A report endorsed by MetLife Foundation identifies the six types of innovation with the greatest potential to improve the financial wellbeing and inclusion of marginalised communities in MENA.
The report by Village Capital, called ‘The State of Financial Health Startups,’ makes the case for regulators and investors to support the efforts of early stage firms in these six key areas.
It also highlights twelve such startups that are applying technology to help financially excluded people and small businesses manage their income and expenses, withstand financial shocks or plan for a healthy financial future.
One of those startups is Ciwa from Morocco, a digital solution for securing and managing tontines, rotative savings and credit communities.
“COVID-19 has accelerated the already pressing need for services that bring the advantages of financial inclusion to large swathes of the population and by extension national economies,” said Alicia Sornson, manager programs and partnerships in MENA, at Village Capital.
“Regulators and investors are amongst the best placed to create the conditions that allow innovation to thrive and working closely with experts and entrepreneurs in the region we have identified the six most promising areas for them to back. However, regulators need to make it easier for fintechs in such areas to operate, much as they have in Tunisia with the Payment Establishment Circular bill. Investors for their part need to channel record breaking levels of fintech investment beyond GCC countries. Countries such as Jordan and Morocco for example have high potential startups with an intimate understanding of local markets and increasingly sophisticated ecosystems.”
The six types of fintech innovation that will boost the ‘financial health’ of MENA’s disadvantaged groups by democratising access to financial services are:
1. Savings and wealth building tech
Smart investing is key to a successful retirement, but most investment management firms in MENA have high fees, and only work with wealthy clients. Also, the barriers to entry for sources of investment income such as real estate tend to be high. Financial health startups such as Rumman (Palestine) or SmartCrowd (UAE) are democratising access to investment services and unlocking assets for people in the region.
2. Employment tech
Half of the population in MENA is under 25 years old, and the region is home to the highest rate of youth unemployment: Over 25% of young people were unemployed in 2019. Financial health startups such as Kader (Jordan) and Khtwteen (Egypt) are creating systems that support organisations and job seekers, making it easier for people to find employment and the stability needed to become financially healthier, and gain access to insurance and credit.
3. Digital ID
In 2017 86% the adult population in MENA was underbanked, a key reason being that many people are unable to provide basic identification, which prevents them from accessing formal financial services like a bank account. Many of the underbanked are migrants or refugees who arrive in their new home without any paperwork. As governments roll out stimulus plans in reaction to the COVID-19 pandemic, a lack of access to formal financial services will even further exclude vulnerable populations from financial support. Financial health startups such as Hawiyati (Jordan/US) and Valify Solutions (Egypt) are creating tech-based solutions to create digital identities for individuals and displaced populations.
4. Financial literacy services
Financial literacy skills like saving and budgeting are rarely taught in schools or homes in MENA. For instance, in Yemen the financial literacy rate is 13%, one of the lowest in the world. Financial health startups such as Finllect (UAE) and Merakido (Egypt) are offering financial literacy through mobile phones and technology, helping people manage their money more effectively.
5. Access to capital
In places like MENA with large informal economies, small and medium-sized businesses account for a large percentage of employment and economic activity. MSMEs account for 96% of registered companies and about half of employment in MENA, yet those businesses receive only 7% of total bank lending — the lowest in the world. Financial health startups such as Fawaterak (Egypt) and Fundbot (Lebanon) present a considerable opportunity to increase access to traditional finance for these small businesses.
6. Alternative lending
Alternative lending offers more equitable and transparent access to capital for growing companies. In the Middle East, tight regulations have led to a $360B credit gap for SMEs. MENA has seen slow innovation in alternative lending compared to other regions such as the US and Europe, but progress is being made. A lack of trust in such platforms is one of the primary hurdles alternative lending platforms need to overcome for success. Pioneering financial health startups include Ciwa (Morocco) and Solfeh (Jordan).
The report follows Finance Forward MENA, the first of two accelerator programs for the region’s inclusive fintechs convened by Village Capital, MetLife Foundation and PayPal. It includes the insights of experts such as Cem Baytok, managing partner at idacapital, Reda Maamari, founder of the Arab Financial Inclusion Innovation Prize and Emile Cubeisy, managing partner at Silicon Badia.
The report can be downloaded here: https://newsandviews.vilcap.com/reports/financial-health-mena