Snapshot of how the financial services sector in some of key jurisdictions are evolving to help support the development goals of those countries.
Matthew HeatonPartner, Head of Office, Head of Banking & Finance - Qatar
Most countries in MENA have published national visions, setting out social, economic and educational goals to focus development. Some countries such as Saudi Arabia and Qatar are utilising their national visions to accelerate diversification of their economies away from carbon-dependency, focusing instead on tourism, technology and quality education. Others are employing national visions to help drive economic and social development post-Covid, to establish clear goals and ensure that policies are focused on supporting those objectives. One thing that all of the region’s national visions share is that the financial services sector will be crucial to achieving the goals.
Some visions explicitly reference a ‘thriving economy’ (Saudi Arabia’s Vision 2030) or the ‘development of a competitive diversified economy’ (Qatar’s National Vision 2030), but all require a robust, competitive and modern financial services sector in each country to underpin their development goals.
In this article we provide a snapshot of how the financial services sector in some of key jurisdictions are evolving to help support the development goals of those countries.
Bahrain’s Economic Vision 2030 is to shift from an economy built on oil wealth to a productive, globally competitive economy, shaped by the government and driven by a pioneering private sector – an economy that raises a broad middle class of Bahrainis who enjoy good living standards through increased productivity and high-wage jobs. Our society and government will embrace the principles of sustainability, competitiveness and fairness to ensure that every Bahraini has the means to live a secure and fulfilling life and reach their full potential.
Bahrain’s position as a regional financial centre has been essential to the development of its economy where the financial sector has come to play a significant role in economic activity and employment creation. The financial sector is currently the largest non-oil contributor to GDP representing 17.3% of real GDP in 2020 showing an increase from the 16.1% in 2019 and 16.9% in 2018. In Q4 of 2021, the financial sector represented 17.7% of real GDP. In Q1 2022, the financial sector represented 17.4% of real GDP. The size of the assets of the banking sector in Bahrain was USD 225.1 billion as of June 2022 (5.8 times of GDP). (Central Bank of Bahrain, “FINANCIAL STABILITY REPORT” (Central Bank of Bahrain) accessed January 9, 2023).
The financial services sector has materially contributed towards Bahrain achieving its Economic Vision 2030. Such progress has been achieved, amongst other things, through the development in the legal and regulatory landscape in the financial sector in Bahrain over the last couple of years, the introduction by the CBB of the regulatory sandbox that has been a catalyst for innovation and development of the FinTech sector in Bahrain together with the ease of doing business and reducing the barriers to entry in Bahrain.
One of the aims of the Kuwait Vision Plan 2035 (the “Plan 2035”) is to establish the State of Kuwait (“Kuwait”) as a financial and commercial hub in the region. To achieve this, the growth of the financial services sector is instrumental. In the post-pandemic world, where investment collaborations are transcending geographical boundaries, building a world capital which can serve as a hub of foreign investment is not possible without efficient and digital platforms of finance.
Recognising the above, the Kuwait government has launched several initiatives to facilitate a revitalisation of the financial services industry including introducing a Regulatory Sandbox Framework designed to encourage fintech growth, and issuing regulations to facilitate e-payment activity within the region. Kuwait has been especially proactive in 2022, with a significant development transpiring in February when the Central Bank of Kuwait announced that it will start receiving applications for digital bank licenses.
These are exciting changes that will expediate achievement of the milestones envisioned under the Plan 2035. A modern and innovative rethinking of the financial services sector will aid progress, not just in the realm of finance, but also for infrastructure and global positioning, both milestones to achieve under the Plan 2035. Booming debt capital markets and efficient digital financial platforms can mobilize private sector funds to finance infrastructure, housing, and other priority sectors. The financial services sector has responded well- Weyey, Kuwait’s first fully digital bank, has been successful in bringing a younger demographic to the market. Boubyan Bank has received praised for being one of the leading Islamic digital banks in the region, which signals an opportunity for Kuwait, which has a large Islamic banking sector, to cultivate an environment where it can be a pioneer of Islamic digital banking in the region.
There is still some way to go but these developments are indicative that the country is on track to make the Plan 2035 a reality.
The Government is taking significant initiatives targeting to reach financial inclusion. The Central Bank of Egypt (“CBE”) has launched its Financial Inclusion Strategy 2022-2025, a national development plan focusing on expanding access to financial services, developing financial literacy and facilitating the introduction of innovative financial products that meet consumers as well as micro, small and medium-sized enterprises.
The CBE has set key objectives and priorities for creating financial inclusion in Egypt. The adoption of a broad range of financial services related legislations has played a significant role in achieving the financial inclusion. Said legislations include laws restricting government entities and state owned companies to accept cash payments in relation to collection of dues and other entitlements. Said law has contributed in accelerating the transformation to digital economy as well as expanding the digital payments and payment services industries. Also, the micro-finance, consumer finance and nano-lending legislations, which have served to ease access to financial services for the informal sector, bringing them into the formal economy achieving the so-called ‘to bank the unbanked sector’, do have inevitable contribution to the financial inclusion initiative.
Additionally, new laws are adopted to facilitate the process for citizens to open bank accounts. The CBE is directing the banks to implement simplified procedures for opening accounts, from which individuals and SMEs can easily open saving accounts. This step aims to attract workers in the undesignated sectors to deal directly with the banking sector, in light of the Government’s orientation towards financial inclusion and reducing the circulation of cash.
In line with the 2025 National Vision of Jordan which sets as its pillars, active citizens with a sense of belonging, a safe and stable society, a dynamic and globally competitive private sector and an efficient and effective government, the Central Bank of Jordan have implemented a scheme in cooperation with the German Agency for International Cooperation to support small and medium sized enterprises (“SMEs”) and improve their financial inclusion. This is of particular importance given the rise of SMEs in Jordan during COVID-19 pandemic.
Another noteworthy initiative is European Investment Bank (“EIB”) USD 63 million loan to Jordan Kuwait Bank’s loan in order to increase financing to Jordanian businesses. EIB’s loan scheme is not limited to Jordan, as it continues to enter into similar financial arrangements with other banks and financial institutions in the region, including its EURO 150 million loan to Egypt to alleviate food shortages. This is part of a larger regional effort on EIB’s part to support the region economically. These initiatives are particularly important considering the lasting impact of the COVID-19 pandemic, regional conflicts, and other economic, political, and social issues in the region.
From a public sector perspective, the World Bank commenced implementation of its five-year Country Partnership Framework (“CPF”) with Iraq in 2022, mobilising financial and technical assistance to support the Iraqi Government to stabilise its economy. The CPF aims to develop the private and public sectors, as well as improving human capital in Iraq, given that the current economic conditions have contributed to weakening the Iraqi private sector in terms of investment opportunities. The recent implementation of the CPF supports the Iraqi national vision of 2030, to strengthen the private sector and increase its contribution to development within Iraq. Additionally, in an attempt to improve access to inclusive financial services for vulnerable target groups in Iraq, the German Agency for International Cooperation (“GIZ”), commenced implementation in 2021 of its project in cooperation with the Iraqi Ministry of Planning. The GIZ project’s approach focuses amongst others, on developing inclusive financial services and enhancing framework conditions by consolidating the Central Bank of Iraq's (“CIB”) ability to promote and regulate inclusive financial services. In turn, these approaches support the national Iraqi vision of promoting an active and well-governed financial sector and developing the financial infrastructure of Iraq. Not to mention, and from a private sector perspective, an Iraqi fintech company, with the approval of the CIB, launched the local mobile application Bluepay, which provides an avenue for international money transfer services for the first time in Iraq. Bluepay offers a route for easy currency exchange, helping users access e-commerce platforms that only work in certain currencies. This is an indication of the rise in utilisation of retail financial services in Iraq. Not only does this strengthen the private sector, but it also increases the private sector’s contribution to the overall development of a diversified economy in Iraq, in line with the Iraqi national vision of 2030.
As part of Oman Vision 2040, the Oman Government aims to ensure economic diversification and financial sustainability. As part of this goal, the Government has focused on new developments in the green/clean energy sector, which financial services can assist in financing these projects. For example, Oman has established HYDROM, which is dedicated to developing green hydrogen projects in Oman. In 2019 the National Program for Fiscal Balance “Tawazun” was launched, which is focused on developing a comprehensive national program concerned with the development of the financial sector through developing initiatives and projects aimed at promoting and strengthening the role of the banking sector and financing solutions, as well as fostering the role of the capital market in financing and investment, to achieve integration among financial, monetary and economic policies. The Government has stated that the “financial sector is one of the most important enablers required during the economic growth. It is a major requirement for investment and economy, which will enhance the sustainability of public finance and ensure continuity of all development programs”. In line with this, there is a call for the banking sector to mobilise savings from deposit holders to assist in financing projects to encourage and develop the corporate sector, especially in regard to small and medium-sized enterprises. The focus for these is on production, manufacturing and exports.
Qatar’s National Vision 2030 has four pillars: human development; social development; economic development and environmental development with the objective of Qatar becoming an advanced society capable of sustaining its development. Financial services are intrinsic to these objectives, and underpinning the overall vision is a determination to modernise the economic infrastructure in Qatar. Led by the banks, there is a digitisation programme, enabling financial services to be more accessible to the general population. There has been an opening up of banking services, with non-bank institutions being encouraged to challenge the established market leaders in areas such as payment services. Open banking is being encouraging, further opening up banking services to new entrants. There is a FinTech regulatory sandbox in Qatar, with incentives available to trial and launch products in Qatar. 2023 promises further profound advances in digital assets, FinTech and InsureTech regulations, with the aim of bringing Qatar to the lead in regional financial services innovation.The FIFA World Cup was the first cash-free edition of the tournament, which marked a watershed moment as combined with other technology-driven aspects of the games such as the paperless Hayya card app for ticketing, it demonstrated to the population generally the advantages of financial innovation. Financial services are therefore underpinning the economic development pillar of the Qatar 2030 Vision and are already making noticeable differences to the day-to-day lives of Qatar residents and visitors.
The Financial Sector Development Program was launched in 2017 and is part of the ‘Vision 2030’ economic reforms in the Kingdom of Saudi Arabia. The objectives of the Program are to enable financial institutions to support the growth of the private sector, develop an advanced capital market and to boost and enable financial planning. One of the major aims of the Program is to strengthen financial institutions to support the private sector, through boosting the financial planning options and increasing the share of financing SMEs in banks. These endeavors will create new private sector employment opportunities and boost the non-oil sectors of the Saudi economy.
Another major goal is the digitization of the economy in Saudi Arabia which will facilitate greater reach of the government and private sector to all sections of the population. One of the primary areas of digitization has been financial services. The key achievements include; the licensing and commencement of operation of a number of fintech companies, the licensing and operations of new payment platforms and the launch of the open banking framework, the experimental ‘sand-box’ created by the Saudi Central Bank (SAMA) and the Capital Markets Authority (CMA) that has enabled the testing of emerging technologies in the areas of banking, payments and capital markets.
The recent legal and regulatory reform in the financial services sector has lead to the restatement of certain existing finance laws and the issuance of new regulations ranging from secured transactions, factoring/forfaiting, introduction to new financial services licenses etc. The new secured transaction and factoring regulations have spurred growth in the non-traditional financial services sector by ease of providing movable security, creating alternative/flexible liquidity options for businesses to monetize their existing account payables all leading to a growth in their businesses in the UAE. The introduction of the low risk banking license in the UAE has now allowed new financial services investment with the establishing community banks and digital banks to service the unbanked segment in the Emirates. Lastly UAE has seen a rapid growth in the Fintech sector with the support of the regulators (through licensing of payment services) various Fintech and e-commerce establishments are being licensed to provide consumer viable online payments platforms and other digital payment services leading to establishing decentralised and open banking market in the UAE.
For further information,please contact Matthew Heaton.
Published in February 2023
