Why Startups in the MENA region are getting noticed and why UAE is building the startup ecosystem with progressive regulations
Former Head of Market Infrastructure, Digital, and VC at the Abu Dhabi Global Market has been advising governments, universities, and funds on the rapid changes taking place in finance.
- UAE is building the startup ecosystem with progressive regulation.
- Finance professionals need to track and engage with new-age technology companies.
- Banking is changing fast and the change is coming in the form of blockchain and crypto, where regulation plays a major role.
Dr. Bhaskar Dasgupta, is the former Head of Market Infrastructure, Digital, and VC at the Abu Dhabi Global Market (ADGM).
He has three Ph.D.'s from King’s College, Alliance Manchester Business School, and Brunel University of London. He has studied various topics; from the East India Company Spice Trade to terrorism and operational risk, financial economics, and the impact of AI.
Here are the excerpts of the interview:
TFS: You had a thriving career in HSBC, and you obviously know how banking as such is changing so much. What are your thoughts on the future of banking?
I would say at this moment, banking is going to go through major changes. That said, banking has always been changing over the last 50 to 70 years.
One of the oldest models that you could think about is the traditional merchant banking and retail banking in the early 20th century.
But as soon as The Bretton Woods Agreement finished, exchange rates were introduced. Float determined the rates, and you had big bank computerization happening in the 1960s.
The big thing that is happening is that the basic model of banking which relies on fractional banking and the creation of credit is getting disrupted.
Cryptography, cryptocurrency, and virtual assets are changing banking. Over the next three to five years, I think banking models are going to change hugely.
TFS: Are crypto, blockchain, and AI turning the nature of the central banking ecosystems into decentralized banking ecosystems?
First let me just address the Artificial Intelligence piece.
When I studied Artificial Intelligence back in the early 1990s, it was considered unusual, nobody knew if it would change the world.
But here we are. 25-30 years have gone by, and some extraordinary things have happened.
Just look at apps like LinkedIn, the software gives suggested answers when someone writes to you.
This is a great example of natural language processing and how AI understands the context of the conversation and gives you answers.
Now going back to what the central banks are doing.
Central bankers have to worry about how these three things work.
1. How to manage these changes when you have fiat currency
2. Whether they have to launch a Central Bank Digital Currency
3. The impact of cryptocurrency
If they launch a Central Bank Digital Currency, just like that they will wipe out banking as they know it because the entire way of banking over the last 100 years would change.
On the other hand, they have to do something, because Central Bank Digital Currencies play a major role in wholesale banking or international trade.
There are pilots that are currently being conducted in China and, Jamaica with most of the Central Banks grappling with this problem.
The other thing that comes up is the interest rates and handling inflation in the digital currency era.
When I started as a regulator, my traditional perspective always was to slow down & think.
Now, I am advising all my firms to actually speed up to the new change and start experimenting. Get your new business & operating model out there as soon as possible. Also one has to stick to the regulation.
Don’t wait to boil the ocean. Get out there. You have to be extremely flexible.
TFS: Your thoughts about the startup ecosystem in the MENA region (Middle East and North Africa) and your role at ADGM in the VC space?
Looking back, at ADGM, I was playing the role of a financial regulator, but I was also trying to develop the startup start-up ecosystem.
What you have to realize is that there is one extremely secular trend that has been happening since the great economic crisis of 2007-2008, although the antecedents were laid a long time ago.
Bank financing for SMEs has fallen off the cliff.
Traditionally when SMEs or start-ups wanted to have financing, they would walk into a bank, the bank manager will look at you, take a look at your credit risk, look at the assets you hold, and lend you money.
But since the global credit crisis, bank capital and bank financing for SMEs have substantially dried up. Which means that private capital is now playing a huge role.
Now let me tell you what is happening in the UAE - the mobilization of private capital to finance innovative business ideas is a huge driver now. This is what we are trying to do in ADGM.
To develop the ecosystem, we have brought in startups to set up business in the UAE. We have a very progressive regulatory framework.
We had the mobilization of venture capital here, and huge support from sovereign wealth funds. So once you bring that all together, the number of startups launching in or moving to UAE has exploded.
When I joined ADGM in 2018, I think there was one venture capital fund. Today there are about 30 funds operating here.
There is an association, the Middle East Venture Capital Association, that has been formed. VCs are coming in. They are starting to set up interesting new models and venture debt is also coming in.
People are talking about investing in tokens, so on and so forth.
So, the VC ecosystem in the MENA region has absolutely exploded.
TFS: Do you see a lot of Global startups moving to the UAE?
When I switch my hat from a VC board member to a startup advisor, I would say it is a beautiful time to set up a startup in the UAE.
I speak to family offices and VCs about the opportunities in the UAE and these funds want to come to the region.
This is a great place to do business and there are several reasons.
For instance, DIFC (Neighborhood in Dubai) and ADGM have got English Common Law, which provides the best possible legal framework to operate and it is nationally recognized.
The second reason is, obviously it is one of the most tax-efficient regions.
Third is, that the startups will come here because this is where the money is.
Look at the services ecosystem here, there are great lawyers and accountants. There are innovation hubs and sandboxes.
But if you take a look at, for example, the healthtech in Abu Dhabi, the Abu Dhabi Department of Health has actually deployed an entire team to sit in the middle of Hub 71.
The Government has done this to bring the regulators and the doctors to the start-ups.
The region has opportunities for Agritech, Defence, E-commerce, and Logistics, they are booming.
The most important thing is the quality of life in the UAE is fantastic.
So those who want to set up a venture capital fund, raise money and deploy internationally, or want to set up start-ups in the UAE, the country provides a thriving and supporting environment.
TFS: Your views on crypto? Is it dangerous?
Every new technology down the ages has been thought to be dangerous.
When the cars came out one had to manage the person walking in front of you and there were systems created to warn people that there was a car coming.
I don’t think crypto, blockchain, Web3, and AI are dangerous at all.
I would actually turn around and say it is liberating and not so liberating, depending on who you speak with.
Young people, this is the time you should experiment, this is the time you should break new ground and this is why it is liberating.
The number of VCs that are coming in and actually putting money behind Web 3, crypto, and Blockchain, is awesome.
The technology and business models have moved on quite a lot. Regulations, governments, tax systems are far behind in these technologies but they will catch up. Regulations will catch up.
I think this is a very exciting time.
TFS: What should these professionals look at when they see these opportunities in front of them?
When I first started to work, way back in the mid-1990s, I was told by one of my bosses “You are not working in a bank, you are working in a tech shop”.
If any banker at this moment starts to think that technology is not part of his or her job, is sadly mistaken. They must catch up.
If you are not on top of it, the rate of change, and adoption of technology, is going to overpower you.
In fact, recently I had a conversation with my friend in the recruitment industry - he was saying that finance professionals have so many new jobs in the UAE.
Most of the finance professionals now want to join crypto firms, new-age banks, and VC funds.
This gives me quite a lot of hope that banking and finance people are moving into this tech-heavy sector and they know that this is the way of the future.
Lastly, UAE is seeing great progress and growth. There are thousands of opportunities and jobs available. Come over for a visit, go around, and meet new people, the UAE is a great place.
Edited by Preeti Mondal and video by Subhankar Dutta