Middle East FinTech sector could raise more than $2bn by 2022, Milken says

The Middle East’s FinTech companies will raise more than $2 billion (Dh7.34bn) in venture capital by 2022 given the rapid growth of the sector and the accelerating uptake of technology across the region, according to the Milken Institute Centre for Financial Markets.

The FinTech sector in the region is growing at a compounded annual growth rate (CAGR) of 30 per cent and will boost the funding from $80 million raised by 30 firms in 2017, the Washington-based organisation said in a report. The acceleration in financing to over $2bn will come from 465 FinTech firms in the Middle East, according to the institute's estimates.

“While the Mena region represents only 1 per cent of FinTech investment globally, the demographics of the region and the region’s geographic position as a 'gateway' linking East with West are favourable for FinTech growth and development. Platforms focused on the payments space, in particular, are big winners in the region,” the report said.

The UAE, in particular, is a driving force in remittances due to its expatriate population, which represents roughly 90 per cent of the country’s total population, according to the report.

In 2017, expat remittances from the UAE totalled $44.5bn three-quarters of which was transferred through money exchange companies and one-quarter sent through banks. India, Pakistan, and the Philippines were the top three receiving countries.

“The substantial penetration of mobile devices and internet connectivity has partially driven this activity in the region. In the Middle East, mobile penetration topped 100 per cent in 2017, while smartphone penetration neared 60 per cent,” the report said.

“In 2019, Bahrain, the UAE, and Qatar are among the most penetrated markets in the world. Saudi Arabia and Kuwait will join those three countries in launching 5G networks in 2019, the report said adding “the UAE and Bahrain are emerging as FinTech hubs in the Middle East due to favourable policies of the government”.

Government efforts to diversify economies away from oil is leading officials in both countries to establish a welcoming legal and regulatory environment for FinTech start-ups, it said.

In Bahrain, the country’s central bank is playing an important part in boosting the sector while in the UAE, financial free zones including Abu Dhabi Global Market (ADGM) and Dubai International Finance Centre (DIFC) are spearheading the development, the report said.

DIFC established a $100m FinTech Fund to support start-ups specialising in artificial intelligence, blockchain, and robotics and the $150m Ghadan Ventures Fund at ADGM is focusing on co-investment in technology start-ups located in Hub71.

Hub 71 was created in ADGM earlier this year to encourage early start-ups to set up shop in Abu Dhabi. The creation of the new tech hub forms part of Dh50bn Ghadan 21 programme of the government to boosting the local economy and attracting investments.

“As such, these funds provide additional incentive for firms considering whether to open up operations in ADGM or DIFC,” it said.