The heyday of fintech in Egypt — marked by sky-high valuations an torrents of VC cash? That’s over. Today, fintech players are navigating volatile market conditions as funding dries up and competition for a piece of the fintech pie grows. But a lack of funding in no way means a lack of innovation, or a lack of prospects. There are still plenty of sectors ripe for growth in the sector, industry insiders say, but fintech players need to lean into the local market and the possibilities it offers — and suss out the fads from the sustainable, long-term growth prospects.

We brought together two industry leaders at the Enterprise Finance Forum to walk us through exactly what those prospects are and how they are navigating the current environment. Joining us on stage were Ashraf Sabry, founder and CEO of Fawry, and Mounir Nakhla, MNT Halan’s founder and CEO.

Interest rates + inflation have impacted fintechs’ lending operations: “It’s a tough market,” Nakhla said. The EGP devaluation means MNT Halan’s loan book was slashed in half in USD terms, he said, adding that high interest rates also hit them hard, because they lend on fixed interest rates and borrow in variable terms.

Fawry and MNT Halan are doing well in spite of that: “I think business is really excellent. We are growing at more than 40% [this year] and we believe in our products,” Sabry said. “This year in USD terms, we’re growing 20%. In spite of everything, we managed through planning and execution to grow 20%,” Nakhla said, adding that MNT Halan views such times of economic turbulence as exciting and “as times when we can grow and gain market share.”

So how do they manage? By recalibrating and growing our loan book, Nakhla said. For Sabry, it’s important to focus on EGP-denominated investments, rather than investments denominated in USD. Nakhla agreed.“As a matter of principle, I think if you lend in local currency, you should borrow in local currency,” he said.

Lending is risky business, especially in a high inflation environment…: Consumer finance is a higher risk product than business loans, according to Nakhla. “Naturally, if I’m going to lend someone to consume, it’s higher risk than lending someone to invest,” he added, explaining that since most consumers are salaried, their disposable income drops significantly in a high inflation environment, making the capacity to service debt tougher.

…but it plays a big role in our economy: “Consumer finance is a more challenging business, but I think we should be bullish about it,” Sabry said.“Every single individual experiences points in time where their need for money is not equal to their stream of income,” Sabry said, pinpointing education, weddings, and medical treatments as among the most common examples when people turn to consumer financial services. “There is a real need for consumer finance,” he said, adding that it takes into account the measurement of financial health, where you enable people to fulfill their needs while taking into account their ability to repay.

With increased borrowing comes increased risk, but so far it’s nothing too serious: “It’s too early for a wide systemic risk [in the sector],” Sabry said, noting that accounting standards — which require an independent modeling company to evaluate your loan book — can show whether you have an elevated default risk. For Nakhla, it’s the same. “Our numbers say there is a slightly higher risk [in the sector], but nothing we cannot digest, nothing meaningful,” he said.

In a higher interest rate environment, is BNPL a good idea? Nakhla is cautious when it comes to buy-now-pay-later services, which he said are a fad that came out with the likes of Swedish BNPL platform Klarna, Nakhla said. “They came out at a time when interest rates were very low and the whole concept was based on merchant rebates … from day one I said this doesn’t work in our interest rate environment,” he said. That’s why MNT Halan couples it with consumer financing — and relying on merchants for rebates. “What we're doing is not a three or six-month loan with small rebates,” he said. “What we're doing is we're charging normal borrowing rates, and we're getting a little extra from merchants for the rebates,” he added.

In defense of BNPL: “[It’s] a small amount with very high turnover, and requires less capital to be deployed, with higher return on capital and early discovery of debt profiles,” Sabry said. “There are different models of BNPL services, for different profiles of customers, and for different needs,” Fawry’s CEO said.

It’s looking good for ins.: “We are very bullish about ins.,” Sabry said. It can help boost people’s financial health, whether in terms of data distribution and processing or collection and disbursement, Sabry said.

“Leveraging the masses is the best business in the world,” Sabry added, noting that it is a defensive sector in the sense that even in a recession, people need access to finance to eat and spend everyday, regardless of whether this increases or declines depending on market conditions.

And there’s still a lot to do to achieve more financial inclusion: MNT Halan and Fawry focus most of their efforts on unbanked and underbanked populations in rural and remote areas. “Around 70-80% of our customers don’t come from Egyptian cities,” Nakhla said. “Upper Egypt contributes 35-40% of our business, and Delta contributes another 35-40%, while Greater Cairo and Alexandira make up less than 20%,” Nakhla said.

“Financial inclusion is not just opening a bank account — that is only a very small part of it,” Sabry said. “Inclusion is about offering financial services that will help people rather than help the organization. Opening a bank account helps the organization, but giving them money, ins., enabling them to save small amounts of money is how you help the people,” Sabry said.

At the end of the day, it’s about having an integrated fintech ecosystem with strong stakeholders: “At a time where you have very, very high inflation, I think it is imperative to have the right players channeling funds to the masses,” Nakhla said. With the presence of responsible players and institutions, alsonside a strong regulator, consumer finance firms will operate comfortably without worrying about whether or not people will be able to pay back their dues, he added. “We think that the more you integrate business, consumers, and small merchants into an integrated ecosystem, the better you understand the business and take better financial decisions,” Sabry said.