Financial dominance of The City (London) potentially challenged by emerging competitors from the Gulf states?

Financial dominance of The City (London) potentially challenged by emerging competitors from the Gulf states?

In the heart of the Gulf region, Bahrain is making waves in the international finance scene, challenging traditional European financial hubs such as Paris, Frankfurt, and London. The small island nation, known for its political instability due to ongoing conflicts, particularly Israel's wars with its neighbours, is transforming into a magnet for young talent from around the world and a hub for innovation.

With over 400 financial institutions operating on the island, Bahrain's financial sector now holds an impressive $245.6 billion in assets as of mid-2025. This diverse base of 369 licensed institutions includes 83 banks, 15 of which are Islamic banks holding $62.6 billion in assets. This increasing asset base enhances Bahrain’s regional clout, setting it apart from many European centers.

Bahrain's focus on Islamic finance, a specialized niche, is one of its key strengths. The country's significant share of Islamic banking assets differentiates it from many Western financial hubs, providing an attractive option for investors seeking Sharia-compliant opportunities.

The Gulf state is also making efforts to promote innovation and start-ups, especially in financial services. Abdulla bin Adel Fakhro, the minister for trade and commerce, has emphasized this focus. The regulatory environment in Bahrain is designed to favor innovation and investment, which is evident in the government's support for the development of fintech and crypto, considered as important as traditional banking, insurance, and trade finance.

The largest sector of Bahrain's economy is financial services, surpassing oil and gas in 2020. While oil and gas are still the foundation of the Gulf’s prosperity, their value is expected to keep falling as the world switches to renewable energy. As taxes rise across Europe, especially in France and the UK, the zero-tax rates in the Gulf states are becoming increasingly attractive.

Bahrain is not just a domestic finance center, but one that does business with the rest of the world. The country's central bank, led by Khalid Ebrahim Humaidan, has combined monetary policy and regulation, ensuring a stable environment for businesses. In a bid to comply with the OECD's new global minimum rate, a corporation tax will be introduced in Bahrain, but only to apply to domestically generated profits.

The Development Board in Bahrain is focusing on developing its finance industry, with an emphasis on fintech, digital banking, and cryptocurrencies. The recent launch of a graduate development program aimed at fostering next-generation financial leaders and accelerating digital transformation demonstrates a strategic investment in human capital and innovation.

The Gulf states continue to thrive economically despite a low oil price and little prospect of higher prices. As Bahrain strengthens its financial infrastructure and sector capabilities, investors and businesses, especially in Islamic finance and SME sectors, might increasingly prefer Gulf-based centers, reducing flow through European markets.

In summary, Bahrain and similar Gulf finance centers are emerging as agile, specialized financial hubs with growing assets, innovative financial products, and strong talent development programs. These factors present credible competitive challenges to traditional European financial centers, especially in niche areas like Islamic finance and SME banking, as well as in attracting regional investments and talent.

Investing in Bahrain's financial sector offers Sharia-compliant opportunities due to its significant share of Islamic banking assets, setting it apart from many Western financial hubs. The regulatory environment in Bahrain, designed to favor innovation and investment, is attracting global talent and fostering fintech and crypto, positioning it as a strong competitor in the global business and politics circuit.

The Gulf state's focus on developing its finance industry, particularly fintech, digital banking, and cryptocurrencies, is strategic and forward-thinking, potentially influencing the flow of investments and talent away from traditional European financial markets towards Gulf-based centers.

Read also: