Amid the unprecedented wave of digital transformation taking place across the Middle East, the world of finance in Egypt is showing great appetite to innovate and modernize. In recent years, Egypt’s nascent fintech ecosystem has been flourishing at a remarkable pace, witnessing a significant increase in the number of companies operating in the sector, a marked rise in venture capital (VC) investments and a growing international expansion.
Although it still has a long way to go before reaching its maturity, the numbers speak for themselves. Between 2014 and 2021, Egyptian fintech startups increased from only two to 112, according to a report released in February by FinTech Egypt, an initiative powered by the Central Bank of Egypt to promote and support the industry. VC investments in the sector rose from only $1 million in 2017 in three deals to $159 million raised in 2021 in 32 deals. And today, 24 Egyptian fintech companies already enjoy significant presence in the Middle East and North Africa, particularly 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 June 21 reinforces this trend. Between January and June, fintech and fintech-enabled investments in the country reached an all-time high of almost $167 million in a total of 31 deals, the report found. The report also states 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 funding deals and amounts raised. Last year, investments in the sector soared by 300%, and according to the platform on startups and venture investments Magnitt, fintech-led transactions activity among Egypt’s startups accounted for 17% of the total deals closed. Around 9 million Egyptians are already being served by fintech and fintech-enabled startups.
Karima el-Hakim, Egypt’s country director of Plug and Play, one of the world’s largest early-stage investor, accelerator and corporate innovation platforms and the first international accelerator to open in Egypt, said that these figures suggest that the sector is taking root. “Egypt is on the adoption level of the fintech space, with people being more adoptive on the technology as this is a global emerging market phenomenon,” she told Al-Monitor.
One example of a company in the dynamic Egyptian fintech sector that has been able to successfully spot an opportunity in the vast local market and offer a tech-enabled solution is Money Fellows. The company found a niche in the market in informal rotating savings and credit associations (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 intermediation of a financial institution, and has traditionally involved trusted social and family networks.
“This is a very cultural concept. You always find people on a ROSCA, continuously pulling money with friends and family. Over $700 billion rotate globally in ROSCAs, and it is not monitored; it is 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 roughly the same social circle who get together and agree to pay a fixed monthly installment of $1,000. At the end of each month, they will have raised $10,000 and one of the participants will take the amount. The wheel then keeps turning until the circle is complete and everyone has received $10,000. This way, participants can access alternative funding.
“That’s where the opportunity is. What we have done is digitize it. So people don’t need to know each other. We assess people’s financial health and capacity, and we accordingly manage to link them with others and join different slots. The bigger the pool is, the bigger the options are because you don’t only rely on your 10 close friends. And they are also fully guaranteed,” Wadi said. Money Fellows is currently active in 27 Egyptian cities and it is preparing to expand to other countries in the near future.
Among the main factors that make the Egyptian market attractive for the fintech sector, the study by the central bank not only recognized that it is, with over 100 million people, the most populated country in the region and the third in Africa, but also that the percentage of unbanked population stands at almost 50%. A high rate of mobile subscriptions and internet penetration, coupled with a median age of 24.7 years, are other elements that play in its favor. The coronavirus pandemic also accelerated its growth.
“Young people are growing up, they are starting to make more money and they are transacting digitally. And because now the population is young and everyone has a cellphone with internet, fintech becomes more relevant,” said Hakim, who has played a key facilitating role in the Egyptian entrepreneurship ecosystem since 2019.
She also noted that companies have a growing supply to ease their way, from enablers, such as incubators and accelerators, to professional talent, infrastructure and technology availability. “Establishing a company is also becoming much easier with time. And it is cheaper to start a company and find the team and the support,” she added.
Wadi noted that cultural affinity can also help. “It is easier to work in a market that understands the concept than introducing it into a new place. In Europe, we would have to educate people on 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 subsector in Egypt relates to payments and remittances (30%) followed by lending and alternative finance (13%), a common feature among nascent ecosystems. Further back are other subsectors such as personal finance management, accounting and expense management, payroll and benefits, and wealth management and savings, the central bank report found.
The most renowned company among the first ones, 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 hitting a market capitalization of over a billion dollars, and last year it increased its revenues up to 34%, its strongest year yet. Its strong performance made it one of the Egyptian companies chosen by Abu Dhabi Developmental Holding, the Emirati sovereign wealth fund, to buy part of its shares as part of a $2 billion investment package in the country announced in April.
Another company trying to follow suit is the payments service provider Paymob, which last May announced it had raised $50 million in its latest funding round, the largest Series B ever for a fintech platform in the country. The round was led by renowned 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 its road map is the 2019 Fintech and Innovation Strategy, which aims to promote the industry. The strategy is based on five pillars, and it includes measures directed at accommodating the demand, improving governance, facilitating availability and access to funding and talent, and creating a conducive regulatory environment.
As part of this strategy, on March 20, Egypt’s three largest national banks — Banque Misr, National Bank of Egypt and Banque du Caire — joined Global Ventures, a leading VC firm focusing on the Middle East and Africa region, to announce the launch of Nclude, a fund initially endowed with $100 million and established to accelerate Egypt’s fintech innovation. One of the beneficiary companies was the agricultural technology (ag-tech) startup Mozarea, founded in 2020 and dedicated to providing market access and credit to small Egyptian farmers.
Looking forward, the main barriers to growth facing the fintech sector in Egypt identified in the central bank report are limited technology savviness and trust 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 the regulatory framework.
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 considers that the industry should also convince international players and global VC to invest more in the business-to-consumer (B2C) fintech space, rather than the business-to-business model. “At the end of the day, you need a trust component. And fintech, in order to really make an impact, needs to talk to that C,” she concluded.