This is the concluding segment of a three-part report exploring digital financial inclusion in Egypt. You can find the second part here.
Introduction
Financial technology (fintech) denotes the cutting-edge technologies transforming traditional financial services. Fintech involves the automation of financial service delivery, empowering financial service providers, businesses, and consumers to streamline their financial operations through specialized software on computers, smartphones, and various devices. Its scope has expanded beyond traditional financial services to encompass consumer-oriented sectors like education, retail banking, fundraising, digital currencies, and investment management. As with other nations, Egypt must embrace financial technology to extend these services to its populace.
With a population exceeding 100 million, of which 67% are unbanked and underserved, Egypt faces the imperative of formulating a robust financial inclusion strategy centered around the adoption of financial technology. Overcoming challenges such as deficient infrastructure in remote areas and the disruptions caused by the COVID-19 pandemic, digital financial technology emerges as a pivotal catalyst for generating new opportunities to expedite and enrich financial inclusion.
Consequently, the integration of financial technology in Egypt is indispensable for encompassing excluded populations and contributing to the nation’s well-being. Technology has emerged as a transformative force globally, with the World Bank estimating that the digital economy constitutes up to 15% of the global GDP. Notably, MENA countries, including Egypt, have allocated over 41% of their GDP to technology adoption, with Egypt accounting for 7.7% (Figure 1). This underscores Egypt’s substantial investment in relevant digital technology to leverage untapped opportunities for significant economic prosperity and growth.
Figure 1: Egypt investment in technology
Barriers to technology adoption in Egypt
Similar to other Arab nations, Egypt grapples with a significant skill gap in its local labor market, hindering the employability of youth and women. Despite educational advancements, the persistent high-skill gap, as reported by the World Bank, represents a fundamental obstacle that demands attention before embracing technology. Preceding technology adoption, fostering awareness of technology’s value, usage, and application is crucial. The government must actively promote comprehensive vocational training programs to mitigate these anticipated challenges. Effective leadership is imperative for navigating the transformative change associated with adopting new technology, emphasizing the need for addressing leadership skill shortages among employers. Additionally, overcoming the challenge of an extensive unbanked population requires flexible legal frameworks, regulations, and rules tailored to the era of financial technology adoption.
Furthermore, the shortage of investment capital poses a formidable barrier, exacerbated by the challenges stemming from the COVID-19 pandemic and the nation’s debts. Policymakers must also address issues such as inflexible hiring and firing practices, lack of interest among institutions, and leadership gaps within companies.
Egypt’s financial technology adoption initiative
Driven by substantial government support and the keen interest of international and local venture capital firms, Egypt aspires to become a leader in financial technology adoption. The Central Bank of Egypt (CBE) has allocated EGP1 billion (US$32.22 million) as an initial investment fund for Fintech development, reinforcing its commitment to fostering Fintech through regulatory reforms outlined in Egypt’s financial inclusion strategy. This initiative has garnered significant support from the burgeoning young population and escalating smartphone penetration.
These encouraging factors have boosted the adoption of Fintech by large corporations, banks, and non-banks. Egypt has exerted more effort to adopt financial technology in its vast collection and payment sector, as shown in Figure 2. This sector comprises 39 fully-fledged banks, 39 insurance companies, 900 SMEs and civil society organizations, four mobile network operators, and 50 payment and collection companies. The efforts to transform the payment and collection sector to cashless are part of the country’s commitment to adopting a digital economy in Vision 2030.
Figure 2: Egypt’s collection and payment sectors
Aligned with the National Vision for 2030, the CBE launched the Fintech & Innovation Strategy in March 2019 aimed to transform Egypt’s financial landscape, promote the fintech ecosystem, and position the country as the regionally recognized fintech hub. This strategy, anchored by five pillars—demand, talent, funding, regulations, government, and collaboration—responds to the substantial fintech demand from individual consumers, SMEs, and the financial institution sector. With 26% of the MENA population residing in Egypt and 67% of citizens remaining unbanked, leveraging fintech to address this demand holds promise for achieving enhanced financial inclusion and economic growth.
Figure 3: The drivers for the Egyptian fintech ecosystem
Egypt’s national fintech challenges
In addition to previously identified barriers, Egypt faces challenges stemming from a lack of financial literacy, with only 27% of the population qualifying as financially literate. Low-income consumers and vulnerable and underserved financial service groups in Egypt, lack digital financial education – as are the millennials who lack the knowledge of personal financial management, entrepreneurs and retailers who lack the knowledge of banking services, people who need to be aware of the importance of insurance services, and SMEs who lack knowledge of managing their financial risks.
Addressing this constraint is vital, particularly for underserved groups such as low-income consumers, vulnerable financial service groups, millennials, entrepreneurs, retailers, and SMEs. The Egypt National Fintech Platform aims to enhance financial customer engagement through digital applications, including digital payment incentives and tailored financial products. Overcoming geographical barriers is crucial for facilitating the collection and timely payment processes, especially for unbanked individuals facing challenges such as accessing affordable medical services.
Regulatory challenges also loom large, prompting the CBE to propose fintech regulation laws to assist financial institutions in better serving underserved customers, reducing operating costs, and improving overall efficiency. The approval of these laws in principle by the House of Representatives in May 2020 reflects a proactive approach to adapting to the evolving fintech landscape. Before that, the CBE also launched a regulatory sandbox to provide fintech players in 2019 funds to fintech startup businesses in the same year. Besides the CBE, several bodies are involved in fintech laws and regulations, such as the Information and Technology Industry Development Agency, Financial Regulatory Authority, and the National Payments Council, approved by Presidential Decree No. 89 of 2017.
Conclusion
This article summarizes Egypt’s efforts to introduce digital financial inclusion technology and the challenges it confronts. Despite these challenges, the measures taken signify a positive step in the right direction. Initiatives such as the Financial Inclusion Strategy, the National Digital Platform, regulatory reforms enabling digital financial technology, and private sector involvement under the National Telecommunications Regulatory Authority’s supervision collectively pave the way for Egypt to realize its ambition of becoming a regional digital hub. Consequently, this article holds valuable implications for the government, financial institutions, policymakers, developmental institutions, and international investors, advocating for a collaborative and mutually beneficial involvement in Egypt’s digital financial future.