Only 8% of Mena loans for SMEs
Gulf region has $250bn credit gap
Fintechs serve ‘underbanked’
Financial technology companies in the Middle East like Egypt’s Money Fellows are increasingly stepping in to offer financing options to population groups and businesses that traditional banks ignore or cannot lend to.
The share of loans given to small and medium-size enterprises (SMEs) in the Middle East and North Africa averages less than 8 percent of total bank loans, according to Gbenga Ajayi, partner at venture capital company QED Investors.
In contrast, almost 92 percent of new bank lending in OECD countries in 2022 went to SMEs, says the OECD’s Financing SMEs and Entrepreneurs 2024 report.
Even SMEs in the relatively wealthy Arabian Gulf countries face a $250 billion credit gap, according to professional services network Deloitte.
That gap is the amount of credit that is available in an economy versus the amount that is needed or requested.
“We operate in a slightly different space and often cater to segments of the population that have been historically underserved by traditional lenders,” Ahmed Wadi, founder and CEO of Cairo-based Money Fellows tells AGBI.
More nimble fintech companies with lower overheads like Money Fellows are combining advanced technology with traditional practices to offer lending to lower income people across the Middle East, and its population of more than 500 million, including Iran.
Money Fellows digitises the Rotating Savings and Credit Associations model – known as jamiyya across the Middle East – whereby a group of people agrees to contribute a certain amount of money each month, with each individual receiving their share back on a rotating basis.
Money Fellows has facilitated more than $50 million in investments to date. The average payout for a Money Fellows investor is under $1,000.
Money Fellows provides a platform for “these age-old practices to flourish in the digital age”, Wadi says.
This is valuable for the Middle East’s blue collar workers – manual labour and some skilled trades – and micro enterprises without enough capital, the right credit profile or who are otherwise unable to access finance or engage with institutional lenders, Wadi says.
Nor is Money Fellows alone in plugging the gap.
Egyptian fintech MNT-Halan, one of the Middle East’s few native unicorns, markets itself as a “lender to the unbanked and underbanked”.
Another Egyptian startup, Bokra, raised $60 million in debt from financial institutions to expand its Sharia-compliant lending to underserved SMEs in Egypt.
Sharia or Islamic law sets clear guidelines on permissible financial activities. These prohibit practices that involve riba (usury), gharar (excessive uncertainty) and haram activities such as gambling and alcohol.
In the UAE, Astra Tech now offers microloans, as does telecommunications company du via its mobile application.
The difficulty for banks and other institutional lenders engaging with blue collar workers and smaller enterprises is profitability, founder and CEO of management consultancy 3D Advisory and AGBI columnist Suvo Sarkar tells AGBI.
Sarkar was an executive at an Emirati bank when it acquired an Egyptian bank with a glut of blue-collar customers.
“There were a few million customers but they made pretty much zero for us,” Sarkar says. “They can’t get credit cards, because they’re not that profiled. They can’t do wealth management.”
His bank closed the partnership due to limited profitability, he says.
The banks’ difficulty in deriving profits from lending to low-income workers and enterprises opens a space for fintechs like Money Fellows.
“We complement traditional lenders. We might even create future customers for banks as individuals’ financial needs evolve,” says Wadi.
