A fund of funds in Bahrain to promote fintechs
Bahrain Economic Development Board is the apex institution in Bahrain that promotes tech-driven enterprises in the kingdom. Its executive director Financial Services, David Parker outlines the Board’s focus:
Bahrain Economic Development Board is the apex institution in Bahrain that promotes tech-driven enterprises in the kingdom. Its executive director - Financial Services, David Parker outlines the Board’s focus
N. Mohan: Bahrain Economic Development Board had a landmark event recently with the closure of the $100 million Al Waha Fund of Funds promoted by Bahrain Development Bank. How would you be making use of this fund?
David Parker: The Al Waha Fund of Funds will invest in venture capital funds that have a presence in Bahrain, helping innovative and technology-driven startups in the kingdom and across the Middle East by increasing access to funding, as well as attracting new funds and expertise to the country. Although the Fund will be used to support a diverse range of startups across several sectors, we are especially excited about the potential contributions of the technology sector to the kingdom’s economy, particularly from fintech. According to a recent McKinsey report, Bahrain leads the Middle East in digital contribution to GDP at 8% - nearly twice the regional average and ahead of the European average. This is expected to be boosted by the introduction of the first Amazon Web Services (AWS) Region in the Middle East to Bahrain, which among its many benefits is estimated to reduce 5-year costs of operation by 51% . Additionally, cloud uptake in Bahrain is projected to grow at a CAGR of 49.7% by 2020, and AWS estimates that 10,000 data solution architects will be needed across the region in the next 5 years. Within the first few months of announcing their launch in Bahrain, over 2300 young Bahrainis signed up for AWS Educate programs, a sign-up rate exceeding both China and India.
One of Bahrain’s success stories in fintech is NEC Payments, which was formed in December 2014 and is licensed and regulated by the Central Bank of Bahrain as an Ancillary Services Provider (Card Processing). The Company was formed with the objective of supporting the growth of the financial services industry in Bahrain. It provides innovative technical and service solutions with an emphasis on card and mobile payment processing, outsourced programme management services, and payments consulting.
We are hoping to see similar results in the next few years with other startups, facilitated by the opportunities offered by the Fund of Funds and the implementation of several business-friendly initiatives.
How would the Bahrain Economic Development Board propose to be a catalyst in the growth of startups, especially fintechs?
Bahrain has one of the most engaging and exciting startup cultures in the region, with the most liberalized and competitive ICT sector in the Middle-East. SMEs account for 30% of Bahrain’s GDP, and comprise 90% of its enterprises, while the kingdom also ranks first in MENA for ICT readiness according to the World Economic Forum (WEF). The Board plays an important role in connecting established and prospective startups with institutions such as accelerators, incubators, venture capitalists and relevant government agencies. Our platform, Startup Bahrain, is driven by the startup community and provides an important focal point around which the ecosystem can grow. We also played a crucial part in encouraging the implementation of the kingdom’s Cloud First policy, and in attracting AWS to set up their regional operations in Bahrain. This came as the Kingdom passed a new law reducing minimum capital requirements in most sectors, as well as several other businessfriendly regulations, furthering Bahrain’s position as the most cost-efficient economy in the region and creating a more conducive environment for startups to flourish.
What would be the common platform for the Al Waha Fund of Funds, the fintechs in the country, the FinTech Bay and the regulatory sandbox for fintechs?
These initiatives are unified by a vision to develop an ecosystem in Bahrain that is conducive to technology-focused entrepreneurship and startups more broadly, making the private sector a key driver of economic growth in the process. Innovation in particular is a central theme of these initiatives. The CBB would be the common platform for the ones you mentioned. However, Bahrain’s startup ecosystem is more of a community initiative. Therefore you will have startups use the sandbox to test their ideas in a controlled and supported environment, the Fund of Funds will provide financial assistance, the accelerators and incubators will help them grow, and finally the regulatory climate will continue to benefit from key regulatory reforms.
What is the nature of the mechanism you have in place to decide on the funding of eligible enterprises?
The strategic direction of the allocation is being directed by the Limited Partners Advisory Committee (LPAC), which reflects our national Team Bahrain approach. It consists of several major public and private sector entities such as Tamkeen, the national labour fund, which provides training and assistance to private sector businesses and individuals, the kingdom’s sovereign wealth fund (Mumtalakat), the National Bank of Bahrain, the Bahrain Telecommunications Company (Batelco), and the Bahrain Development Bank. The venture capital firms that receive an allocation of the Fund will be free to invest how they see fit.
Which are the major enterprises that would receive funding immediately?
In June, the LPAC met for the first time to close the $100 million. During the meeting $35 million of the Fund was allocated to several venture capital firms. The focus of the allocated funds will be on innovative and technology driven startups.
Is there a prospect of any non-Bahraini enterprises receiving the funding from the Fund?
Yes - funding is not restricted to Bahrain, while the funds need to have a presence in Bahrain, they are not restricted to investing only in Bahrain. Therefore, startups based across the Middle East can gain access to the capital they need in order to expand.
Is India, which has lot of fintech activities, one of the countries that the fund would be focusing?
The Indian startup community has demonstrated immense potential over the years and we believe it has a lot to offer the kingdom, which is why we have heightened our efforts to attract the best and the brightest from what the Indian market has to offer. Our greatest success story so far in this regard is GetBaqala, a mobile grocery purchasing and delivery application, and one of Bahrain’s most flourishing startups. It was founded by Indian entrepreneur Amjad Puliyali, who had previously worked for Bengalurubased growth marketing platform Vizury, helping set up the Middle East operations based in Dubai. He moved to Bahrain to set up his own business because of the lower operational costs – which are 30% and 40% lower than Qatar and Dubai respectively – along with its increasingly supportive regulatory environment.
We have a number of other Indian startups in the process of setting up in the Kingdom, and we are looking forward to announcing their establishment soon. We hope this progress marks the start of a blossoming and productive entrepreneurial relationship with the Indian startup community.
Venture capital investment in the Middle East countries is still in its primacy. What are the challenges you see in the growth of this funding medium?
The startup industry is defined by the extreme risk factor involved, and naturally these risks will sometimes result in failure. As the region’s longest established financial services center, Bahrain benefits both from an experienced single regulator in the Central Bank of Bahrain and streamlined on-shore regulations. Robust legalframeworks, including world-class trust laws, are already in place to enable venture capital and other investment funds to operate effectively and support innovative startups while minimizing risk.
Recognizing this, the Bahraini government has undertaken a series of initiatives over the past few years to create a more pro-business environment and provide a strong, dynamic regulatory system that supports innovation and is adaptive to change. Examples of recently-introduced business-friendly regulations include new Bankruptcy, Competition, Data Protection, Investment Limited Partnership (ILP), and Trust Laws.
What are the other avenues of funding that are available in Bahrain for startups, especially technology startups?
Bahrain is home to a number of accelerators and incubators designed to foster innovation and support startups by helping them gain access to funding and expertise. The role of the Bahrain Economic Development Board is to work with government agencies such as Tamkeen and the Bahrain Development Bank, as well as current and prospective investors, to support initiatives that enhance the economic climate in the Kingdom. StartUp Bahrain is a community initiative supported by the EDB, comprising startups, corporates, investors, accelerators, incubators, educational institutions and the Bahraini government to promote startup culture in Bahrain. Of the many accelerators in the kingdom, Bahrain Fintech Bay, launched in February 2018, is a leading example, and is the largest dedicated fintech hub in the MENA region, facilitating direct collaboration with the central bank’s fintech Unit. Other accelerators include Fablab, Tenmou, Nest, C5, CH9, Brinc, and most recently, Flat6Labs.
On the cost-side, Bahrain offers some of the region’s lowest operating costs. In 2015 Bahrain reduced the minimum capital required for starting a business, and the Kingdom currently offers operating costs at least 30% lower than in Dubai.
David Parker believes that Indian startup community has show great promise and has a lot to offer the kingdom
Bahrain FinTech Bay, one of the initiatives in Bahrain to support startups