Creating an ecosystem for financial technology (fintech), most particularly at a subnational level as in the city of Misrata, is crucial for both technological advancement and economic growth. Fintech ecosystems are typically built on five pillars: start-ups, technology developers, governments, financial customers and traditional financial institutions. However, these pillars vary depending on economic conditions and local factors.
With the fintech ecosystem in Libya still nascent, its development will depend on start-ups, universities, technology developers, central and commercial banks, insurance companies, the government and technology companies. Unlike other fintech ecosystems, universities and insurance companies are also crucial in Libya at this stage. Universities can help develop talent and knowledge, while insurance companies can reduce the risk for venture capital firms in the sector.
The Covid-19 pandemic highlighted the critical role of digital financial services (DFS) in mitigating supply-chain disruptions, sustaining economic activity and promoting social distancing. Although over 81% of Libyans were estimated to have access to financial services as of February 2022, rates of credit card ownership and online payments remain low. This lack of penetration by financial services presents a significant opportunity to expand DFS in Misrata, where digital transformation, financial technology and digital payment methods can address the challenges facing the banking sector.
However, promoting healthy competition and fostering innovation could prove difficult due to the concentration of banking activities among a limited number of government-owned banks. To accelerate financial inclusion, emerging fintech start-ups – such as domestic mobile wallet MIZA, which had more than 300,000 users as of June 2021 – may adopt biometric identification and electronic know-your-customer processes. Some companies have also launched microfinance institutions in Libya with the help of international organisations.
Despite the challenges that are facing Misrata’s DFS sector – weak financial infrastructure, limited financial inclusion and access, a lack of regulatory and legal frameworks, and economic and liquidity crises – the industry has enormous potential for growth and development. DFS can boost access to financial services and accelerate financial inclusion, which would benefit many Libyans. However, several critical components are necessary to establish a flourishing fintech ecosystem in the country, including a skilled workforce, a robust education system, advisory services and training opportunities to cultivate talent.
Regulations enabling fintech companies to operate with minimal restraints on their activity and effectively utilise real-time conditions to test their ideas and ensure their viability are crucial. Physical infrastructure, such as access to ICT, shared workspaces and financial resources, is also essential to providing effective support to fintech businesses. In addition, consistent demand from established financial institutions, end-users or innovative companies is critical, although a foundational level of financial literacy is required to understand the services offered by fintech providers.
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