Different ecosystems, different regions – as Bahrain steps up when it comes to fintech, what can it learn from India, and in turn, teach the country?
“Disruption is here - the question is, are we ready for it or not? And if we aren’t ready for it, then we have a problem at an individual, institutional, and collective ecosystem level,” says Khalid Saad, at the newly-instated Bahrain Fintech Bay in Manama Bahrain.
Khalid is the CEO of Bahrain Fintech Bay, and his primary focus is on promoting the island country’s financial services sector, attracting new investments in the space.
Overlooking high-rises on the one side and the sea on the other, the 10,000-sq-ft Fintech Bay is a ‘smart building’ in its truest sense. Meeting rooms are blocked remotely, lights get switched on and off automatically detecting natural light, and blinds shut and open as per the light outside and the people in a room.
But there is a lot more beyond these shenanigans. The Fintech Bay is working on evolving a fintech ecosystem that would help the startups build and develop new products, and expand their footprint to the larger global market.
“For Bahrain, finance has always been an important sector. It contributes 16 percent of the country’s GDP and is the second-highest contributory after oil and gas,” says Khalid. From lending, to payments, wallets and to even cryptocurrencies – say fintech and it has people interested.
Back home, in comparison, fintech has an entirely different area of focus. Several Indian states, and even the central government, have been promoting the sector, offering sops and working closely with startups to push towards a digital local economy.
The Bahrain fintech sector, on the other hand, has a strong global focus.
Digitise the cash
India and the Middle East are strong cash-driven economies, and governments in both regions have been pushing digitisation. The demonetisation of high-value currency notes in November 2016 was India’s big push in that direction, and since then, the Indian financial landscape and ecosystem has been fast adopting technology to move towards a digital economy.
The Central Bank of Bahrain, on the other hand, has a dedicated fintech and innovation unit, which regulates the Fintech Bay, as well as a regulatory sandbox. “We aren’t a free zone. So, anything that happens in the Fintech Bay happens on a countrywide level, which is all regulated by the CBB,” says Khalid.
A sandbox is a tool that allows developers to test a tech proof-of-concept or minimum viable product (MVP). This would give a startup or an entrepreneur the ability to amend and improve a product iteratively based on feedback, before taking it to a larger market.
The island country of Bahrain is one of the smallest economies in the Gulf Cooperation Council (GCC), has a population of 1.3 million people, and an annual GDP of $32.2 billion, according to the Oxford Business Group.
India has a GDP of $2,251 billion, and a population of 1.6 billion.
As of September 2016, Manama, Bahrain was home to 404 financial institutions, which not only served the country and GCC, but several parts of the world. “The sandbox allows startups to come into Bahrain, test their products, and push it out to a larger market. The regulatory aspects of every startup and organisation that come in will be governed by the CBB,” explains Khalid.
Touted as the next big concept the world over, starting a sandbox in India will come with its own challenges. For one, all fintech companies do not fall under a single regulator. Last month, the Reserve Bank of India (RBI) had formed a working group that recommended introducing a regulatory sandbox to foster fintech innovation in India.
Several news reports suggested an appropriate framework may be introduced for a regulatory sandbox and innovation hub.
“As a state government, we do not have the power to start a sandbox. These need to be completely centrally-regulated. Markets like Singapore and Bahrain have a more centralised model,” says Richa Shrivastava, Vice President, Marketing Strategy, Fintech, Government of Andhra Pradesh.
Richa works for the Government of Andhra Pradesh’s IT and Electronics Promotions, which drive investments into the state. She is currently working for two initiatives for the state government - Fintech Valley Vizag, and the International Institute of Digital Technologies, a digital university focused on bringing next generation technologies like analysis, cybersecurity, IoT, and more.
When the state of Andhra Pradesh got bifurcated in 2016, creating Andhra Pradesh and Telangana, the former needed to build an ecosystem from scratch. This led to the launch of Vizag Fintech Valley, which aims at a sustainable ecosystem for fintech innovation in India.
Since 2016, regulatory sandboxes have been launched in Abu Dhabi, Switzerland, Canada, Australia, Hong Kong, Lithuania, Singapore, Switzerland, and Thailand. Currently, reports suggest there is a proposal for a European Union-wide regulatory sandbox.
The world of regulations
The financial sector is one of the most regulated spaces across the globe. Understandably, startups in the space have to adhere to several different norms, rules and guidelines. “Without the sandbox, there are a set of strict guidelines to adhere to, a regulatory sandbox gives opportunities for innovation,” says Khalid.
In Bahrain, any startup starting up in the financial services space needs to approach the CBB. It is the central bank that registers and regulates the startups.
“We approached the CBB, gave them the plans, told them what we were intending to do, after which it took us a day or two to begin operations and pushing out our wallet,” says B. Chandrashekhar, CEO, B Wallet, a Paytm-like wallet based in Bahrain. The team has tied up with the Arab Financial Services (AFS), Bahrain’s leading regional payment solution provider.
Much like in India, Bahrain’s push for wallets and payments is to turn a heavy cash economy into a digital one. Fintech startups in Bahrain believe it is easier to get approvals there.
“The government has ensured that the approvals come in within one or two days and also there is complete ease of doing business. Also, thanks to organisations like Tamkeen, getting quality talent is easier,” says Chandrashekar.
Post demonetisation, the Indian Government has been pushing for digitisation and its broader strategy is to push towards financial inclusion. This makes it easier for startups to push forward.
“We are a technology company, which partners with banks and NBFCs (non-banking financial corporations). The adoption typically depends on the individual bank norms and rules. Nowadays, most banks are receptive because of the government level push, but it nevertheless takes up a week to a month to tie up with a bank,” says Ankush Aggrawal, Co-founder and CEO, Avail Finance, a Bengaluru-based financial inclusion platform.
Fintech startups in India fall under the broad categories of payments, lending, and wallets. Each one has different norms and regulations, which need to be followed. There isn’t a single streamlined process, and the companies fall under different brackets of regulations.
“Peer-to-peer (P2P) lending is yet to be completely regulated and streamlined and we still need to get the complete norms and guidelines,” says the founder and CEO of a P2P lending platform.
Also, startups like Capital Float, which need to register as an NBFC, have a different list of norms and guidelines they need to follow. The approvals for these take a few months. “In many places we are trying to understand the nascent ecosystem ourselves. We are trying to understand startups and their credibility,” says Richa.
Stepping up to the world
“We are dealing with a highly digital world. Today, if you want to have a strategy for the next 10-15 years, you need to be thinking of all of your new customers. Regulators can protect only up to a certain extent. There are global players disrupting the market even without actually being physically present,” says Khalid.
Bahrain realised there needs to be a regulatory, institutional and international outreach together. Of the top innovations across the globe, cryptocurrencies and Blockchain are hot topics. Khalid says there are few countries that can truly regulate and understand crypto currencies. The best way, he believes, is through a regulatory sandbox.
“Initially, crypocurrency exchanges couldn’t look at even testing. But now with the sandbox, you can be a part of the sandbox and test it, this also gives the CBB the opportunity to understand cyrptocurrencies better and regulate them,” says Khalid.
In India, IndusInd Bank has tied up with cryptocurrency exchange Ripple’s global payments network and real-time gross settlement system, RippleNet. With this, IndusInd Bank is looking to build on its existing footprint in the payments business.
Why the push for fintech startups?
“Our main mandate was to create job opportunities for citizens in the region. The way tech is being used in IT and financial services is niche and upcoming, and if there is manpower creation, then there can be great job opportunities,” says Richa.
The Vizag Fintech Valley works as a support organisation and looks at it to be self-sustaining ecosystem. There is a focus on innovation, market access, funding, collaborations, and MoU’s.
Understandably, the main focus for India is job creation given its large population and relatively low per capita GDP of $1,709. Bahrain, on the other hand, is looking to move away from being a purely oil-driven economy. The country’s per capita GDP is $22,354.
Mohammed Hansari, CEO, Daamino, a fund, and Governor Advisor for Small and Medium Enterprise Authorities, Saudi Arabia, says, “We need to move where the world is moving. Oil cannot be the only source and push for the economy. The region needs to look at technology and innovation to move where the rest of the world is headed.”
India is seeing many efforts for global collaborations and most of them are from state governments. The Vizag Fintech Valley is looking to work with the Government of Maharashtra and build a corridor between Maharashtra and Vizag.
“Mumbai is one of the largest financial hubs. All banks and financial institutions are present in Mumbai, and most fintech startups have banks and NBFCs. It makes sense to build a corridor, that helps in deeper collaboration,” explains Richa.
Vizag has also worked and is looking at collaborations with Singapore, Hong Kong and London, and is also in talks with Bahrain’s Fintech Bay.
“Bahrain’s Fintech Bay has a strong infrastructure-led push, and in that way we are looking at an India and Bahrain Corridor. India in that sense is a big market, where most global companies want to enter and get a base,” says Richa.
Bahrain is looking at itself as a global hub, where startups can test products and get easy access to different economies, especially the MENA (Middle East North Africa) region.
While regulatory processes in Bahrain are easier, faster and simpler because it is more centralised than India, the Asian giant represents a large market that most companies are looking to enter.
While both are in the nascent stage, what needs to be seen is how the two ecosystems will grow, and whether they will find common grounds to collaborate and cooperate.