As the popularity of cashless transactions continues to grow amid the COVID-19 pandemic, a new fund that exclusively targets fintech startups, hoping to invest in underexplored areas, has recently hit the Egyptian market.
Fintech guru Mohamed Okasha, co-founder and former managing director of Egypt’s pioneering Fawry Banking and Payment Technology Services, announced the launch of the $25-million Egypt-focused Disruptech fund in April.
“Almost all funds that exist in Egypt are quite generic,” Okasha told Zawya. “We need specialized funds that [can] invest in fintech startups by providing them not only with money but also with consultations. Such funds would also support startups in developing their business strategy and in networking so that they [can] mature at a faster pace.”
In recent months, there has been a growing appetite for investments in Egypt’s fintech companies, especially after the Central bank of Egypt (CBE) began encouraging digital financial transactions in order to reduce the dependency on cash, which may contribute to spreading the novel coronavirus.
“This is the best time to invest in financial services in Egypt,” said Okasha, who is a managing partner at Disruptech. “Most economic stakeholders prefer digital solutions and mobile applications and want to sell products and services in non-traditional ways.”
Last year, the CBE unveiled a strategy that recognized fintech as a crucial pillar to promote financial inclusion and transform the country’s banking landscape. This strategy aims to turn Egypt into a fintech hub in the Arab world and in Africa.
To create a momentum for the burgeoning sector, the CBE launched its first fintech sandbox in June 2019 and invited startups and companies specializing in e-KYC solutions. The CBE has also announced the allocation of EGY 1 billion ($61.8 million) to a fintech innovation fund, but this has yet to be launched.
Disruptech is on the lookout for startups whose business models focus on underserved fintech subfields, namely digital lending, electronic distribution of goods, open banking, e-commerce enablers as well as data analytics.
“We are focusing on five areas that are potentially greenfield in Egypt,” said Okasha. “These are areas where startups could grow quickly without any aggressive competition. We are staying away from traditional areas with big players.”
So far, Disruptech has closed six-digit investment deals with two Cairo-based startups: Brimore and Khazna.
Founded in 2017, Brimore is a social distribution platform that uses a mobile application to give local suppliers nationwide coverage through a network of individual distributors, mostly housewives. Brimore founders approached Disruptech to secure funding as well as mentoring for the addition of a fintech component to their business model, which could allow them to shift to cashless transactions and eventually launch a digital microfinancing service.
Khazna is a nascent fintech company that allows employers to offer salary advances to their employees through a mobile phone application. The company, which targets middle-income Egyptians, serves 100,000 workers so far. “We reach out to [Okasha] at least once a week for strategic decisions, but also for operational ones,” said Omar Saleh, co-founder and CEO of Khazna.
The Egyptian market is widely seen as a fertile regional ground for the fintech industry thanks to its unique demographics. In Jan 2020, the mobile phone penetration rate was estimated at 95.6 percent, and the number of mobile internet users reached 42.3 million, a remarkable feat in a population of 100 million. On the other hand, nearly 68 percent of Egypt’s adult population remains unbanked. This combination creates “a huge market gap” that fintech companies could fill, according to Okasha.
“A lot of people have no access to financial services because there are limitations to the banking infrastructure,” he said. “[But] these unbanked people have access to mobile phones and are digitally connected somehow. Hence, you can offer them financial services in non-traditional ways.”
A MAGNiTT 2019 report showed that fintech startups accounted for the highest number of deals in Egypt. However, a CBE 2019 market survey said that investment disbursements in fintech by domestic VCs, which account for a total of EGP 1.5 billion, remain “marginal”.
“Investments need to catch up with the promise of the fintech market,” said Ayman Ismail, the director of AUC Venture Lab. “Even if fintech startups could attract the largest number of deals, the potential is much bigger in terms of the number and size of investments.”