum (WEF) central bank digital currency (CBDC) ‘toolkit’.
Helping post-pandemic recovery
Financial services is the largest non-oil contributor to Bahrain’s GDP. Manama-headquartered CBB describes its five-year strategy as part of the archipelago nation’s post-pandemic ‘economic recovery plan’ and ‘contributing to enhancing financial sustainability and economic stability’.
“The announcement is a clear indication of the government’s commitment to digital transformation and diversification,” Bahrain Economic Development Board’s executive director for business development, Dalal Buhejji, told Global Government Fintech. “Given that the financial services industry is one of the strongest sectors in the Kingdom, the evolution to fintech is a natural next step. Bahrain has the necessary infrastructure and talent to ensure that fintech thrives.”
Buhejji described the digital dinar as “another step in furthering digitalisation of the financial services sector and encouraging innovation”.
CBB has a fintech and innovation unit and has also operated a regulatory sandbox since 2017. The authority’s website lists 23 ‘current sandbox approved companies’. In total 367 financial institutions have a licence to operate in Bahrain.
Fintech-related investments this year have included the opening of a global tech hub by Citigroup – the New York City-headquartered bank aims to create 1,000 coding and programming jobs in Bahrain within a decade.
*** A policy paper entitled ‘Islamic Fintech in the Arab Region: Imperatives, Challenges and the Way Forward’ has been published by the AMF. The 32-page paper, published last month, provides policy recommendations for Shariah-compliant fintech products and services, how to employ them properly and related requirements.
‘Arab Monetary Fund highlights regional fintech progress’ – our news story (6 August 2021) on the Arab Monetary Fund (AMF)’s publication of the second edition of the ‘Arab Region Fintech Guide’
‘Arab Monetary Fund launches regional fintech development index’ – our news story (5 May 2021) on the ‘FinxAr’ index
‘Arab central banks: governments must ‘open up’ to open banking’ – our news story (1 Dec 2020) on an AMF ‘A Vision of Open Banking in the Arab World’ publication