The missing ingredient in SME lending and what Bahrain is trying instead
Get this recipe right, and SMEs may finally be served the simplest thing of all, a dependable glass of liquidity.
Courtesy Trade, Treasury, Payments
Every good recipe does two main things. It tells you what you’re trying to make, and it tells you how not to mess it up. Plus, it keeps you honest. If you cut corners, it won’t be long until everyone can taste it.
Big economic plans have their own taste test, though the feedback is far less instant. These kinds of nationwide visions earn their strength when they can be considered as a series of small, actionable steps that can actually be used consistently at scale. You can see this most clearly when a country is trying to turn its long-term, sometimes abstract, vision into a set of actionable steps that banks and businesses can follow. Bahrain is a good example.
Bahrain’s Economic Vision 2030 sets out that kind of ambition. The goal that the Gulf country of 1.6 million is trying to achieve is a more productive, diverse economy, led more by private business and less by oil, which has historically been the foundation of its economy, particularly in the 1980s, when it comprised nearly 70% of the Kingdom’s GDP.
For that shift to happen, however, Bahrain’s small firms need to be able to grow in perfectly ordinary ways. Unfortunately, that isn’t always possible.
The SME bottleneck behind Vision 2030
Small businesses are everywhere in the Gulf, yet far too many of them struggle to get bank credit. A World Bank note on GCC SME lending estimates that only 11 per cent of GCC SMEs have access to credit, which leaves an estimated credit gap of $250 billion. The same note points to very low SME lending in several GCC banking systems, with this group representing only a small share of total loans in some markets.
This is not only a Bahrain problem, as the pattern is consistent across the region and much of the world. SMEs sit at the heart of private-sector development, but they are often treated as too hard to finance at scale, which can leave a bad taste in the real economy.
The WTO has reported that over half of trade finance requests by SMEs are rejected globally, compared with just 7 per cent for multinational companies. IFC has pointed to similar survey evidence, stating that over 40 per cent of SMEs’ trade finance requests are rejected, a figure that rises to 70 per cent for those that are women-owned. For these smaller businesses, having an application rejected can mean that they lose the ability to buy inputs, fulfil orders, and, for some, operate at all. Not the best situation for a category that comprises around 95% of all businesses in the country.
If only there were a way to fix this…
Well, Bahrain, with the help of shared digital public infrastructure, is hoping that there is. And the centrepiece of that hope is a shared registry.
“This is a fraud prevention registry to de-risk trade and trade finance,” says Neil Shonhard, CEO of technology provider MonetaGo. “Registries turn fraud risk into lender confidence and, by extension, SME inclusion. By having a single point of control, integrity, and reliable data, you can create a foundation of trust, both domestically and cross-border.”
That registry idea, however, only works if the documents and claims it tracks are legally recognised in the first place. That is why Bahrain started in the legal realm.
From legal validity to everyday use
In 2018, Bahrain was the first jurisdiction to enact the UNCITRAL Model Law on Electronic Transferable Records (MLETR). This much-discussed model law brings legal recognition to key trade documents when they are in electronic form, meaning that they can be used with the same degree of legal certainty as their paper counterparts.
While that legal update was a crucial first step that removed one big barrier, it was just that: a first step. It did not, on its own, change how trade works day to day within the country’s borders. “They’ve had MLETR in place for several years now,” Shonhard said. “What changed? Is everyone using digital documents? Of course they’re not.” A law can say electronic documents are valid, but businesses and banks still need a way to use them safely and consistently before they can become a staple.
This is where digital public infrastructure (DPI) comes in. The World Bank defines DPI as “an approach to digitalization focused on creating foundational, digital building blocks designed for the public benefit.” DPI is a broad idea, but it becomes easier to understand when you look at what one building block actually does in a real market. In trade and SME lending, a registry can be one of those building blocks. It gives lenders a fast way to check the basics, such as whether an invoice looks genuine and whether the same claim is being used more than once. Because it is a public, shared system that all lenders in a market can access, it builds a single record over time, so an invoice can be checked against what has already been submitted elsewhere.
In short, while legal reform may set the rules and is certainly a vital foundational step, it does not change behaviour on its own. The key ingredient for changing behaviour in a market is providing a shared way to confidently use electronic documents, so lenders can consistently run the same basic checks that they are used to, only now with the automation capabilities and scale of digital tools. That is the role the registry is meant to play in Bahrain’s broader DPI effort, turning legal recognition into something banks and businesses can rely on in making their day-to-day financing decisions.
A shared system only works when everyone uses it
At this point, you might be wondering, even if the tool exists, what is going to make the market adopt it? A registry only works when many lenders use it, because its value comes from being shared. If only one bank is on it, that’s no different from the bank creating its own isolated digital registry. If only a few are on it, there will still be too many gaps where duplicate invoicing and other fraud efforts can sneak through undetected, which effectively undermines the entire endeavour. The real question should not be around what the tool can do, but who can bring everyone around the same table and into the same system.
In this case, that “who” is Bahrain’s Electronic Network For Financial Transactions (more commonly known as “BENEFIT”). “BENEFIT is the national infrastructure provider for payments and messaging,” Shonhard said. “It’s a bit like a ‘SWIFT Bahrain’. It is part of the government, and its ownership is shared by a consortium of the 17 commercial banks in Bahrain.” That shared ownership structure is one reason why BENEFIT has been chosen to run the registry as the national operator, with MonetaGo providing the technology behind it. When the operator already sits at the centre of the banking ecosystem, banks have a clearer reason to treat the registry as common market infrastructure rather than someone else’s product.
With that structure in place, adoption becomes less about persuading banks one by one and more about getting the key players to move together from the start. In Bahrain, once that process began, BENEFIT brought the main decision-makers into the same process early, including the central bank and the main domestic banks, so the system could be designed with them and used by them from day one. “Bahrain knew what they wanted, saw that we ticked all the boxes, and effected change literally within a matter of six months,” Shonhard said.
That pace helps, but speed alone does not guarantee adoption. The registry still needs to start with the institutions that will put enough activity through it to make the shared record meaningful. “International banks operating in Bahrain will have access to this system, but the roll-out is starting with the domestic banks first and then non-bank lenders,” Shonhard said. Once the core banks are using the same registry, the shared record becomes stronger, and other lenders have a far clearer reason to join.
An approach designed to improve over time
But how is this registry that Bahrain is building supposed to lead to more lending for small businesses? There is evidence that registries like this can improve access to finance when they are designed well. A World Bank study looking at credit infrastructure reform in the Kyrgyz Republic reports that a modernised collateral registry enabled 95,700 MSMEs to secure $305 million in financing. The OECD also notes that strong collateral registry systems help SMEs borrow against a wider range of assets, including movable and intangible assets, rather than just property.
Of course, a registry does not add money to the system, and it certainly will not turn bad loans into good ones, but it can help reduce uncertainty about collateral. When lenders can clearly see what assets exist, who has a claim on them, and whether they’ve been pledged before, it becomes easier to lend against receivables and other movable assets, which are the main forms of collateral SMEs actually have. In other words, registries make existing collateral more usable and “bankable,” which makes SME lending more possible at scale.
But, according to Shonhard, the registry is also meant to get stronger over time by connecting to what he called “golden truths,” meaning official data sources that help confirm basic facts like whether the company is real and whether key details match what the government already has on record. In India, where MonetaGo has already deployed its registry infrastructure, he explained that the system can check a business or an invoice against the GST network, so lenders can cross-check key details against an official tax source. He said Bahrain can move in the same direction as its own digital ID and tax data systems mature.
The plan is for the system to start as a fraud prevention tool, and in time, expand so it is able to record who has a legal claim over an invoice used as collateral, and later connect to official data sources so basic facts can be verified faster, removing the guesswork from SME lending.
Beyond Bahrain: a recipe for more SME liquidity
Bahrain is not the only place where SMEs struggle to access credit. Not by a long shot. This is a pattern that repeats itself across the GCC and in nearly every other region around the world. Small firms have real business activity and real receivables, but too often, lenders, for an array of reasons, aren’t comfortable lending to them. By deploying this registry as a piece of digital public infrastructure, Bahrain is testing a digital way to tackle that trust gap.
As this case study shows, a shared registry works best when it is truly shared by all of the main lenders and when there is a trusted operator coordinating the market in the backend. It also works best when it grows in layers. Start by catching the most obvious fraud. Then make collateral claims clearer. Then strengthen verification by linking to trusted official data over time.
Bahrain’s approach, therefore, may prove to be a useful recipe for any market that wants more SME lending without pretending risk can be whisked away:
Prep the market by gathering digitally enabling legislation, so electronic documents can be used as originals.
Season with shared infrastructure, so every lender can run the same checks and get consistent results.
Mix in a trusted operator, so the market sees it as common infrastructure.
Bring to a simmer and slowly add in fraud prevention, then collateral clarity, and finally stronger data connections.
Serve to the market.
Get this recipe right, and SMEs may finally be served the simplest thing of all, a dependable glass of liquidity.
