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Fintech startups in the Middle East and North Africa have raised $100-million over the last decade, yet 28% fail in their initial years, says a new report by business support organisation Wamda and online payment gateway Payfort.
Released last month the report, titled State of Fintech: Unbundling the financial service sector in MENA, estimates that about $50-million in investments are expected to go to fintech startups in the Middle East and North Africa (MENA) region this year.
The region was home to 105 fintech startups by the end of 2015 (see featured image), with half of these having been launched since 2012. In all 30 firms are situated in North Africa. The UAE leads with 30 fintech startups, followed by Egypt with 17 and Jordan and Lebanon with 15 each.
10% of fintech startups in the region account for 43% of investments
Just 10% of fintech startups in the region account for 43% of investments and employ 55% of the 1600 employees in the sector.
The average fintech entrepreneur is a male university graduate in his late 20s or early 30s, with experience abroad.
While the report reveals that the biggest challenge faced by fintech startups is dealing with financial regulations, fintech startups in the region must still overcome trust, a lack of understanding among the banked population and a preference by those residing there for cash over other forms of payment.
However the report said a number of reforms and new regulations point to increased awareness on a policymaker level. These include new mobile money regulations in Egypt and a special jurisdiction in the UAE (called a fintech sandbox) to allow fintech startups to test their ideas without having to comply with all regulatory bodies.
“What is truly lacking are support mechanisms”
“Any structure to test ideas away from the regulatory eye would be great, but it’s not regulations that are stopping startups. What is truly lacking are support mechanisms – look how the UK is encouraging entrepreneurs through coworking spaces, grants, tax breaks and much more,” commented Willie Elamien of Egypt’s Flat6Labs, in the report.
The report noted that just one in four fintech startups in the region receive support from accelerators.
Despite the challenges the report said fintech startups, particularly peer-to-peer platforms, can play an important part in increasing lending to SMEs, which make up over 80% of firms in the region yet account for just 8% of credit lending by Arab banks across the region.
The report says if Egypt had the startup density (fintech per million inhabitants) of the UAE, it would host 350 fintech startups. It recommends that the country capitalise on fintech accelerators to convert parts of the informal economy into a cashless formal economy with access to financial services.
Two fintech accelerators were added in 2016 — the 1864 Accelerator and AUC Venture Lab FinTech Accelerator both in Cairo.
For Tunisia and Morocco the report says policymakers there should incentivise startups to build on top of the national payment system, while removing monopolies and encouraging competition and corporate startup collaboration.
Featured image: Extracted from ‘State of Fintech’ report