The digital revolution is well upon us, and new actors from outside of Europe and North America seek to develop their regions to lead the financial technology (fintech) revolution. The Middle East is quickly becoming a leader in the fintech industry through its growing number of startups and its appetite for digital innovation.
Fintech has been an absolute game-changer for the financial services industry. Today, it is possible to manage funds, buy/sell stocks, pay for food and clothing, and manage insurance through fintech simply through your smartphone.
Fintech has been especially useful for startups or the estimated two billion people without bank accounts due to its simple convenience of not having to deal with brick-and-mortar banks.
Its popularity is due to its ability to allow consumers direct access to their financial motives paired with the smartphone’s abundance and domination. Naturally, where there are more smartphone users, there are more opportunities for fintechs to flourish.
Islamic finance is growing globally: there are 1,389 sharia-compliant financial firms worth a combined $2.4 trillion in 56 countries around the world. But what exactly does this mean?
Islamic financial firms comply with sharia law’s fundamental principles – no collection and payment of interest by investors or bankers and no investment in businesses that are haram.
Haram businesses include ones that deal with alcohol and pork products and Islamic banks earn profit from equity participation, which requires the borrower to share a percentage of their profits. In short, Islamic banking applies a standard of ethical practices determined by the Muslim holy book the Qur’an.
But the appeal of these new challengers is not religion-based. Areeb Siddiqui, the founder and CEO of the Islamic fintech Kestrl, said in a 2018 interview “we found that with younger Muslims, it was less about ticking an arbitrary no interest box, and more about their investments doing good in the world.”
The UAE would be expected to be the hub of Islamic fintech, and indeed it does have one of largest fintech markets in the world. But outside of the UAE, Islamic fintechs are a worldwide phenomenon: Britain leads with 27, Malaysia has 19, the UAE comes third with 15, whilst both Saudi Arabia and the U.S have nine.
Its dominance is not constrained by its borders, as many might believe. The fintech market leader in the Middle East is currently Mastercard with its record-breaking mobile penetration rate of 173% – which is the highest in the world. It’s no shock that they are the official payments technology partner of Expo Dubai 2021.
But why has the fintech sector in the Middle East seen such significant growth in the last few years? Simply put, it is young and hungry for digital innovation.
People under 24 account for nearly half of the Middle East and North Africa (MENA) region. Its enormous youth population are open-minded and raised in the digital age, making it an obvious frontier for developing technology.
Another factor is the full-fledged support the UAE and Saudi Arabian government offers to fintech startups, digital banks, and financial institutions looking to jump on the trend.
In 2020, the UAE central bank launched a new fintech office to help catapult the UAE into being the centre of fintech innovation. Countries like the UAE act as gateways or influencers to wider parts of the MENA region and allow things like fintech to penetrate more developing markets.
The flowing capital in the Middle East, specifically in the UAE, has played a key role as well. Venture capital firms have raised around $1.5 billion for fintech since 2017.
These particular aspects literally breed success, and fintech is no onlooker.