Efforts from Saudi Arabia, one of the largest Islamic finance markets in the world, to nurture its fintech potential are paying off, as the Kingdom witnessed the number of fintech companies almost doubling, and funding into fintech companies growing by 11% this year.
Promising growth
Between September 2021 and August 2022, Saudi Arabia welcomed 65 new fintech companies, bringing the total number of active players to 147, up 79% year-on-year, according to Fintech Saudi’s latest annual report.
Since the 2018 launch of Fintech Saudi, a joint initiative by the Saudi Central Bank (SAMA) and the Capital Market Authority (CMA), the number of fintech entities in Saudi Arabia has grown 14.7 times.
Source: Fintech Saudi Annual Report 2021/22
It is no surprise that infrastructure companies exhibited the strongest surge in numbers (up 600%). The Kingdom after all began developing its open banking initiative in January 2021; SAMA earlier this month published its Open Banking Framework after licensing at least six open banking service providers this year. Banks are expected to launch open banking services in the first quarter of 2023.
Source: Fintech Saudi Annual Report 2021/22
Concurrently, the growth of Saudi’s fintech community is also supported by a steady rise in funding for start-ups. From September 2021 until this August, investors poured over SAR1.5 billion (US$399.44 million) into fintech start-ups in the Kingdom, up 11% from the same period last year. A total of 20 deals were closed over this period.
Among the fintech start-ups which raised funding is Islamic buy-now-pay-later firm Tamara, which obtained US$100 million in Series B funding; Islamic crowdfunding platform Manafa, which raised SAR4.13 million (US$1.1 million); Islamic capital market platform Wethaq, which raised an undisclosed amount; while start-ups Dawul and Malaa secured SAR19 million (US$5.06 million) and SAR6.38 million (US$1.7 million) in funding respectively.
This brings the amount invested into Saudi fintech companies, since the first recorded funding in 2012, to over SAR4 billion (US$1.07 billion).
Such positive momentum bodes well for the Islamic fintech sector, in Saudi Arabia and globally. Despite the absence of explicit instructions, IFN Fintech understands from start-ups that fintech companies in Saudi Arabia are generally required to offer Shariah compliant products.
Market diversification
Interestingly, capital market fintech companies are playing a bigger role in the Kingdom. Such firms account for 36% of all regulated fintech companies. Real estate crowdfunding and equity crowdfunding command the largest share of capital market fintech entities at 29% each, followed by platforms offering debt instruments at 17%.
“Similar to other markets, the first waves of fintech activity focused on disrupting areas such as payments and finance. However, we are now seeing increasing fintech activity in the capital market,” Fintech Saudi noted.
To date, the CMA has issued 33 Experimental Permits to companies operating in equity crowdfunding, robo-advisory, real estate crowdfunding, debt fractionalization, blockchain-based securitization and social trading.
It is also perhaps worth noting that 80% of the fintech companies (up from 73% last year) surveyed by Fintech Saudi expressed keenness in integrating ESG considerations in developing their solutions, which may signal more ethical and sustainable fintech products in the future.
Vision 2030
Saudi’s fintech performance this year is in line with the government’s vision of elevating Riyadh to become a global tech hub. In May this year, the Council of Ministers approved its Fintech Strategy as a new pillar in the Saudi Vision 2030 Financial Sector Development Program. The goal is to attract 525 fintech players, create 18,000 fintech-related jobs, attract SAR12.2 billion (US$3.25 billion) in cumulative venture capital investments and generate SAR13.3 billion (US$3.54 billion) in direct GDP impact.