Mounir Nakhla and Ahmed Mohsen founded Halan as a ride-hailing company in Egypt in 2017, drawing inspiration from companies such as Indonesia’s GoJek. The company pivoted towards financial services in 2019, taking advantage of a series of new laws to encourage the growth of digital payments and non-banking financial institutions in the country.
In early 2021, the company began operating its ‘Neuron’ core banking software, offering services including buy-now-pay-later (BNPL) loans and microfinance solutions, together with payment services such as peer-to-peer (P2P) transfers and bill payment and remittances.
Halan entered a share swap agreement in June 2021 with Netherlands-based MNT Investments. The merger came about after MNT acquired fellow Egyptian start-up Raseedy, the country’s first independent digital wallet provider licensed by the Central Bank of Egypt. The newly merged company announced $120m round of new investment in September, led by Apis Growth Fund II, Development Partners International and Lorax Capital Partners.
The Banker spoke to Mr Nakhla about the drivers behind the growth of digital financial services in Egypt, how the country’s preference for cash is beginning to ease, and MNT-Halan’s international expansion plans.
Q: After launching Halan as a ride-sharing business in 2017, why did you decide to concentrate instead on digital financial services?
A: I’ve always been interested in lending. After graduation, I started two businesses (Mashroey in 2009 and Tasaheel in 2015) that offered microfinance loans and vehicle financing. It’s an area I’ve been involved in for a long time.
One day, I was approached by one of GoJek’s seed investors and travelled to Indonesia to meet its CEO. I was amazed at how the company was using technology to scale and grow its customer base so quickly, and add multiple services into one consumer-facing app. This was an eye-opening experience. I was lucky subsequently to meet Ahmed Mohsen, Halan’s co-founder and chief technology officer.
Together we started Halan in 2017 as a ride-hailing app using motorcycles and tuk-tuks. We attracted significant funding and generated a lot of momentum, reaching millions of rides per month. In 2019 we realised that the unit economics of ride-hailing were very difficult to get right in our local market. Around this time, we pivoted our tech team to start work on what would become Neuron, our in-house distributed core banking software, with the possibility of potentially capitalising on the original lending companies I had established to digitally bank the unbanked and underbanked. Neuron’s ability to scale and add multiple services, including lending, payments and e-commerce, enables us to achieve this goal.
In August 2021, we added BNPL with consumer finance and delivery to our offering, providing an end-to-end service in Egypt. In less than three months we are on a run rate to book north of $10m in December. We’ve transacted with 10,000 customers and are onboarding an additional 20,000.
Q:Â How successful has the pivot to financial services been so far?
A: Egypt is a very populous country with over 100 million inhabitants, but only a fraction of adults have a bank account. Yet over 90 million of the population have a mobile phone — with the right regulations in place, the easiest way to bank the unbanked population is via digital services.
We have served more than four million customers, of which 1.2 million are currently monthly active users. We’ve provided $2bn in financial services to more than two million borrowers — of which 750,000 are active borrowers.
The current monthly throughput via Neuron is over $125m, of which $15m is processed on the consumer-facing app. One of our most successful use cases is P2P transfers which have been gaining tremendous traction, with double and sometimes triple month-on-month growth rates.
Q:Â Digital financial services have exploded in popularity in Egypt in ways not seen in other markets. What are the reasons for the shift?
A:Â The Egyptian government has been very active in the areas of both financial inclusion and digital payments. It has passed several laws and initiatives pertaining to areas including mobile wallets, payments and micro and consumer financing in recent years.
There have also been several initiatives launched by the Central Bank of Egypt to boost digital payments and reduce the reliance on cash in the economy. As you can imagine, we’ve received a major tailwind from these.
It’s also worth mentioning that the devaluation of the Egyptian pound in November 2016 severely impacted the working capital of many businesses, which created a lot more business for lenders such as ourselves.
Q:Â Cash accounted for 94% of transactions in Egypt in 2014, with the informal sector preferring cash to avoid taxation. How optimistic are you that this is likely to change?
A: It’s true that Egypt is still one of the world’s most cash-based economies. But I genuinely believe that in three or four years, the amount of cash circulating in the economy will be half or even a quarter of what it is now.
When ATMs were first introduced in Egypt, banks had people stand by the machine to tell customers that they didn’t need to wait in line to withdraw their money and to show them how to use the ATM.
Likewise, when we started disbursing loans via our mobile wallet in early 2021, we needed boots on the ground to teach our customers how to use the services. Initially the customer would go to an ATM and cash out all the money. But they soon began trusting the wallet and leaving a small balance in there. This has been gradually increasing as they get more used to it. The wallet is convenient and clean, and the use cases are increasing gradually. So, there’s a snowball effect on the traction that we’re seeing now.
Q: There has been criticism of microlenders in pioneering markets such as Kenya and Bangladesh, where borrowers have taken out multiple loans that they can’t repay, pushing them into poverty. Is there a similar danger with the types of loan you offer?
A: As a company, we’re very mindful about responsible lending and our core mission is to improve people’s lives through access to finance. We are also regulated by the Financial Regulatory Authority, whose core objective is customer protection. The regulator makes sure that we’re fully transparent with our customers regarding fees and expenses.
Egypt has recently undergone a revolution and the government is very mindful that lending of any sort — whether it’s consumer lending, working capital financing or microlending — supports political and economic stability.
Overall, we have a very healthy lending portfolio, with delinquencies in the lower single digits. Of course, during the depth of the Covid-19 crisis things were a little worse, but overall, there’s a lot of resilience in our loan book.
Q:Â What are your priorities for 2022?
A: Our short-term priorities in Egypt are further growing our BNPL product and our wider suite of payment services. We have the mobile wallet now, but we’re also looking at offering services such as cards and supply chain financing.
Our other main priority is cross-border expansion, taking advantage of the scalability and adaptability of our Neuron platform. We’re planning to launch services in other countries in 2022, and are looking at several others in Africa and elsewhere, where there are large unbanked populations that need serving.
