Despite concerns over the reverberations that could engulf start-up investments as triggered by the collapse of private equity giant Abraaj, there is optimism that the MENA region will continue to attract investors including toward the growing Islamic fintech and Halal start-up space.
Industry figures placed 2018 as a record-year for MENA start-ups as the community secured more funding than ever before, almost US$900 million, which is almost one-third higher than the previous year.
“This positive growth trajectory has been maintained in the first quarter of 2019 and we expect this to continue through the end of the year,” Macky O’Sullivan, a senior associate in the private funds and capital markets practices of King & Spalding, shared with IFN Fintech.
The MENA region has grabbed the attention of international investors, with the US$3.1 billion landmark acquisition of Careem by Uber earlier this year, which has put MENA-based start-ups on the radar of global investors. In fact, international venture capitalists have participated in five out of the top 10 MENA deals last year.
Sitting on immense wealth (Capgemini this year estimated almost 700,000 high-net-worth individuals holding US$2.6 trillion of wealth reside in the Middle East), investors in the MENA region have a penchant for conventional asset classes outside of the region, although there is a gradual shift inward to the local entrepreneurial scene.
“With the increasing need for investors to diversify their portfolio, and the growth of the venture capital (VC) ecosystem in the MENA region, local investors will start looking at start-ups in the region rather than traditional asset classes overseas such as real estate,” O’Sullivan opined. “Something quite revealing is that a lot of groups in the region, such as family offices that would traditionally focus on real estate and would have a real estate arm, now actually have VC arms and are setting up VC funds. So I think that’s a very positive development and a move in the right direction in terms of supporting the local ecosystem.”
Noting that fintech has overtaken e-commerce as the most active industry by the number of VC deals, O’Sullivan is sanguine that the upward trend will also benefit Islamic fintech and other start-ups operating in the Halal economy.
“While there are not many activities in this area today, there is definitely opportunity for growth, particularly as far as fintech is concerned,” O’Sullivan said, highlighting the region’s significant Muslim population and massive demand for Shariah compliant services as key factors for expansion. “There’s an important role to be played by regulators and stakeholders to create an ecosystem for VC to flourish — we need to work together to find solutions to potential hurdles such as the compatibility of traditional investor rights such as drag-along rights and tag-along rights with Shariah compliance. Hopefully, once there’s that level of collaboration to surmount these hurdles, we’ll see a lot more focus by investors on the Islamic or Halal start-up community.”