Egyptian financial inclusion on the rise despite economic turmoil

In one of the most challenging macroeconomic environments in the Middle East and north Africa region, Egypt can at least take pride in increasing financial inclusion.

The number of adults in the country with access to bank account services — via either bricks and mortar lenders or mobile providers — remains low compared with the global and regional average, with the country still home to one of the world’s largest unbanked populations (see chart).

Yet, the country has seen steady progress in the last 15 years, with 27 per cent of adults having access to banking services in 2021, compared with just 14 per cent in 2011, according to data from the World Bank’s most recent Findex survey.

The increase is largely attributable to the proliferation of new digital entrants offering mobile wallets and micro-lending solutions, with the latter proving increasingly important in the country’s high-inflation environment.

And while there is a way to go yet, the growth of such players may well see digital payments challenge the dominance of cash-based transactions in the country in the coming years.

“While cash is still king when it comes to everyday transactions, its use is decreasing at an increasing rate,” says Mounir Nakhla, CEO and co-founder of MNT-Halan, a digital loans and payment company that became the country’s first fintech unicorn in 2023.

The most populous nation in the Middle East and north Africa, Egypt’s financial inclusion score was the worst in the region in 2011. Just 10 per cent of adults had access at the time, according to the World Bank, thanks to low levels of financial literacy and cultural limitations on women in particular.

“Many people still find that banks are an intimidating environment, where it can be a challenge to walk in and open an account,” says Nakhla.

“People will often prefer to keep their money in the post office than a traditional bank.”

While much has changed since 2011, the World Bank found even 10 years later that two-thirds of adults said they would need help using an account at a financial institution.

This is particularly the case for women, who remain less banked than their male counterparties, with cultural restrictions on access to services from traditional lenders.

“It is less customary from a cultural perspective in Egypt for a woman, especially in a village, to walk into a bank on her own. She would usually be accompanied by her husband or another male relative,” says Nakhla.

“This is less true for women in cities and even less so for people in higher income brackets. But the majority of the population are still based in villages and are in a lower income bracket.”

Only 24 per cent of Egyptian women had an account in 2021, compared with 27 per cent for the population as a whole, according to World Bank data.

Where there’s a will, there’s a wallet

As in much of the rest of Africa, gains in financial inclusion and account ownership since 2011 have come largely as a result of a rollout of a series of digital finance initiatives. These accelerated from 2017 onwards, following the formation of the country’s National Payments Council, under the chairmanship of Egyptian President Abdel Fattah al-Sisi. The council oversaw the rollout of the country’s Meeza electronic payment system for local payments in 2019, with a view to increasing the use of digital payments in the country.

Of particular importance has been the licensing and empowering of private sector mobile wallet providers from 2020 onwards (a move that came seven years after the first mobile wallets were launched by the country’s telcos in partnership with traditional lenders). The number of mobile wallets has grown by 74 per cent between 2020 and June 2023, according to data from the Central Bank of Egypt, compared with a growth of 34 per cent for account holders as a whole over the same period.

The CBE had licensed 30 mobile wallet providers as of the end of June, which together handled more than 85 million monthly transactions worth over E£10bn ($323.7mn). Nakhla said that MNT-Halan processed around $100mn worth of transactions per month via its wallets.

The company expanded its payments offerings in December with the launch of a digital and physical spending card for use on the Meeza network, with a backend link to Arab African National Bank.

Buy now, pay later (to keep ahead of rising prices)

Of particular interest has been the rise since 2021 of micro-lending and buy now, pay later services from mobile wallet providers like MNT-Halan, Kashat, Fawry and Tamweely.

Demand for such products, especially from small business borrowers, has surged in the midst of Egypt’s pricing crisis — inflation stood at 33.7 per cent in December — with all loans granted in local currency.

“In a high inflationary environment, providing working capital financing has become essential for our business customers — such as kiosk owners and small traders — to be able to maintain their working capital in real value,” says Nakhla, noting that loan delinquencies had barely increased during the country’s recent economic crisis.

MNT-Halan’s lending products account for the majority of its current revenue; its loan book stands at around $750mn, with a growth of between $25–30mn per month, with the company serving a million active borrowers.

And the Rosca goes to…

With a further devaluation of the country’s currency widely expected, MNT-Halan recently launched a gold-based savings product to maintain an alternative store of value.

Most recently, in mid-January the company launched a digital community savings product that emulates the rotating credit and savings association, or Rosca, model, widely used in Egypt and other developing markets.

“There’s a trust issue with traditional Roscas, in that you need to find people that you know and are comfortable entering into an agreement with to save specific amounts of money over a period of time. There’s no credit scoring, and it relies on participants paying on time and having someone trustworthy to hold and distribute funds,” says Nakhla.

“In traditional schemes, the benefits are often unequal depending on the timings of individual contributions and withdrawals. Digital solutions can make the whole process much more robust and fair.”

Moving semi-formal savings into accounts could reduce the share of adults without an account by up to 6–8 per cent in Egypt, the World Bank says.

The next digital frontier

Following the success of mobile wallet providers in the country, the CBE last year issued regulations for the award of digital-only banking licences. Nakhla said that MNT-Halan was exploring the pros and cons of such a licence, giving no further details.

Looking further ahead, the Egyptian authorities are exploring the use of digital identity schemes to further boost the take of digital financial services.

“If you look at markets like Brazil and India, such schemes are the real game changers when it comes to financial inclusion, especially features such as eKYC in order to enable digital onboarding, and digital signatures that can be accepted by courts and government agencies,” says Nakhla.

Beyond Egypt, MNT-Halan is looking at entering other markets in the Middle East and Africa via acquisitions, the first of which is set to be announced in the coming months, he said.