When Egypt devalued its local currency last March, the pound lost nearly 14% of its value, driving Nehad Mahmoud, a journalist in her thirties living in Cairo, to give up her old ways in order to keep up with the rising cost of living.
The first thing she worried about was paying her only daughter’s 12,000 pounds ($635) yearly private school tuition. So, she sought a consumer finance company through which she could pay her expenses online, and in installments, rather than upfront and in cash—a notion she would not have previously considered.
“I opened a bank account and got myself a credit card and a checkbook from a company called ‘Contact.’ I only had to provide proof of income from my employer so that the company can ascertain my ability to repay in the future,” Nehad says, referring to one of Egypt’s first consumer finance companies offering Buy Now Pay Later (BNPL) services. These fintech firms, enabling customers to purchase goods or services they can’t afford through loans they pay back over an extended period of time, have seen a surge in the Egyptian market lately.
Nehad is one of scores of Egyptians who have only recently decided to go against a long-preserved tradition of relying on cash, and tapped e-finance in order to benefit from a growing supply of companies providing BNPL services. This coincides with an economic crisis that has had a devastating impact on people’s purchasing ability due to high inflation rates and soaring prices.
“Recent state regulations and economic reforms have boosted a fast growth of the sector since the second quarter of 2020. This has pushed Egyptians to move away from their regular cash payments and more towards BNPL services that allow them to pay in installments,” economist and researcher at Cairo University Ahmed Abo Ali says.
According to the Egyptian Central Bank, since the pound was first floated in 2016 and dropped in value, financial inclusion has grown by 115%. Now, 36.8 million—or 56.2%—of Egyptians over 16 years of age have set up accounts that enable them to conduct financial transactions. This could be in the form of accounts in banks, Egypt Post, mobile phone wallets or prepaid cards. The figures show a particular increase in the number of women who own financial accounts, reaching 16 million at the end of 2021, with a growth rate of 171% compared to 2016.
These tech-driven, e-finance solutions have benefited from increasing penetration of mobile phones and internet among the Egyptian population which reached over 67 million users (pdf) in May 2022, out of roughly 103 million Egyptians.
“BNPL firms allow customers to buy goods and services easily and without cash. Some offers are even with zero interest, which is a strong motivator for customers,” Abo Ali told Quartz.
Nehad still had to go to the company’s office to sign two paper checks, each with a value of 6,000 pounds ($317) and a 10% interest rate with a six months repayment period. “All I needed to provide was a statement from my daughter’s school and their bank account details and the company transferred the funds directly to them,” she says, praising the easy process.
As a testament to the growing popularity and reliance on BNPL among Egyptians, Amazon Egypt recently announced that it will begin offering BNPL services to approved buyers through the fintech platform ValU, of which the online retail giant purchased a 4.3% stake. ValU has 32.7% of Egypt’s consumer finance market share, equivalent to roughly 2 billion pounds ($81 million), only topped (pdf) by Contact, the firm which Nehad dealt with.
Following March’s devaluation, 28-year-old Sherif Abdel Halim, who had just gotten married, did not know how he would afford furnishing his new home in an import-dependent country. He needed 20,000 pounds ($1056), which he did not have, to buy appliances.
On the advice of a friend, he resorted to a consumer finance company. “The conditions were not complicated,” he says. Sherif still had to open a bank account and get a credit card in order to deal with ValU, the company he sought. BNPL companies require either a bank account or a previous bank loan to prove a customer has the ability to pay back.
“I downloaded the ValU app from Google Play like any other application and then created an account by filling out some personal data, registering a phone number, and creating a password,” he told Quartz.
“After downloading the application, one must still go to one of the company’s branches in order to activate the loan,” Sharif explains. Only then does the loan appear in the app. “It all takes no more than one hour.”
The company gives the customer a card after determining the amount of the loan they need, and the electrical appliances or other goods are purchased through the company’s network of merchants. “After that, anything you buy is deducted directly from your account on the app,” Sherif explains.
The Arab world’s most populous country has been suffering from a wave of high inflation and a rise in the prices of basic commodities for six years, hitting a three-year record after March’s devaluation. Despite a slight decline, reaching 13.2% in June, inflation remained above pre-2019 levels.
“It’s this inflation and the rise in prices that have prompted a growth in consumer finance and other non-banking financial services in Egypt’s market, including BNPL,” Mahmoud Khattab, CEO of B.Tech, one of the largest consumer finance service providers in the country, told Quartz. He says his own firm’s client base rose between 3% to 5% over the past 18 months.
According to official figures, consumer finance recorded a growth of 102% in 2021, with over 17 billion pounds raised in lending, compared to 8.4 billion pounds in 2020. In the first quarter of 2022 alone, a total of 909,145 clients have reportedly (pdf) used these services, with a total value that surpassed 9 billion, so far. According to estimates, Egypt’s BNPL sector is expected to continue to grow, reaching 114 billion pounds by 2028.
Data from companies with a large customer base such as B.Tech shows that more and more people are choosing to pay in installments instead of in cash according to the CEO. The proliferation of this consumption culture and the easy access to it has in turn expanded the range of consumer financing services to now even allow paying in installments for dinner at a restaurant.
For Abo Ali, BNPL’s growth “came partly as a result of the strong support of the state for this sector,” referring to a string of recent government measures bolstering consumer finance and facilitating e-finance. He says that “increasing e-finance activities and the spread of a new consumer culture, subsequently, have a positive impact on the economy and financial inclusion.”
However, Professor Mahmoud Al-Saeed, Dean of the Faculty of Economics and Political Science at Cairo University, points out that, “despite their benefits, these companies may lead customers to spend more than they can afford to repay, which could in turn lead to default in the future, and increase the number of people in debt beyond the ability of society.”
For Al-Saeed “consumers cannot find alternatives to borrowing to meet their needs as the prices rise”, this is why so many are using these services. He proposes that consumer finance companies offer investment financing for small and micro projects, which ensures the client’s ability to pay from returns of those projects.
But for customers like Nehad, it was easy to get used to the new way of buying in installments with her app or her shopping card. For these customers the benefits of this cashless economy still outweigh the risks. “It was a good experience and it did relieve me from the burden of paying my daughter’s tuition fee all at once”.
This story is written by Samar Medhat and published in collaboration with Egab, a media startup that helps young local journalists from across the Middle East and Africa get published in regional and international media outlets, with a focus on solution journalism.