Six FinTech innovations will boost financial inclusion levels for disadvantaged communities in the Middle East and North Africa, according to Village Capital, which urges regulators and investors to support start-ups.
Savings and wealth building tech, employment tech, digital ID, financial literacy, access to capital and alternative lending, will all improve the financial health for the region's unbanked by democratising access to financial services, according to The State of Financial Health Start-ups report from the financial health accelerator, which was endorsed by MetLife Foundation.
Covid-19 has accelerated the already pressing need for services that bring the advantages of financial inclusion to large swathes of the population …
“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 programmes and partnerships in Mena, at Village Capital.
“Regulators and investors are among the best placed to create the conditions that allow innovation to thrive."
Financial technology that helps people manage their income, expenses, weather financial shocks and plan for a healthy financial future is urgently needed in the Mena region, which has the largest number of unbanked globally, according to the report.
Less than one in five adults in region hold bank accounts, which causes issues accessing financial services while electronic payments are still nascent and 85 per cent of all transactions are still cash based.
However, regional FinTech companies, which focus on lowering fees, reducing transfer times and making finance accessible to all, are set to attract $2.5 billion (Dh9.18bn) in investment by 2022, according to a separate study by Mena Research Partners.
Dubai International Financial Centre, for example, invested in four FinTech start-ups focused on improving the personal finances of residents across the region, including the roboadvisory Sarwa, earlier this month from its $100 million FinTech Fund.
The six FinTech innovations that will boost the region's financial health include:
1. Savings and wealth building tech
Most investment management firms in the region have “high fees and only work with wealthy clients” according to Village Capital. “Also, the barriers to entry for sources of investment income such as real estate tend to be high."
Financial health start-ups such as Rumman – a micro-saving investment app in Palestine or SmartCrowd in the UAE – a digital real estate investment platform that allows individuals to invest for as little as $1,300 – are companies democratising access to investment services, the report said.
2. Employment tech
With half of the Mena’s population aged under 25, the region has the highest rate of youth unemployment with more than a quarter of the population out of work last year, according to the financial health accelerator.
Financial health start-ups such as Kader in Jordan, which digitises recruitment for high turnover jobs in the hospitality and retail sectors, and Khtwteen in Egypt – which offers a better work-life balance through location-based jobs and part-time work – are creating systems that make it easier for people to find employment and the stability needed to become financially healthier, according to the survey.
3. Digital ID
Many in the region are unable to provide the basic identification they need to access formal financial services like a bank account. With the underbanked including "migrants or refugees who arrive in their new home without any paperwork" tech-based solutions that create digital identities for individuals and displaced populations are vital.
Start-ups such as Hawiyati in Jordan and the US, which enables mobile populations to record important information about their credit history and employment, and Valify Solutions in Egypt, that allows service providers to digitally identify their customers, will address the issue, according to the report.
4. Financial literacy
Financial literacy rates in the region can be as low as 13 per cent, such as in Yemen, according to the survey. Financial health start-ups such as Finllect in the UAE, a money management application where users can track and categorise their spending and build a budget, and the personal wellness app Merakido in Egypt, offer financial literacy through mobile phones and technology.
5. Access to capital
Small and medium-sized businesses account for 96 per cent of registered companies and about half of employment in the region, yet those businesses receive only 7 per cent of total bank lending – the lowest in the world, according to the survey.
Financial health start-ups such as Fawaterak in Egypt, an invoicing system for SMEs, and Fundbot in Lebanon, that helps SMEs access bank credit to fund working capital needs, are increasing access to traditional finance.
6. Alternative lending
Tight regulations have led to a $360bn credit gap for SMEs in the Middle East, however a lack of trust in alternative lending has slowed the development of this field. Pioneering financial health start-ups include Ciwa in Morocco, a digital lending application that offers traceability to previously informal financial transactions. and micro-lending platform Solfeh in Jordan, according to the report.
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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
Match info:
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WORLD RECORD FEES FOR GOALKEEPERS
1) Kepa Arrizabalaga, Athletic Bilbao to Chelsea (£72m)
2) Alisson, Roma to Liverpool (£67m)
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4) Gianluigi Buffon, Parma to Juventus (£33m)
5) Angelo Peruzzi, Inter Milan to Lazio (£15.7m
Who's who in Yemen conflict
Houthis: Iran-backed rebels who occupy Sanaa and run unrecognised government
Yemeni government: Exiled government in Aden led by eight-member Presidential Leadership Council
Southern Transitional Council: Faction in Yemeni government that seeks autonomy for the south
Habrish 'rebels': Tribal-backed forces feuding with STC over control of oil in government territory
Guide to intelligent investing
Investing success often hinges on discipline and perspective. As markets fluctuate, remember these guiding principles:
- Stay invested: Time in the market, not timing the market, is critical to long-term gains.
- Rational thinking: Breathe and avoid emotional decision-making; let logic and planning guide your actions.
- Strategic patience: Understand why you’re investing and allow time for your strategies to unfold.
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