Bahrain is the seventh-largest Islamic finance market globally, with $41.6bn in total assets at the end of 2022. It has the largest concentration of Islamic financial institutions in the Middle East, comprising 38.3% of domestic banking system assets over the same period.

The Islamic banking segment experienced a 7.6% increase in assets during 2022, surpassing the 2% growth observed among conventional counterparts. According to the financial data company Refinitiv’s Islamic Finance Development Indicator (IFDI), the global Islamic finance industry’s total assets are projected to increase from $4trn in 2021 to $5.9trn by 2026. In parallel, Bahrain witnessed a rise in financial technology (fintech) solutions enabled by a robust financial system and a well-established regulatory framework. The Central Bank of Bahrain (CBB) helped to foster this growth with the launch of a regulatory sandbox in 2017.

Fertile Ecosystem

Bahrain was ranked fourth globally and second in the MENA region for Islamic finance development in 2021 by the IFDI. The kingdom also secured the top spot in Islamic finance regulation. Bahrain FinTech Bay (BFB), launched in 2018, is the largest financial technology centre in the Middle East, and is among the institutions that are helping to drive progress in Islamic finance. At the same time, the Global Islamic & Sustainable FinTech Centre (GISFC), established with the collaboration of local, regional and international stakeholders in 2018, is helping to accelerate the digital transformation in the industry.

Both institutions are facilitating the digital transformation of Islamic banks to ensure the long-term viability of the industry. Their efforts include assisting banks in embracing disruptive digital technologies, attracting international Islamic fintech firms to establish their presence in Bahrain and fostering collaboration with companies capable of developing sharia-compliant versions of conventional financial products. Benefitting from a young and technologically adept population, Bahrain’s fintech start-ups and established financial institutions are well positioned to cater to the increasing demand for agile and innovative Islamic finance solutions and expand their operations to other countries in the region.

Start-ups in Bahrain FinTech Bay are exploring various domains to transform the industry. “Bahrain exports a considerable amount of fintech talent, and the presence of Bahrainis in high managerial positions in other countries contributes to the overall progress of the kingdom. Bahrain has the potential to enhance cooperation with regional markets and capitalise on its strengths to benefit the entire region,” Bader Sater, CEO of Bahrain FinTech Bay, told OBG.

Open Banking

Since the introduction of the Bahrain Open Banking Framework in 2020, the kingdom has been actively promoting the implementation of open banking among financial institutions by providing operational guidelines, security standards, customer experience guidelines and an overall governance framework to safeguard customer data.

Although there have been challenges such as high product development costs and limited consumer interest, the open banking environment has given rise to successful Islamic fintech start-ups. One example is Tarabut Gateway, a Bahrain-based fintech start-up that specialises in offering open banking services for Islamic banks and financial institutions in the region. The company partnered with Rain, the region’s first regulated crypto-asset trading platform, in 2023. This collaboration aims to provide efficient and cost-effective fiat-to-cryptocurrency transactions to end-users.

Similarly, UAE-based start-up Beehive, the first regulated peer-to-peer lending platform in the MENA region operating on Islamic principles, partnered with the kingdom’s investment promotion agency, the Bahrain Economic Development Board, in 2019 to launch the country’s inaugural debt-based crowdfunding platform, creating an alternative financing avenue for small and medium-sized enterprises (see overview).