In this member spotlight, see how Bahrain’s young startup ecosystem is coming to life in the Fintech sub-sector.

Bahrain took the spotlight in the startup world earlier this year when it hosted the Global Entrepreneurship Congress 2019 in April.

The event gave the country a chance to show off its emerging startup economy to a much broader audience.

Bahrain is well known for being a world leader in getting its citizens connected to the internet.

The latest Global Competitiveness Report published by the World Economic Forum ranked Bahrain third globally for the percentage of internet users by (98%), fifth globally in mobile broadband penetration rate (147.3%), and 10th globally for mobile penetration (158.4%). This naturally has helped encourage startup creation.

Another attractive aspect for startups is that Bahrain offers 0% corporate and personal tax, making it the most liberal tax regime in the Gulf.

These government efforts have attracted entrepreneurs from other countries, with more than a quarter of Bahraini founders moving to the country from somewhere else. 

When it comes to specific startup sub-sectors, Fintech is on top and showing momentum.

This is partly due to Bahrain ranking first globally in Islamic finance regulation in the Global Islamic Finance Report.

Another factor is that the Bahrain government reduced capital startup requirements from $50,000 to $100 for some businesses and introduced a regulation-exempt “sandbox” for Fintech startups, meaning it would be easier for startups to experiment and grow quickly.

EDB Bahrain believes Fintech will continue to attract attention for the years to come, with an “increasing rise of challenger banks, digital-only banks, and non-traditional, algorithm-powered lenders” coming on to the startup scene. It expects Gulf-based FinTech startups “to attract $2 billion in private funding over the next 10 years, compared to $150 million over the previous decade.”

Other Bahrain startup ecosystem highlights from the 2019 Global Startup Ecosystem Report include:

• Top 15 Global Ecosystem for Affordable Talent.
• Average early-stage funding per startup totals $159,000.
• Ecosystem valued at $594 million.
• Output Growth Index of 9 out of 10, showing there is meaningful growth in total startup creation, calculated in an annualized growth rate.

Our local member in Bahrain is Tamkeen, a public authority established in August 2006 with the goal of supporting Bahrain’s private sector and playing a positive role in Bahrain’s Economic Vision 2030. Tamkeen has two primary objectives: 1) foster the development and growth of enterprises and 2) provide support to enhance the productivity and training of the national workforce.

In fact, Tamkeen says it has created more than 330 different initiatives that have served more than 230,000 Bahraini individuals and businesses to date.

“One of Bahrain’s key competitive advantages in the region is its educated, economically active young population,” Dr. Ebrahim Mohammed Janahi, CEO at Tamkeen, told us. “We have redoubled our efforts to support globally recognized training solutions to broaden and deepen our pool of tech-savvy professionals.”

source: startupgenome

Bahrain launched rules in February for cryptocurrency companies such as trading platforms, including rigorous customer background checks, governance standards and controls on cyber security risks

When Belarusian President Alexander Lukashenko met entrepreneur Viktor Prokopenya in March 2017, their discussion was scheduled to last for an hour but went on for three times that long.

The meeting, Prokopenya said, ended with Lukashenko asking him to propose regulations to boost the country's tech sector. Prokopenya worked with IT firms and lawyers to draft guidelines to cash in on an emerging digital industry: cryptocurrencies.

Some two years later, the rules are in place. Investors can trade bitcoin on an exchange run by Prokopenya, while other companies are launching their own cryptocurrency platforms.

"The idea was to create everything from scratch," Prokopenya told Reuters in an interview in London. "To make sure that it is free in some of the aspects it needs to be free, and very stringent in other aspects."

Contacted for comment, Lukashenko's office directed Reuters to an account of the meeting on the president's website.

Belarus is among a handful of smaller countries coming up with specific rule books for digital currencies. Their efforts could help shape the development of the global market and the growth of industry players, from exchange platforms to brokers.

So far, cryptocurrency companies have often had to choose between two extremes when deciding where to set up shop.

Major financial centres like London and New York, which apply traditional financial services rules to the sector, might be attractive to big institutions seeking safety but the compliance complexity and costs preclude many of the startups at the heart of the fledgling industry.

Conversely, lightly-regulated jurisdictions like the Seychelles and Belize allow far easier market access. But states with light rules can offer less protection for investors and have looser checks on money laundering, lawyers say.

The likes of Belarus and other newer entrants - including Bahrain, Malta and Gibraltar - are seeking to offer a third way: crafting specific rules for the cryptocurrency sector, betting they can attract companies by providing regulatory security as well as perks like tax breaks.

While there is no guarantee of success, cryptocurrencies represent a rare chance for these states or territories to grab a slice of an emerging market, potentially attracting investment and creating jobs, at a time when big financial hubs are adopting a more conservative, "wait-and-see" approach.

"There are jurisdictions in the see-no-evil, hear-no-evil camp," said Jesse Overall, a lawyer at Clifford Chance in New York specialising in crypto regulation. "On the other end there is the U.S., UK, EU. In the middle, that's the juicy part of the spectrum."

Overall said both countries and companies could benefit from the emergence of frameworks specifically for cryptocurrencies. But states that get the rules wrong could fall foul of global rules to stamp out illicit use of digital coins, he added.

Indeed, there are major questions over whether these nations will be able to consistently prevent the hacks and illegal activities, such as money laundering, that plague the opaque sector and could hammer their reputations as secure centres.

Another risk of building rules for an unpredictable and rapidly evolving industry is that they could soon become outdated.

'CARROTS WITH NO STICKS'

ZPX, a Singapore-based crypto firm, will launch a cryptocurrency trading platform, Qume, next month catering to institutional investors such as high-frequency proprietary trading firms and hedge funds.

It has decided to base the business in Bahrain's capital Manama - and the considerations it faced are emblematic of the quandary confronting many players across the industry.

ZPX's CEO Ramani Ramachandran said it decided against operating in a so-called offshore jurisdiction with low or no regulation. Such a base could deter big investors as scrutiny of digital coins heats up from global regulators and politicians, he said.

"As the market matures analogous to traditional capital markets, mainstream institutional capital will increasingly look to come to regulated exchanges such as Qume as opposed to 'light-touch' venues in offshore jurisdictions."

Bahrain launched rules in February for cryptocurrency companies such as trading platforms, including rigorous customer background checks, governance standards and controls on cyber security risks.

It's also usually far cheaper in terms of compliance and administration costs to set up in smaller locations like Bahrain than in major financial hubs, said Ramachandran.

ZPX estimates such costs would come to around $200,000 a year in Bahrain, versus at least $750,000 a year in London.

Another advantage of setting up in a smaller country, said ZPX co-founder Aditya Mishra, was the close communication companies could have with regulators, something that would be difficult in a big financial centre. Bahrain also offered good access to Gulf markets, he added.

Another cryptocurrency trading platform, iExchange, began operating in the Belarusian capital Minsk this month, aiming to attract investors from the CIS market of Russia and the former Soviet states.

Co-founder Igor Snizhko said Belarus was the best option because it had a regulatory framework that other countries in the region lacked.

Belarus demands audits of issuers of digital coins and details of the projects underpinning any issuance. For trading platforms, the rules include keeping tabs on suspicious transactions to meet international money laundering standards.

"For many the CIS market is very promising and very dangerous at the same time," he added. "Many large and accomplished players are still afraid of one factor - a lack of transparency. We didn't want to work in any 'grey' jurisdiction."

Sweeteners offered by Belarus include tax breaks for companies mining or trading cryptocurrencies. The rules, described by PwC as "carrots with no sticks," also give firms looser rules on currency controls and visas.

In the United States, by contrast, digital coin transactions are taxable. In Britain, capital gains taxes apply.

iExchange said it had also initially looked at other countries including Estonia and Malta, but chose Belarus because of its proximity to its target market.

BESPOKE APPROACH

The size of the global cryptocurrency sector is hard to gauge because of its complexity and lack of transparency. Still, Ireland-based Research and Markets reckons the sector will grow to $1.4 billion by 2024 from $1 billion this year. Other estimates see a faster rate of growth.

Crypto regulations vary through the world. While Facebook's unveiling of its Libra coin has prompted signs of a coordinated backlash against cryptocurrencies by major economies, a patchwork of approaches still rules from country to country.

China has even banned cryptocurrencies outright, while an Indian government panel last week recommended a similar measure. 

Sui Chung of Crypto Facilities, a London-based cryptocurrency futures exchange, said there were clear benefits to being in a major financial hub, including having access to highly skilled employees.

"You need to be in place where you can get the staff," he said. "Our product teams, development teams have financial institution experience."

Being regulated in an established centre can also allow companies access to deeper, more liquid markets and provide greater certainty on securities law, said Ann Sofie Cloots, one of the authors of a Cambridge University study on cryptocurrency regulation.

"It may mean you have a more sophisticated investor base, greater access to capital," she said. "It's also a reputational thing."

To be sure, it is not just the likes of Belarus and Bahrain that have coined their own crypto rules: Some larger countries like France and Japan have also made moves in that direction.

But it's the smaller countries that have tended to launch the most sophisticated "bespoke" approaches, according to the Cambridge University study.

That could bring clarity to both cryptocurrency companies and related services like banks previously wary of the sector's unclear legal status, said Cloots.

Belarus entrepreneur Prokopenya, whose Instagram posts of sports cars in Cyprus and beaches in Dubai are followed by 5.6 million people, acknowledged the risks that came with blockchain technology, including the potential for money laundering.

But he said these could be mitigated with clear regulation, and that countries like Belarus should not miss out on a chance to grab a slice of an emerging market.

"The biggest risks come from not taking any risks," he said.

Source: zaway

Indicating a boost for the ecosystem, Bahrain Development Bank (BDB) has successfully closed its US$100 million venture capital “fund of funds” to support startups in Bahrain and across the MENA region. The Al Waha "fund of funds" is a definite mark for the growth of entrepreneurship in the region as it aims to support by providing capital to Bahraini startups, as well as attracting new funds in the region.

Last week, the Limited Partners (LPs) Advisory Committee met to strategize the fund’s direction and allocation of $35 million into a series of venture funds. Its LP's include Mumtalakat, National Bank of Bahrain, Batelco Group, Tamkeen and Bahrain Development Bank, among others, with BDB as the General Partner (GP) managing the fund.

Following the closure of the fund, H.E. Sheikh Mohammed bin Essa Al Khalifa, Chairman of the Al Waha Fund of Funds Advisory Committee commented on the progress made in the allocation of the capital raised. “One of the key constraints on the development of the startup and technology ecosystem in the region is lack of access to capital. This fund can help to make a significant difference to that challenge, enabling entrepreneurs to realize the potential of their ideas.”

With the Al Waha Fund of Funds along with the opening of fintech co-working space FinTech Bay and regulatory sandbox for fintech ventures to test out their concepts, entrepreneurs, the time is ripe to leverage initiatives enabling entrepreneurship.

Source: Entrepreneurship Middle East