THE KINGDOM OF BAHRAIN’S NATIONAL RISK ASSESSMENT 2025

34 Financing and Micro-Financing Sector Introduction 145. The Financing and Micro-Financing sector in Bahrain is part of a growing market aimed at improving financial inclusion and supporting small and medium enterprises (SMEs). The CBB licenses several financing companies and micro-financing institutions under its regulatory framework. These entities operate within Bahrain's financial ecosystem, providing both traditional and innovative financing solutions, including consumer loans and microloans targeted at individuals and small businesses. 146. The CBB has introduced several regulatory updates and initiatives related to financing and microfinancing companies to align with market dynamics and technological advancements and govern their operations. In February 2022, the CBB made amendments to the CBB Rulebook Volume 5 (Type 3: Financing Companies), to cover within its scope innovative business models using digital technology and platforms to provide small value consumer loans for small and medium enterprises and individuals. The amendments will help facilitate the entry of new companies into the market such as online platforms that provide short-term financing “Buy Now, Pay Later” (BNPL). 147. Regulatory improvements by the CBB have mitigated the risks associated with financing and micro-financing companies. These measures have strengthened oversight mechanisms and compliance frameworks, resulting in improved risk management practices within the sector. However, due to their cash-intensive operations, these companies remain inherently vulnerable to exploitation for ML activities. The sector is assessed as medium-low risk, acknowledging residual vulnerabilities that require ongoing vigilance and strong anti-money laundering measures to address. Overall risks 148. Financing and Micro-Financing companies operating in the Kingdom of Bahrain are subject to various regulatory restrictions that reduce their exposure to ML risks. These institutions are prohibited from accepting deposits from customers, as such their funding sources are limited to the capital provided by shareholders. 149. In addition, the scope of operations for these institutions are limited to Bahraini nationals or expatriate’s resident in the Kingdom of Bahrain. Micro-Finance companies are also subject to caps on the credit facilities they can extend per eligible client and to a maximum payment term. 150. Financing and Micro financing companies must comply with the provisions set out in Volume 5 of the Financial Crime Module of the CBB Rulebook, which outlines the regulatory requirements to combat money laundering, terrorist financing and proliferation financing. 151. The CBB adopts a risk-based approach to supervision, prioritizing resources based on the risk profile of licensees and sector type. The CBB emphasizes implementing risk-based monitoring and assessments to detect red flags within small-value, high-volume transactions. Financing and micro financing companies undergo regulatory AML/CFT oversite, through onsite inspections, analysing AUP reports, exposure reports, and REQ.