Hi there, Justin here. A few weeks ago, I attended a startup and investor event in Cape Town, organized by Stitch and The Raba Partnership. One panel focused on North Africa, featuring Axis Pay's Jacques Marco and Thndr's Ahmad Hammouda, amongst others. The two Egyptian entrepreneurs talked a lot about the positive regulatory environment for fintechs in the country.
The Egyptian market is attracting a lot of attention and regulation is an important part of that story. So after the event, I reached out to Jacques, who helped me explore these Egyptian Tailwinds.
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The African tech ecosystem has been talking a lot more about Egypt in the past year or two.
To what extent should investors start looking for more deal flow in Egypt? Should startups from other markets expand there? (Perhaps as an alternative to Nigeria?) Does Egypt - and North Africa's more intimate connection to the Middle East region - create new, yet-to-be explored opportunities or linkages?
Expansion and investment intrigue starts from a macro perspective. It's a big market - the third-largest population on the continent - with a comparatively high PPP.
Egypt is a bank-led market with extremely high cash utilization and low access to formal financial services. It's a market "where it’s common for government employees to ring doorbells to collect cash payments for gas and electricity bills." And only 33 percent of its population have a financial services account, according to the World Bank.
While the rise of agent-led networks like Fawry have helped extend digital financial services to the last mile, it's been the Egyptian government that's been the biggest champion of digitization in the market. The word Jacques used to describe the regulators was "proactive". And, as a result, its increasingly inviting regulatory environment for fintechs - a stark juxtaposition to certain other African countries - has only furthered Egypt's intrigue from an investment and expansion perspective.
In 2017, the Egyptian government established its National Payments Council - chaired by the President and comprised of the Central Bank of Egypt (CBE) and the Financial Regulatory Authority (FRA), amongst others - whose objective was to reduce the amount of cash utilization in the market and stimulate the use of digital payments.
Egypt's non-cash payments law was passed two years later, which set frameworks around the definition and utilization of digital payments methods, and set the parameters in which digital payments must be used. In particular, the law starts with government entities, compelling all state institutions to pay their employees, as well as all governmental entities to pay suppliers and service providers through non-cash methods. Additionally, the law obliges all payments to government - taxes, tolls, fees, penalties, dues, licenses, and so on - to be made through non-cash methods, as well. And thereafter, implementation has been or will be extended to, for example, disbursement of loans, private-sector payroll, rentals, insurance premiums, and more.
Following the less cash law, further guidance has been brought forth to provide within the digital payments category. Frameworks for digital acceptance and pre-paid cards, as well as aggregators and mobile wallets; a national payments switch that was rolled out in phases: mobile wallets, followed by card interoperability, and instant payments later this year. In 2020, a new banking law that puts in place the frameworks for digital banking and eKYC, followed by a new version of mobile wallet regulation last year.
While much of this has been legislated, it's not yet been implemented. In addition to instant payments, founders are expecting the framework for digital banks and open banking, as well as eKYC, to be put in place yet this year. With eKYC in particular, fintechs need a wet signature at present to onboard customers. So a digital means to do so will undoubtedly reduce the barriers to fintech adoption (or at least consumers giving fintechs a try) in the country.
To do all of this, the regulators have taken a collaborative approach. The FRA, which regulates the non-banking financial markets, has significantly involved the ecosystem, and investment apps like Thndr, in its shaping of regulation. And while the CBE's primary oversight is banks, it too has endeavored to involve the tech sector in Egypt more intimately through the creation of Fintech Egypt - which published a robust fintech landscape report last year - and the CBE's regulatory sandbox.
What's perhaps most important of all is simply the regulatory certainty. Jacques shared that it was nearly impossible to raise money 3 or 4 years ago because there were no frameworks in place and no expectations of which way the regulators wanted to go. Now there are frameworks, and further signals on nearly a quarterly basis, around how legislation is going to be implemented.
If fintech investment is any indication of the increased level of comfortability with the regulatory environment, the regulatory certainty has undoubtedly had a positive effect.
Now, you might be thinking to yourself that other countries have a lot of this regulation and infrastructure in place already. So what's the big deal about Egypt following suit?
The market has already started to attract considerable attention and investment - it's in the top four, along with Nigeria, South Africa, and Kenya in terms of total funding raised - with a comparatively underdeveloped ecosystem and financial services infrastructure. What will things look like as these regulations take form and as building gets easier?
Starting with the National Payments Council in 2017, Egypt has provided clarity and guidance regarding fintech regulation, in an effort to stimulate the uptake of digital payments. The clarity and regulatory certainty has made it an easier environment for investors to invest and for founders to build in, and we've seen a steep rise in investment since then. Infrastructure like instant payments also makes it easier for founders to build, while unlocking further utility of digital payments in the competition against cash, as well.
Within the tech ecosystem itself, increased capital inflow is a benefit from a talent perspective. Better talent builds better companies and products, which has a compounding effect on the ecosystem, from an infrastructure perspective. Egypt's ecosystem flywheel is spinning. The market has considerable tailwinds. And all of this on top of comparatively attractive macroeconomic considerations.
It's a long journey, to be sure, but we can expect considerably increased discourse and attention and investment into Egypt in the years to come.
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