Interview: Hassan Jarrar
To what extent did the Covid-19 pandemic affect the banking sector in Bahrain?
HASSAN JARRAR: Although Bahrain faced the same issues as other countries at the onset of the pandemic, because the kingdom is an island, there were an additional set of consequences when the country shut down. The main challenges related to maintaining corporate and retail client activities, while contributing to economic growth and attracting investment. As a result of the disruption, digitalisation and innovation have become priorities. Islamic banks tend to have slightly more complex internal structures than conventional banks in terms of products, documentation and the execution of certain services, but digitalisation is narrowing this gap.
What major digital technology trends are present in the local financial sector?
JARRAR: The Central Bank of Bahrain (CBB) has placed digitalisation high on the national agenda, specifically digital financial services that can better facilitate operational procedures in line with environmental, social and governmental (ESG) principles. In this sense, the message to the sector is basically “digitalise or close up shop”. Banks realise that competition is not just coming from other banks, but also from non-bank start-ups – both local and global – that offer similar payment services. Indeed, the main banking trend is simplifying payments and the movement of funds.
Other trends include micro-finance for small businesses that can now be served though digital means, and the facilitation of online purchases. Elsewhere, the CBB is working to introduce a digital dinar, although the formal recognition and regulation of independent cryptocurrencies is unlikely to happen any time soon.
In which ways can Bahrain’s banking sector better contribute to the wider adoption of ESG standards?
JARRAR: There is increased pressure on private and public companies alike to adopt ESG principles. For Islamic banks, our role is to best demonstrate a responsible approach to business. We are actively looking at ways to reduce our carbon footprint. Some of the initiatives we have discussed include the use of carpooling and mini-buses, as well as remote work, with added benefits provided to employees who utilise these services to encourage up-take. We also launched a corporate social responsibility platform – which facilitated initiatives such as beach clean-ups and planting at local farms – as well as awareness campaigns for staff about the importance of preserving the environment.
How can finance be made more accessible and help contribute to economic diversification?
JARRAR: One of the biggest drivers of financial inclusion has been the mobile finance boom, which started in Africa with Safaricom. The reason why some banks would not accept new customers was the high cost of onboarding. Indeed, the cost of customer acquisition and the processes for banks in this sense are very inefficient. The catalyst for introducing mobile banking was the low acquisition costs. Maintenance is so low that we can now offer these services to unbanked persons.
To be more specific, in Bahrain there are blue collar workers who do not keep much money in the banks; it comes in and is usually transferred out quickly . However, if a bank has enough of these clients, not only can it generate some benefits from the volume of money, but those customers can use the platform to transfer their funds using the bank’s payment system. This, coupled with a very low cost thanks to digitalisation, makes this type of new customer onboarding viable.
At the same time, we are working on forming new cross-sectoral partnerships that will help us offer additional services in the future. For example, the telecoms sector is seeking to launch services, such as micro-finance solutions for small home businesses or short-term loans that clients can pay back at the end of the month after receiving their monthly salaries.
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