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:

Banking Frontiers - - Highlights - Mo­han@bank­ingfron­tiers.com

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

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