Egypt’s Booming Tech Scene Has A Fintech Space That’s Slow To Take Off

The speedy, meteoric rise of the booming tech landscape in Egypt can be considered one of the most remarkable yet underacknowledged developments in African tech over the last five years.

Within a relatively short period of time, Egyptian tech has gone from obscure footnote; to interesting surprise package; to impressive tech powerhouse in Africa – all within a few years. And having already scored its first unicorn in Fawry with the potential of registering another once Swvl lists publicly, Egyptian tech does look the real deal.

Throw in the fact that it is smashing records yearly and doing numbers [Egypt ranks No.3 (behind Nigeria and South Africa) in terms of African tech funding by country in 2021 with USD 588 M in 119 deals], and it’s evident that Egypt’s tech scene has moved into the big time in double time – having been somewhat late to the party.

“Egypt has always been a big market with potential for digital services and tech startups. However, it had been delayed compared to Nigeria, Kenya, or South Africa. But now Egypt is taking quick steps to take its rightful place,” says Mohamed Okasha, Managing Partner at DisrupTech Ventures, a Cairo-based venture capital fund.

“There is a lot of very innovative ideas that are happening in Egypt and the market is relatively large. With a very young population (75 percent are below 40 years old), most of whom are digitally connected given that smartphones and telephony is high, the capability to offer and consume digital services has never been this good in Egypt. In addition, the regulatory/government support has also helped tech startups and attracted investments.”

Egypt does appear to be building up an impressive track record in the tech startup environment. But strangely, Egypt wasn’t even really part of the ‘tech and venture capital in Africa’ conversation as recently as 2015; insipid activity and paucity of funding made sure of that.

However, fast-forward to 2021 and the country now matches – and even eclipses – more established startup ecosystems such as South Africa, Nigeria and Kenya for levels of entrepreneurial innovation and investment. But unlike its peers, Egypt’s tech boom seems to have missed an important sector that also happens to be venture capital’s most loved industry in emerging markets: fintech.

Unlike in other leading tech markets in Africa where the bulk of venture capital has historically been funnelled into ventures focused on financial technology or financial services, Egyptian tech has curiously taken a different route.

Across Nigeria, Kenya, and South Africa, the fintech sector has over successive years attracted the most funding, while also accounting for the greater population of startups and general activity. Investors famously poured almost USD 400 M into Nigerian fintech startups in one week in November 2019.

This year alone, fintech startups in Africa have raised USD 1.8 B in 2021 as of November. This amounts to almost 60 percent of all funding raised by all startups so far. Fintechs also raised the most funding by any sector for each of the last 3 years, totaling up to USD 3 B across 398 deals. But in Egypt, the funding favourites have largely been e-commerce and retail-tech.

According to the Egyptian Startup Ecosystem Report 2021 by Disrupt Africa, the e-commerce and retail-tech sector has 117 active ventures in Egypt,  accounting for 20.8 percent of Egypt’s tech startups. This is around twice the number of companies active in the fintech space, which comes in second.

Egypt is unusual from an African perspective in that fintech is not the lead sector when it comes to levels of activity. And the reason for the e-commerce dominance is hardly far-fetched.

“Egypt is a consumer-oriented market – with private consumption accounting for approximately 90 percent of GDP, making retail the first obvious sector to move to digital. Since e-commerce acts as a catalyst for fintech, we should see both categories growing fast in the next few years,” says Sumair Farooqui, Co-Founder of Kashat, a lending startup.

Generally, studies have shown that the level of financial inclusion in North Africa is still one of the lowest worldwide. There, a distrust for banks and indifference towards fintechs is slowing down efforts at banking the underprivileged populations, inhibiting competitiveness and growth in the region.

The common perks of financial inclusion that can bring about socio-economic upliftment in the region via savings, payments, credit, and insurance, are scarcely available.

Cash remains king in Egypt, and startups and governments have before now struggled to get people to go digital with their financial transactions, even though, ironically, Egypt boasts one of the best mobile phone penetration rates on the continent – 95 million mobile connections for a population of 102 million.

Although some improvements have been recorded, the majority of adults in Egypt remain either underbanked or unbanked. Innovations in financial technology can help turn the tide and it appears the local ecosystem is finally awakening to that.

“Today, there are many fintech players in the Egyptian market offering a variety of services ranging from bill payments and personal investments, to crowd-funding and lending. The Federal Regulatory Authority (FRA) has added a new provision to the existing microfinance law last year, in order to allow nano financial providers, like Kashat, to offer small, short-term productive loans to the masses,” says Farooqui.

“With the right regulatory moves taking place, fintech has already shown signs of surpassing its predecessors, in terms of investment attractiveness. Taking Fawry’s recent IPO as a precursor, fintech is only posed to grow from strength to strength. The country’s overall mission for financial inclusion has regulators introducing new frameworks facilitating digital transformation, and paving the way for startups, especially fintechs, to thrive,” he added.

It’s taken quite some time for fintech to get going in Egypt. There, fintech startup activity goes as far back as 2009 in Egypt, yet no more than one launch per year occurred until 2015, and no more than eight annually until 2018. That year, 13 fintech startups launched in Egypt, ushering in a period of busy activity as another 13 opened their doors in 2019 and a further 14 in 2020.

Fintech, a leading sector elsewhere on the African continent, had a slow start in Egypt, with startups securing combined totals of just USD 250 K in 2017, USD 1.76 M in 2018 and USD 4.4 M in 2019, according to the ESE report.

The sector’s share of total funding nonetheless increased year by year, and in 2020 the USD 13.3 M raised by Egyptian fintechs accounted for almost 10 percent of the total. 

In 2021, fintech funding appears to be finally finding its feet in Egypt, belated but bullish. The sector is responsible for more than one-third of the total raised by Egyptian startups in the first nine months of 2021, and claimed top spot having usurped e-commerce. Startups like Paymob, MNT Halan, NowPay, Khazna, Cassbana, Bee, Masary, etc., are some of the notable startups in Egypt’s fintech space.