Egypt’s growing fintech ecosystem is transforming the country’s economy

In the midst of the unique wave of digital transformation taking place across the Middle East, the financial world in Egypt is showing great appetite for innovation and modernization. In recent years, Egypt’s emerging fintech ecosystem has flourished at a remarkable pace, witnessing a significant increase in the number of companies operating in the sector, a marked increase in venture capital investment (VC) and increasing international expansion.

Although it still has a long way to go before it reaches maturity, the numbers speak for themselves. Between 2014 and 2021, Egyptian fintech startups increased from just two to 112, according to a report released in February by FinTech Egypt, an initiative run by the Central Bank of Egypt to promote and support the industry. VC investments in the sector rose from just $ 1 million in 2017 in three deals to $ 159 million raised in 2021 in 32 deals. And today, 24 Egyptian fintech companies already have a significant presence in the Middle East and North Africa, especially in the Gulf countries and in Europe.

A recent report analyzing the sector’s performance during the first half of 2022 published by FinTech Egypt on June 21 reinforces this trend. Between January and June, fintech- and fintech-enabled investments in the country reached an all-time high of nearly $ 167 million in a total of 31 deals, the report found. The report also says that although the majority of investors are still headquartered in Egypt, an increasing number are from the Middle East and North Africa region (24%), the United States (19%) and even China (4%).

This growth has placed Egypt among the top four countries in Africa with the most dynamic fintech sector, although it is still far from other more consolidated markets such as Nigeria and South Africa, and the second in the region after the United Arab Emirates in terms of fintech financing agreements and amounts raised. Last year, investments in the sector increased by 300%, and according to the platform for startups and venture investments Magnitt, fintech-led transactions among Egypt’s startups accounted for 17% of the total agreements concluded. Around 9 million Egyptians are already served by fintech and fintech-enabled startups.

Karima el-Hakim, Egypt’s Country Director for Plug and Play, one of the world’s largest investor, accelerator and enterprise innovation platforms in the early stages and the first international accelerator to open in Egypt, said these figures suggest the sector is about to strike. root. “Egypt is at the adoption level of the fintech area, with people being more adopted on the technology since this is a globally emerging market phenomenon,” she told Al-Monitor.

An example of a company in the dynamic Egyptian fintech sector that has been able to discover an opportunity in the large local market and offer a technology-enabled solution is Money Fellows. The company found a niche in the market of informal rotating savings and credit unions (ROSCA), known as “gamaya”, which is very popular in Egypt. This model, which Money Fellows has digitized, brings together a group of individuals who decide to save and borrow together over a period of time without the mediation of a financial institution, and has traditionally involved reliable social networks and family networks.

– This is a very cultural concept. You will always find people at a ROSCA, who are constantly withdrawing money with friends and family. Over $ 700 billion rotates globally in ROSCAs, and it is not monitored; it’s completely offline, in cash, ”Ahmed Wadi, Money Fellows’ founder and CEO, told Al-Monitor.

He explained that an example of a ROSCA would be 10 people from about the same social circle coming together and agreeing to pay a fixed monthly installment of $ 1000. At the end of each month, they will have collected $ 10,000 and one of the participants will take the amount. The wheel then continues to turn until the circle is complete and everyone has received $ 10,000. This way, participants can access alternative funding.

“It simply came to our notice then. What we have done is digitize it. So people do not need to know each other. We assess people’s financial health and capacity, and we are consequently able to link them to others and join different slot machines. The bigger the pool, the bigger the options because you do not just trust your 10 close friends. And they are also fully guaranteed, Wadi said. Money Fellows is currently active in 27 Egyptian cities and is preparing to expand to other countries in the near future.

Among the main factors that make the Egyptian market attractive to the fintech sector, the study by the central bank recognized not only that, with over 100 million people, it is the most populous country in the region and the third in Africa, but also that the percentage of non-bank population is almost 50%. A high proportion of mobile subscriptions and internet penetration, combined with a median age of 24.7 years, are other elements that play in its favor. The coronavirus pandemic also accelerated growth.

“Young people are growing up, they are starting to make more money and they are shopping digitally. And because now the population is young and everyone has a mobile phone with internet, fintech is becoming more relevant,” said Hakim, who has played a key role in the Egyptian entrepreneurship ecosystem. since 2019.

She also noted that companies have an increasing offer to facilitate the way, from enablers, such as incubators and accelerators, to professional talent, infrastructure and technology availability. “Establishing a company also becomes much easier with time. And it’s cheaper to start a company and find the team and the support, she added.

Wadi noted that cultural affiliation can also help. “It’s easier to work in a market that understands the concept than to introduce it in a new place. “In Europe we have to teach people why you do ROSCA, while in Egypt you say ‘digital gamaya’ and they have questions, but the basics are clear,” he said.

The most dominant and consolidated fintech sub-sector in Egypt is related to payments and remittances (30%) followed by lending and alternative financing (13%), a common feature among emerging ecosystems. Further behind are other sub-sectors such as personal financial management, accounting and expense management, salaries and benefits, and asset management and savings, the central bank report found.

The most recognized company among the first, and one of the first to break into this sector, is Egypt’s leading e-payment platform Fawry. The company currently offers financial services to consumers and businesses through more than 225,000 locations, and it performs more than 3.069 million financial operations daily.

In August 2020, Fawry became Egypt’s first unicorn after reaching a market value of over one billion dollars, and last year it increased its revenues up to 34%, the strongest year to date. The strong performance made it one of the Egyptian companies selected by Abu Dhabi Developmental Holding, Emirati’s sovereign wealth fund, to buy part of the shares as part of a $ 2 billion investment package in the country announced in April.

Another company trying to follow is payment service provider Paymob, which in May announced that it had raised $ 50 million in its latest round of funding, the largest Series B ever for a fintech platform in the country. The round was led by reputable investors such as PayPal Ventures and Kora Capital, and it brought Paymob’s total funding to over $ 68 million, making it one of the most funded such companies in the region.

The central bank, which has been quick to recognize the potential of the fintech sector, has been and continues to be a key player in paving the way for its continued expansion. The cornerstone of the roadmap is the 2019 Fintech and Innovation Strategy, which aims to promote the industry. The strategy is based on five pillars, and it includes measures aimed at meeting demand, improving management, facilitating accessibility and access to finance and talent, and creating a favorable regulatory environment.

As part of this strategy, Egypt’s three largest national banks – Banque Misr, National Bank of Egypt and Banque du Caire – joined Global Ventures, a leading VC company focusing on the Middle East and Africa region, on March 20 to announce the launch of Nclude, a $ 100 million fund originally set up to accelerate Egypt’s fintech innovation. One of the recipient companies was the agar-tech start-up Mozarea, founded in 2020 and dedicated to providing market access and credit to small Egyptian farmers.

Looking ahead, the main obstacles to the growth of the fintech sector in Egypt, identified in the central bank report, are limited technology knowledge and confidence in digital financial services in the county. Other challenges noted by surveyed entrepreneurs include difficulties in attracting qualified talent and building partnerships, further availability of technology and skills to develop products, citizens’ lack of awareness and regulations.

Some experts also note that another challenge for the fintech sector is to open up to other subgroups apart from payments and lending, such as digital banking, insur-tech (insurance technology) or ag-tech. And Hakim believes that the industry should also convince international players and global VCs to invest more in the business-to-consumer (B2C) fintech area, instead of the business-to-business model. “At the end of the day, you need a trust component. And fintech, to really make an impact, has to talk to the C,” she concluded.