Egypt’s national banks Banque Misr, the National Bank of Egypt, and Banque du Caire made good on their promise to invest more in financial technology startups (fintech) this week with the investment of some LE1.3 billion in a fund intended to support them.
Together with Global Ventures, a leading Middle East-focused venture capital firm, the three banks launched a fund called Nclude by Global Ventures following approval by the Central Bank of Egypt (CBE). Other investors include the eFinance Investment Group and the Egyptian Banks Company.
The fund’s strategy focuses on fintech and fintech-enabled businesses that are improving the digitisation of financial services across the economy, Basil Moftah, a partner at Global Ventures, told Al-Ahram Weekly.
While the initial investment in the fund is led by Banque Misr as an anchor investor and the National Bank of Egypt and Banque du Caire as strategic investors, Nclude aims to attract regional and international investors who see the potential of fintech in Egypt, Eslam Darwish, a partner in the fund, told the Weekly.
He said the fund fitted within the overall CBE strategy to broaden financial inclusion in Egypt through fintech innovation and to position the country as the fintech hub of the Middle East and North Africa (MENA) region.
There has long been a debate about whether fintech competes with the banks or if it is complementary to them, Darwish said. The fund demonstrates that fintech and the banks can partner together to solve real-world problems and deliver scalable commercial opportunities, he added.
“It is a demonstration of how far the banks are willing to go to commit to supporting the fintech ecosystem,” he said.
Nclude is one of the first and largest funds in the MENA region dedicated to fintech, showing the real leadership of the Egyptian banks and government of fintech over the coming years, Moftah said.
The fact that the fund involves some of the larger banks in terms of access to population gives startups an advantage in making the right impact with their technology and solutions, he added. “This partnership with the regulator, the banks, and fintech will allow the services to reach the people more seamlessly,” he said.
According to Darwish, the fund is capped at $150 million, and while it is too early to speculate, he said he saw a lot of demand for funding. “Egypt is a massive opportunity, in fintech specifically,” he said.
The fund has already made its first investments in four companies, Khazna, Lucky, Mozare3, and Paymob, all of which offer everything from technology-driven financial solutions to underserved consumers to direct access to financing for smallholder farmers.
“We are looking for ideas that can solve real problems on the ground and help to address financial inclusion,” Darwish said, commenting on the criteria for choosing the companies.
“First, we are attracted by the idea. Then, we do due diligence to make sure they are able to deliver what they promise,” Moftah said.
The selected companies undergo due diligence of between six and 10 weeks, during which the fund looks at the startup’s technology, making sure it is robust and scalable, is in good legal order, and has the proper licensing.
Customer and background checks and references are carried out on entrepreneurs and clients to make sure the products are needed by the market.
According to Moftah, the fund can invest between $500,000 and $5 million per company and can diversify its investment among multiple companies, giving an equal chance to many of them, he added.
The size of the funding depends on the stage the company is at. The earlier a company is on its fintech journey, the smaller the cheque may be.
The fund monitors the performance of companies selected for funding in more than one way. As part of a shareholder agreement with the companies, it is likely to take a seat on the board to supervise activities and exercise oversight on a monthly and quarterly basis.
It is also entitled to receive regular updates from companies about key performance indicators, he added. Global Ventures has a team that can help with investment support, recruiting, business development, fund raising and introductions to other investors. It works closely with each company and knows where the company may need help, he said.
Aside from the initial four startups selected for funding, the fund has a pipeline of potential investments in another ten to 15 companies. Among the areas covered are solutions enabling people to educate themselves about the financial services industry, an important route towards financial inclusion.
Another area is the Electronic Know Your Customers System, which allows banks to accept new customers electronically. This is a hot issue globally and complicated technologically, Moftah said, and there are some interesting Egyptian startups working to solve this problem.
According to Darwish, the new fintech law issued earlier this year will unleash the potential of the industry in Egypt. Already the number of technology-based startups has been rising, and some 570 startups are currently in the market, around a fifth of which are working in fintech.
Moftah believes that Egypt’s technology sector is booming partly because the Covid-19 pandemic drove a huge increase in the online consumption of content and services. There is increasing acceptance by Egyptian society that technology is a sector worthy of people’s careers, unlike in the past when young people may have preferred to study more traditional subjects.
But challenges do persist, such as the availability of skilled engineers, Moftah said. To be able to meet the demand by technology companies over the coming years, entrants to the market must polish their skills to keep up with new technologies, he said.
Another challenge is the adoption rate by consumers. While these are switching to Internet-based e-commerce, it may take them time to adapt fully, Moftah noted. Another challenge is that not enough people currently have credit cards and can pay online.
Moftah believes regulation allowing for electronic signatures is also important. He said that stakeholders were working on ways to do this, and when it becomes available it will make a huge difference.
Three years ago, credit cards were not allowed for use online in Egypt, and this issue has now been resolved. If Egypt is targeting a genuinely digital economy, it will be important to allow the use of electronic signatures with the right security in place, Moftah said.
In the meantime, Darwish believes the fund will be instrumental in facilitating relationships between stakeholders so that they can identify what is best for the larger ecosystem.
“Whatever is happening is working. It just needs the momentum to continue,” he said.
*A version of this article appears in print in the 24 March, 2022 edition of Al-Ahram Weekly.