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Majd Zghyer is Strategy Officer at uMake, an Entrepreneurship Support Organization (ESO) based in Ramallah, Palestine.
This year, investor interest has turned to innovative startups aiming to disrupt and transform the financial services industry. A recent KPMG report shows that investment in financial technology (Fintech) companies in Europe, the Middle East and Africa (EMEA) reached $39.1 billion in the first half of 2021, involving 792 transactions, almost double the Fintech investment in 2020 Total $26. Importantly, the global fintech market is expected to grow at a compound annual growth rate (CAGR) of around 20% over the next four years.
The global fintech investment boom in 2021 shows that this dynamic and fast-growing sector is unlocking huge opportunities in the post-Covid-19 era. In fact, advances in digital technologies such as big data, artificial intelligence (AI), machine learning, cryptoassets, and blockchain have brought about transformative and greater opportunities. Strictly speaking, these technologies have led to the proliferation of fintech startups that aim to provide efficient and cost-competitive solutions to problems in various sub-sectors such as payments, open banking, personal finance, wealth management, insurance services, etc. .
In the Middle East and North Africa (Mena) region, fintech startups completed the highest number of deals and became the industry with the most funding in the first half of 2021, according to Wamda data. Some of the largest funding rounds this year have gone to buy now, pay later (BNPL) startups, including the $110 million raised by Saudi Arabia-based Tamara in April 2021. What’s more, the fintech industry has attracted the attention of policymakers across the region, who recognize the important role that financial innovation plays in harnessing digital transformation and achieving sustained economic growth. For example, the Dubai International Financial Center (DIFC) and the Abu Dhabi Global Market (ADGM) have both laid the legal foundation to nurture, support and expand fintech startups in the UAE. Likewise, the Bahrain FinTech Bay continues to provide advanced services and infrastructure to enable experimentation and innovation, while the Central Bank of Egypt (CBE) provides access to financing for new Egyptian fintech startups through an EGP 1 billion fund launched in 2019 . There is no doubt that driving the fintech industry across the MENA region can provide a wide range of opportunities for economic empowerment by reducing the cost of serving underbanked and financially excluded populations and realizing positive spillover effects across various industries and business verticals. .
Palestine’s path to financial inclusion
Unfortunately, when talking about financial innovation in the MENA region, few think of Palestine as a fintech hub. This perception is understandable given the country’s uncertain political reality due to years of conflict, occupation and severe restrictions on the Palestinian economy. Of course, the non-existence of a sovereign national currency and the lack of an independent monetary policy are one of the main obstacles to the development of an enabling environment for fintech innovation.
Nonetheless, it is worth recognizing that despite the challenges it faces, the Palestinian Monetary Authority (PMA) has managed to fulfill most of the responsibilities assigned to any independent central bank – except for the ability to issue its own currency. The PMA ensures the effectiveness and stability of the banking industry by adhering to globally recognized financial best practices. In fact, today approximately 60% of adults (15 years and older) in Palestine have a bank account and have access to basic banking services such as savings and loans. In addition, the Palestinian Capital Markets Authority (PCMA) plays a key role in overseeing the performance of the non-bank financial sector, including insurance, financial leasing, mortgage financing and securities trading companies.
In recent years, Palestinian policymakers and regulators have begun paying more attention to the fintech industry and considering its socioeconomic impact. For example, in April 2020, the PMA granted permission to use mobile payment services and digital wallets.and created the National Fintech Center in January 2021 task force Aiming to streamline collective efforts to explore the potential of the fintech industry and promote it in Palestine. However, according to thePalestinian National Financial Inclusion Strategy: 2018-2025“, Access to and use of financial services remains low in the country, and large numbers of adults remain excluded from the formal financial system.
While 60% of adults have a bank account, only 10% use a credit card and about 8% hold an insurance policy. Ultimately, it is estimated that 63.6% of Palestine’s adult population (equivalent to 1.57 million adults) falls into the economically excluded category. In other words, while having a bank account is important, it is considered the first step towards financial inclusion. Addressing the challenge of financial exclusion therefore requires greater intervention by governing bodies and the establishment of genuine public-private partnerships aimed at bringing more segments of society into the formal financial system.
Challenges in accessing financial services are not limited to individuals. Indeed, Palestinian SMEs continue to face obstacles in accessing traditional financing opportunities through banks and credit institutions. It is believed that alternative technology-enabled financing options, such as crowdfunding and peer-to-peer lending, can play an important role in filling the estimated $630-900 million annual financing gap for SMEs.
Having said that, it is worth noting that with mobile phone penetration exceeding 85% and internet usage reaching 70%, fintech startups may play a huge role in achieving the country’s financial inclusion goals through digital technology. Palestine’s young and tech-savvy population (approximately 65% are under the age of 29) can also provide fertile ground for the adoption of innovative technology solutions in the financial services sector. Undoubtedly, raising awareness about the importance of financial inclusion, upgrading digital infrastructure across the country and reforming the regulatory environment remain some of the key prerequisites for Palestine to leverage, develop and invest in fintech to achieve greater financial inclusion. solution.
The rise of impact-driven fintech
As history shows, truly innovative solutions can come from the most unexpected places. Rather, transformative innovations in emerging markets often address existing local challenges and therefore play a key role in addressing development needs and unlocking many untapped opportunities. Although 1.7 billion adults worldwide remain unbanked, fintech has the potential to make financial services more accessible to a growing number of beneficiaries. In the impact-driven fintech space, the success story of Kenyan mobile banking and remittance company M-Pesa is an inspiring example of a company that has successfully turned the challenge of accessing financial services into viable opportunities, not just in Kenya, but And throughout sub-Saharan Africa. Targeting the vast unbanked and economically excluded population, M-Pesa has developed a simple technology-enabled solution that allows people to withdraw, send, receive and save money and pay for goods and services simply using their mobile phone and access to credit.
Likewise, Fawry, Egypt’s leading digital transformation and e-payments platform, has been able to revolutionize the delivery of financial services through its multiple payment options, including online, mobile wallets, ATMs and retail point-of-sale channels. Fawry’s success is evident in its ability to win the trust of 29.3 million customers and process more than 3 million transactions every day.
Impact-driven fintech innovation can also help address the financing gap for SMEs in emerging markets. One of the clearest models in this space is Jordan-based digital lending platform Liwwa, which aims to simultaneously provide loans to small businesses and enable investors/lenders to generate competitive returns and earn profits online. To date, Liwwa has underwritten approximately $65 million in more than 1,200 small business loans. It is believed that Liwwa’s innovative products will help support job creation and income growth in the MENA region.
In addition to currency transactions, the scope of inclusive finance can also be extended to different areas such as insurance services. One such example is BIMA, which has successfully become a global leader in providing insurance through mobile phone technology to millions of low-income consumers in Africa and Asia. In fact, around 75% of BIMA’s customer base is first-time insured and they have been overlooked by traditional players in the insurance industry.
Of course, the common thread between M-Pesa, Fawry, Liwwa and BIMA is their ability to help low-income individuals and small businesses create new pathways for economic progress by focusing on reaping the benefits of greater financial inclusion. What Palestinian startups, businesses and regulators can therefore learn from these examples is the need to focus on leveraging digital solutions to address development challenges. Furthermore, many of these challenges are not unique to Palestine and may be experienced by various countries in the emerging world, providing opportunities to create scalable solutions that can accommodate the needs of a wider range of potential consumers. In short, rather than viewing it as a challenge, targeting the financially excluded and underserved can provide unprecedented opportunities to inspire and promote Palestine and the entire Middle East and Impact-driven and scalable fintech innovation in North Africa.
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