We are all aware that the FinTech industry has completely revolutionised the financial sector in recent years with instant mobile payments, cryptocurrencies, and the introduction of digital identities, but it has also become the most active sector for Startups in the Middle East and North Africa region according to a recent report.
News of FinTech startups generally focusses on digital payments and e-commerce but the report, released in May 2020, suggests that FinTech is actually “improving financial health for the region’s most marginalized communities”.
In the MENA region less than 1 in 5 adults hold bank accounts, 85% of all payments are completed in cash, and almost 90% of the adult population are “underbanked” and struggle with accessing financial services.
This has perpetuated existing economic inequality in the area with the top 10% of the population controlling 60% of the region’s income.
The report studied startups working at the crucial intersection between Fintech and impact; those companies that are helping people to get their first bank account, source a business loan or access financial services.
It highlighted several areas where Fintech startups in the region are helping those who are financially marginalised, the findings are summarised below.
1. Savings and Wealth
Investing is vital for a secure financial retirement, but with many of MENA’s population being unable to afford high end investment firms, there are many barriers to this type of venture.
Fintech firms in the region, such as, SmartCrowd a digital real estate investment platform based in the UAE, is lowering the barriers to investment by allowing individuals to invest through fractional ownership with as little as $1300
With half the population of the Middle East and North Africa region being under 25 years old, the region suffers from high youth unemployment with an estimated 30% being unemployed in 2017.
Fintech startups in the region are working to ease this problem by supporting employment organizations and job seekers.
One example of this type of startup is Kader, based in Jordan, who are digitizing recruitment possibilities for the hospitality and retail sectors. Employers set up their profile then post a vacancy in a similar way to writing a text message.
3. Digital Identification
Many people in the MENA region struggle to prove their identity which stops them from accessing even basic financial services.
Some of these people are refuges or migrants with no official paperwork, who find themselves unable to get financial support from governments (especially amid the Covid-19 pandemic), leading to failing health, dire financial situations and a lack of even rudimentary provisions.
Startups such as, Valify Solutions based in Egypt, offer service-providers tools which enable a digital identification of customers. They are able to verify official documents remotely and gain information from certified data sources. Customers can use facial recognition, optical character recognition and Electronic Know-Your-Customer (eKYC) tools to help them prove their identity and gain access to vital services.
4. Financial Literacy
Understanding how to budget, and why it is essential to save, are rarely taught in schools within the MENA region.
Financial literacy rates are generally low in the area, but Fintech startups are finding new ways to educate people through their mobiles (often by gamifying financial learning) so they can better manage their finances in the future.
Startups such as, Finllect, based in the UAE, is a money management app that gives users the ability to monitor every financial transaction, categorizing spending, monitoring overall expenditure and building budgets.
It is designed for a young audience and offers incentives and rewards for good money management.
5. Financial Services for Small Businesses
Small and medium sized businesses in MENA account for 96% of registered companies, yet only 7% of total bank lending is directed to these smaller firms.
Increased lending to small and medium sized firms can improve finances and opportunities but innovation in this area has been slow in the region.
Fawaterak, an Egyptian startup, provides an invoicing system for smaller firms to enable collection of money from customers. It can track sales and customers’ data insights which can be used to improve cash flow.