Fintech Startups Promise a Glimpse of Hope to Unbanked and SMEs

With Egypt chasing an ever-expanding digitization process, the need for a digital economy has become more pressing. Accordingly, Fintech startups are now taking a centerstage position in the evolving Egyptian financial industry. Fintech startups are stepping in to provide innovative financial solutions to a big sector of unbanked citizens and Small and Medium Enterprises (SMEs).

The Egyptian government along with the Central Bank of Egypt are creating a favorable environment in which new applications can be tested in a live context, to develop tailored financial solutions to both consumers and businesses. The government is also issuing laws to facilitate and organize the work of Fintech startups.

Laws & regulations supporting Fintech

In July of 2020, the Financial Regulatory Authority (FRA) drafted the Fintech Law to regulate the use of Fintech to deliver Non-Banking Finance (NBF) services. The draft law provides a set of regulatory guidelines for Fintech businesses, ensures transparency, and creates the legal framework needed to support NBF services.

It also covers a wide array of services including crowdfunding, robo-advisory, microfinance, insurtech, artificial intelligence, mobile applications, and digital platforms. The upcoming legislation is expected to dovetail with the E-payments Act, the Central Bank and Banking Act and the Personal Data Protection Act (Law 151 of 2020)

Fintech extends the reach of financial services for the unbanked

In terms of global funding, the World Bank allocated $200 million for Fintechs in 2019 to increase the supply of seed, early-stage and venture capital to riskier and innovative startups3.
A prominent example of the local support of Fintechs is a project to issue a debit card called (Meeza) for all Egyptians to access their salaries and pay for government services.

What Fintech can do for SMEs

Fintech startups extend a helping hand to SMEs who have been hard hit by the impact of the coronavirus pandemic. SMEs are particularly vulnerable as they contend with reduced demand, disrupted supply chains and worsening financial funding access. Now, more than ever, it is vital that SMEs are provided with the necessary financial backing to survive and grow.

With only 45% of finances made available by the CBE and local banks being used to support loans to SMEs, investors — who lack collateral — are now looking at non-traditional lending sources like Fintech startups. With a traditional loan, even if an SME can produce audited financial statements, tax returns and five-year projections, the chance of a loan at the end of an application can still take weeks to attain which may be detrimental to a business’s survival.

Alternatively, Fintech startups — using advanced analytics platforms — can establish creditworthiness to SMEs, evaluate risk more easily, and issue loans in as little as 24 hours. These new and innovative financial solutions are better positioned to serve SMEs’ financing needs, help unlock their potential and dodge financial crises.

Ultimately, Fintech startups offer a glimmer of hope to rescue struggling SMEs and unbanked citizens who have no credit history, start their own business or simply execute their transactions in a more efficient and easier way. Fintechs are changing traditional banking and financial services globally and Egypt still has a long road ahead to cross, including educating and training the unbanked and facilitating SMEs access to credit loans.