According to International Finance Corporation (IFC), P2P lending in the Middle East and North Africa (MENA) cropped up when the credit gap for SMEs reached to USD $260 billion. While P2P lending is prevalent in the UK and U.S., it is a relatively new concept in United Arab Emirates (UAE). Even though UAE has a healthy SME sector (about 3 million SMEs account for 60 percent of GDP), they still suffer from lack of funding options as banks reject 50 percent to 70 percent of SME loan applications.
Global FinTech Investments grew from $15.3 billion to $78.6 billion between 2010 and 2015. Though the U.S. and UK have been at the forefront of the revolution, the UAE government has been supportive of the industry with an eye on the untapped MENA market. UAE has set up a regulatory laboratory (RegLab) to help firms deploy new technologies in the financial services industry and to accelerate the entry of FinTech players in the region.
With more than 80 percent of the population unbanked and more than 5 million small and medium enterprises (SMEs) that do not accept online payment, the Middle East has the potential to become a major FinTech hub. UAE is building its FinTech ecosystem while working toward enhancing its FinTech base by encouraging stakeholders to support innovation. By analyzing and replicating proven ideas in FinTech innovation in the U.S. and Europe, UAE is set to make far-reaching changes in the way financial services are provided in the region.
Profiling Leading FinTech Startups in UAE
Beehive is UAE’s first peer-to-peer lending platform that seeks to fill the critical funding gap between SMEs and traditional institutions. Beehive was founded by Craig Moore, who previously worked at Dell, EMC and HSBC, He also co-founded Butterfly Software, a data analytics company acquired in 2012 by IBM. Beehive connects investors with creditworthy businesses to build mutually beneficial partnerships for the growth in the SME sector. Since its inception in 2014, it has funded about 50 UAE-based firms by raising AED $25 million from more than 500 investors through its crowdfunding platform. Beehive has enjoyed considerable success in the short time since its launch, but its biggest achievement was getting Sharia-compliant accreditation from the Shariyah Review Bureau. The platform has managed to connect 32 businesses with USD $4 million Sharia- compliant loans from investors. It has also launched a new invoice finance service for SMEs to manage cash flow by closing the gap between the moment a business issues an invoice and when it receives the actual payment. With this service, businesses will be able to list invoices that are due within 60 to 120 days and receive financing within 24 to 48 hours at rates starting from 0.75 percent per month.
Eureeca has been the pioneer in equity crowdfunding in the region. It was founded by finance execs Chris Thomas and Sam Quawasmi in 2013 and was the first equity crowdfunding platform to get an official license by Dubai Financial Services Authority (DFSA). Eureeca works with the government in the region by using its digital platform to connect SMEs looking for capital expansion with angel investors across borders. It helps investors buy shares in growth-oriented business while providing SMEs access to capital. Eureeca is backed by multiple regulatory authorities that allow it to fund businesses globally. Since its inception, Eureeca platform has raised $735,000 for six companies and has more than 4,000 registered investors on board.
Almost 90 percent of registered businesses in UAE are small and micro enterprises. Despite a strong UAE banking sector, lending to small enterprises accounts for just 3.85 percent. To support the growth of budding micro-entrepreneurs in the region, PiSlice launched its online crowdfunded micro-finance platform. Started by London Business School alumnus Genny Ghanimeh in 2012, it connects high net-worth individuals and companies who want to invest in MENA-based MFIs (Micro Finance Institutes). MFIs use these funds to empower micro-entrepreneurs who do not have access to credit from banking institutions by providing small online loans. PiSlice is a new channel of funding and will not only help MFIs to grow, but will also help to shape the region’s future economy.
Non-Lending, Non-Funding UAE FinTechs
Besides the areas of lending and funding, other FinTech innovators in the UAE include:
Bridg, an innovative smartphone payment platform that processes transactions between two devices even if both devices are not connected to the Internet. Bridg could be a game changer for the FinTech industry as it eliminates the need for Internet/data connections and enables users to pay with Bluetooth-enabled device.
Born in 2015, Democrance makes insurance accessible to the underserved via a mobile application. Considering the market penetration is less than 10 percent, the young startup has a huge runway for capturing market share.
UAE is ranked top in global smartphone penetration. While the majority of its financial transactions are cash-based, 73.8 percent of the population having smartphones. Payfort provides a trusted payment gateway built with the most sophisticated and latest anti-money laundering technology to completely eliminate the risk on both the buyer and seller side of online payments.
BitOasis is all set to find its way into the virtual pockets of consumers by building the foundation for digital payment products using blockchain technology. BitOasis uses advanced Multi-Signature Technology to protect customers from hacking, which adds an additional layer of security to the traditional Bitcoin wallet.
More than 35 percent of UAEs population is younger than 25–the median age is only 30. The country is tech savvy and an oasis of peace and hub for business in a region filled with war and turmoil. This provides the country a unique opportunity to be a leader in the technology segment in general and the FinTech sector in particular. The investment government is making via easing the regulations and creating multiple funding institutions could bear fruit for the economy for a long time to come.