Fintech: a force for financial inclusion in Palestine

ByRichard C. Sloan

Dec 27, 2021

Majd Zghyer is Strategy Manager at uMake, an entrepreneurship support organization (ESO) based in Ramallah, Palestine.

This year, investor appetite has shifted towards innovative startups that aim to disrupt and transform the financial services industry. A recent report from KPMG recorded that in the first half (S1) of 2021, investments in financial technology (fintech) companies in Europe, the Middle East and Africa (EMEA) reached $ 39.1 billion. out of 792 deals, almost double the 2020 fintech investments of $ 26. It is important to note that the global FinTech market is expected to grow at a compound annual growth rate (CAGR) of around 20% over the next four years.

The global financial technology investment boom in 2021 shows the enormous opportunities that are unlocked in this dynamic and rapidly changing space in the post-Covid-19 era. Indeed, transformative and greater opportunities have been made possible by advancements in digital technologies, including big data, artificial intelligence (AI), machine learning, crypto-assets and blockchain. Strictly speaking, these technologies have led to the proliferation of fintech startups that aim to provide efficient and competitive solutions to problems in various sub-sectors such as payments, open banking, personal finance, wealth management, banking services, etc. insurance and many more.

In the Middle East and North Africa (MENA) region, fintech startups have closed the highest number of deals to become the most funded industry in the first half of 2021 according to Wamda. Some of the biggest tricks of the year were to Buy Now Pay Later (BNPL), including the $ 110 million raised by Saudi Arabia-based Tamara in April 2021. More importantly, the FinTech sector drew the attention of policy makers in the region who recognize the important role of financial innovation in harnessing digital transformation and achieving sustained economic growth. For example, the Dubai International Financial Center (DIFC) and Abu Dhabi Global Markets (ADGM) have both created a legal base to nurture, support and develop fintech startups in the United Arab Emirates. Likewise, Bahrain Fintech Bay continues to offer advanced services and infrastructure that enable experimentation and innovation while the Central Bank of Egypt (CBE) provides Egyptian fintech startups with access to finance through the fund. one billion EGP launched in 2019. Undoubtedly, advancing the fintech sector in the MENA region can offer a wide range of opportunities for economic empowerment through its role in reducing the cost of reaching people underbanked and financially excluded as well as the positive spillover effects that could be achieved in various industries and verticals.

The path to financial inclusion in Palestine

Unfortunately, speaking of financial innovation in the MENA region, very few people would think of Palestine as a fintech hub. This perception is understandable given the uncertain political reality of the country due to long years of conflict, occupation and severe restrictions imposed on the Palestinian economy. Of course, the non-existence of a sovereign national currency and the absence of an independent monetary policy are among the main obstacles that have hampered the development of an environment conducive to fintech innovation.

Nonetheless, it should be recognized that despite the challenges, the Palestinian Monetary Authority (PMA) has succeeded in fulfilling most of the responsibilities assigned to any independent central bank – with the exception of the ability to issue a national currency. . PMA has been able to ensure the efficiency and stability of the banking sector by adhering to globally recognized best financial practices. In fact, today around 60% of adults (aged 15 and over) in Palestine have bank accounts and have access to basic banking services such as savings and loans. In addition, the Palestinian Capital Market Authority (PCMA) has played a central role in monitoring the performance of the non-bank financial sector, including insurance, leasing, mortgage finance and securities trading companies. .

In recent years, Palestinian policymakers and regulators have started to pay more attention to the FinTech sector and consider its socio-economic impact. For example, in April 2020, the PMA authorized the use of mobile payment services and digital wallets. And in January 2021, she created the National Fintech Intervention force which aims to streamline collective efforts to explore the potential of the FinTech sector and promote it in Palestine. However, according to the “National Strategy for Financial Inclusion in Palestine: 2018-2025“, The country continues to experience low levels of access and use of financial services where large numbers of adults remain excluded from the formal financial system.

While 60 percent of adults have bank accounts, only 10 percent use credit cards and about 8 percent have insurance policies. Ultimately, an estimated 63.6% of the adult population in Palestine (the equivalent of 1.57 million adults) fall into the financially excluded category. In other words, despite its importance, having a bank account is seen as the first step towards financial inclusion. Therefore, tackling the challenges of financial exclusion requires greater intervention by governing bodies as well as the presence of genuine public-private partnerships aimed at including wider segments of society in the formal financial system.

the challenges of accessing financial services are not limited to individuals. In fact, Palestinian small and medium-sized enterprises (SMEs) continue to face obstacles in accessing conventional financing opportunities through banks and credit institutions. It is believed that alternative technology-based financing options (such as crowdfunding and peer-to-peer lending) can play an important role in closing the estimated annual financing gap for SMEs of $ 630 to $ 900 million.

That being said, it should be noted that with a mobile phone penetration rate of over 85% and internet usage rate of 70%, fintech startups could play a major role in achieving ambitions. national financial inclusion through digital technology. . The young and tech-savvy Palestinian population (around 65% are under 29) can also provide fertile ground for the adoption of innovative technological solutions in financial services. There is no doubt that raising awareness of the importance of financial inclusion, upgrading digital infrastructure across the country and reforming the regulatory environment still represent some of the key prerequisites on the path to greater financial inclusion in Palestine through exploitation, development and investment in fintech. solutions.

The rise of impact-driven fintech

As history has shown, real innovative solutions can come from the most unexpected places. Specifically, transformative innovations in emerging markets generally respond to existing local challenges and, therefore, they play a critical role in meeting development needs and unlocking many untapped opportunities along the way. While 1.7 billion adults are still unbanked globally, fintech has the potential to make financial services more accessible to a growing number of beneficiaries. An inspiring example in the impact-driven fintech space is the successful Kenyan mobile banking and money transfer company, M-Pesa, which has successfully transformed the challenges of accessing financial services into viable opportunities not only in Kenya but across sub-Saharan Africa. Africa. By targeting the vast unbanked and financially excluded population, M-Pesa developed a simple technological solution that enabled people to withdraw, send, receive and save money, pay for goods and services and access credit simply by using their mobile phone.

Likewise, Egypt’s leading digital transformation and electronic payment platform, Fawry, has been able to revolutionize financial service delivery through its multiple payment options, including online, mobile wallets, ATMs and points. sale to detail. The impact of Fawry’s success is evident in its ability to earn the trust of 29.3 million customers and process over three million transactions daily.

Impact-driven fintech innovation can also help close the financing gap for SMEs in emerging markets. One of the clearest models in this area is the Jordan-based digital lending platform Liwwa which aims to simultaneously offer loans to small businesses and enable investors / lenders to generate competitive returns and achieve online profits. To date, Liwwa has taken out approximately $ 65 million on more than 1,200 small business loans. Liwwa’s innovative offerings are believed to help support job creation and income growth in the Mena region.

In addition to monetary transactions, the scope of financial inclusion can be extended to include various areas such as insurance services. One such example is BIMA which has succeeded in becoming the world leader in providing insurance to millions of low income consumers in Africa and Asia through mobile phone technology. In fact, around 75 percent of BIMA’s customer base is made up of new policyholders who have been overlooked by traditional players in the insurance industry.

Certainly the common denominator between M-Pesa, Fawry, Liwwa and BIMA is their ability to help open new avenues of economic progress for low-income people and small businesses by focusing on reaping the benefits of greater great financial inclusion. Therefore, what Palestinian startups, businesses and regulators can learn from these examples is the need to focus on harnessing digital solutions to meet development challenges. Furthermore, many of these challenges are not unique to Palestine and can be seen in various countries of the emerging world, thus providing an opportunity to create scalable solutions tailored to the needs of broader segments of potential consumers. In short, rather than seeing it as a challenge, targeting the financially excluded and underserved population may offer unprecedented opportunities to trigger and promote impactful and scalable fintech innovation in Palestine and across the MENA region.


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