## Unleashing Mideast Fintech ## Source details **Canonical URL:** [Unleashing Mideast Fintech](https://www.imf.org/en/publications/fandd/issues/2023/09/unleashing-mideast-fintech-amjad-ahmad) ## Other formats - [Markdown version](/en/publications/fandd/issues/2023/09/unleashing-mideast-fintech-amjad-ahmad/index.md) - [Structured JSON version](/en/publications/fandd/issues/2023/09/unleashing-mideast-fintech-amjad-ahmad/index.json) - [Bundle manifest](/en/publications/fandd/issues/2023/09/unleashing-mideast-fintech-amjad-ahmad/bundle-manifest.json) ## Bibliographic details - Authors: Amjad Ahmad - Published: September 1, 2023 --- ### Overview - A better regulatory environment will bring the Middle East more investment and innovation in digital finance. - Author: AMJAD AHMAD, chairman of the empowerME initiative at the Atlantic Council and managing partner, MENA, and emerging markets advisor at 500 Global. - Publication: F&D Magazine, September 2023. - Core thesis: The Middle East and North Africa (MENA) region has strong demographic and digital-penetration fundamentals that position it for fintech-driven financial inclusion and economic diversification, but realizing this potential requires substantial regulatory and ecosystem reforms. ### Market potential and demographics - A third of the population is under 30, creating demand for products and services for new households and job creation. - High mobile, internet, and smartphone penetration rates create fertile ground for digital financial products. - Noncash payments in the United Arab Emirates rose from 39 percent in 2018 to 73 percent in 2023. - Current digital banking usage: only 17 percent of consumers in the Middle East use digital banking compared with almost 60 percent in the United States. ### Current adoption, fintech size, and projections - Fintech revenues in the Middle East, North Africa, and Pakistan region expected to increase from $1.5 billion in 2022 to $3.5–$4.5 billion by 2025. - Fintech in the banking sector projected to grow from less than 1 percent to 2–2.5 percent. - Comparable benchmarks cited: Brazil’s 5–7 percent and Nigeria’s 12–15 percent fintech penetration in banking. - Venture funding metrics: - Fintech venture funding in MENA rose to $925 million in 2022 from $587 million in 2021, an increase of 58 percent. - Funding in 2022 was across 131 deals compared with 124 deals in 2021. - The sector’s share of venture funding increased from 21 percent in 2021 to 29 percent in 2022. - As of Q1 2023, deals and funding in the region recorded the lowest values since the start of the COVID pandemic. - Venture capital financing in the MENA region declined 13 percent in 2023; the number of deals dropped by 55 percent. ### Structural obstacles and market dynamics - Banking sector is often "sacred ground": banks owned primarily by government, quasi-government institutions, or well-connected elites; protective regulations favor incumbents and entrench national champions. - Many fintech start-ups operate as service providers or customer-acquisition tools for incumbent banks rather than competitors. - Fragmented regional regulatory and market structure inhibits scalability; pan-regional fintech players have yet to emerge in substantial numbers. - Market scalability is costly and regulations are prohibitive; founders report difficulty meeting growth targets and building sustainable, profitable models without regional, multimarket approaches. - Governments tend to pursue a top-down, government-led approach to fintech hubs (Abu Dhabi, Bahrain, Dubai, Riyadh), which can deter industry-led innovation. ### Investment patterns and sectoral focus - Payment start-ups dominated initial investment waves due to remittances and trading activity. - Diversification in funded start-ups includes buy-now-pay-later (Tabby, Tamara), open banking (Lean Technologies, Tarabut Gateway), SME lending (Lendo, Liwwa), and wealth management (Sarwa, Thndr). - Increase in average funding round size noted in 2022 relative to 2021. ### Policy actions and recommendations - Level the playing field: - Allow incumbents, international players, and start-ups to compete fairly to drive IT spending, innovation, and improved products and services. - Increased competition should facilitate intracountry and intercountry mergers and acquisitions and enable venture-capital exit opportunities. - Regulatory harmonization: - Increase regulatory transparency and public engagement. - Allow licensed players in one country to operate freely in another where feasible. - Encourage agreements between regulators in regional hubs to reduce geographic expansion friction. - Democratize access to information: - Implement open banking regulations and comprehensive credit registries to lower costs and foster competition. - Expand investor base: - Grow local venture capital and limited partner pools beyond sovereign wealth funds and quasi-government entities. - Attract institutional investors such as pension funds, endowments, foundations, insurance companies, and asset managers via guarantee and incentive programs. - Human capital and immigration policy: - Reform education to align talent with knowledge industries. - Improve current workforce skills via public-private partnerships, targeted programs, and private-sector incentives. - Launch long-term permanent visa programs and a path to citizenship, especially for talented expatriate professionals. - Regulatory capacity building: - Develop expertise and resources to regulate fintech effectively. - Allow early-stage fintech companies room to build before imposing overly restrictive regulation to unleash innovation. ### Conclusion - Fintech can materially improve financial inclusion, economic growth, consumer welfare, and cross-border investment and trade in the MENA region. - Governments must implement the outlined reforms to ignite sustainable, scalable fintech innovation that leverages demographic and technology advantages. *Source: "Unleashing Mideast Fintech," Amjad Ahmad, F&D Magazine, September 2023.* --- ## Content in this bundle - **Unleashing Mideast Fintech** - [Unleashing Mideast Fintech (Markdown version)](/-/media/files/publications/fandd/article/2023/september/ahmad-amjad.pdf.md){rel="alternate" type="text/markdown"} - [Unleashing Mideast Fintech (PDF)](/-/media/files/publications/fandd/article/2023/september/ahmad-amjad.pdf){rel="external" type="application/pdf"} --- _Source: https://www.imf.org/en/publications/fandd/issues/2023/09/unleashing-mideast-fintech-amjad-ahmad_