Financial technology is reimagining the traditional role of financial services and reshaping it through innovations in digital banking, credit scoring, and peer-to-peer lending. It is also driving financial inclusion and experiencing exponential growth.

In fact, it is one of the fastest-growing sectors in the Middle East. The industry’s market size was valued at $1.58 billion in 2024 and is estimated to reach $3.69 billion by 2033, reflecting a compound annual growth rate (CAGR) of 9.65% during this period. 

The sector also leads the region’s startup landscape, accounting for 30% of total funding, equivalent to $700 million. 

One of its main innovations is reshaping how startups approach funding, credit, and financial challenges, ultimately boosting startup growth.

CHALLENGES FACING STARTUPS

Despite being a top priority for the governments and accounting for 96% of registered businesses, one of the main barriers SMEs in the region continue to face is accessing funding. According to Wamda, MENA startups have experienced a 42% year-on-year investment decline in 2024.

According to Spare Co-Founder & COO Saurabh Shah, one of the main critical challenges SMEs face when accessing credit is the lack of comprehensive creditworthiness assessments. “Many operate without formal financial records or an established credit history, making it difficult for lenders to evaluate risk.”

Tight lending rules from traditional banks—such as collateral requirements and rigid approvals—compound this issue, often excluding SMEs, whose smaller loan needs are deprioritized in favor of larger deals. The scale of the problem is reflected in World Bank data, where SMEs receive just 8% of total lending across MENA and an even lower rate of 2% in GCC countries.

“Many SMEs also struggle with financial management, largely due to limited financial literacy and a lack of formal management skills, leaving them without structured accounting practices,” Shah says. “This is further compounded by inadequate financial infrastructure, as many continue to rely on manual or outdated financial tracking methods, making it difficult to monitor cash flow effectively.”

Similarly, Nauman Hassan, Regional Director of Paymentology, points to the rigidity of traditional financial institutions, which continue to rely on outdated processes that require in-person visits, extensive documentation, and long review periods, often with limited transparency.

Cash flow management is another critical challenge. Many SMEs struggle with delayed payments and long receivable cycles, which can severely impact their financial health. “The lack of real-time financial insights further complicates planning and decision-making, leaving SMEs vulnerable to market volatility and operational risks,” adds Hassan.

On the other hand, Omar Haddad, General Manager of GCC Paymob, underscores the issue of fragmentation of payment systems, noting how many SMEs operate across multiple sales channels—physical stores, e-commerce platforms, social commerce, and B2B trade—yet they lack unified payment solutions that allow them to accept and reconcile transactions seamlessly.

He also points to cash flow volatility further exacerbated by inefficient invoicing systems and high transaction fees on traditional payment methods, making it difficult for SMEs to scale sustainably. “Many still rely on manual reconciliation and cash transactions, which slows operations and increases financial risk.”

Beyond financing, SMEs face challenges in meeting evolving consumer payment preferences. “Customers demand convenient, fast, and flexible payment methods, whether contactless, BNPL, or digital wallets. Businesses that cannot offer multiple payment options risk losing sales and limiting their customer base,” says Haddad.

“The need for efficient, omnichannel payment solutions is clear—yet many SMEs are still dependent on legacy banking systems that do not provide real-time payment visibility or integrated financial tools to help them manage growth.

BRIDGING THE FUNDING GAP

According to Omar Mansur, Managing Director of APAC at Codebase Technologies, fintech companies are bridging critical financing gaps by offering faster, more accessible, and tailored solutions for SMEs.

“Unlike traditional banks, these fintech firms leverage data analytics and non-traditional credit scoring methods to assess risk, making it easier to approve loans without extensive collateral,” Mansur says. “This has particularly benefited startups and SMEs in tech, logistics, and e-commerce, where rapid scalability often outpaces traditional financial services to provide timely funding.”

He also points to government action, as GCC institutions partner with fintechs to drive SME support initiatives. Examples of successful collaborations include Bahrain’s Fintech Bay ecosystem and Saudi Arabia’s SAMA regulatory sandbox, which have fostered a conducive environment for fintech innovation and experimentation.

Experts say fintech can help startups mitigate funding challenges by leveraging alternative data sources such as open banking and AI-driven analytics. This allows fintechs to provide a more comprehensive and accurate assessment of an SME’s financial health.

Shah says, “In addition to improving credit assessments, fintechs are also introducing new financial products, including invoice financing, supply chain financing, crowdfunding, and BNPL, which offer alternative funding options that do not rely on traditional collateral-based lending models.”

Additionally, he highlights the ability of digital lending platforms to streamline access to finance by removing the need for extensive paperwork and physical appointments, providing SMEs with a faster, more transparent, and user-friendly way to obtain funding.

Fintech is also narrowing the financing gap by offering embedded financial solutions, which integrate payments, financing, and analytics into platforms commonly used by SMEs.

“Businesses no longer need to rely on bank loans with complex approval processes; they can now access revenue-based financing, instant working capital advances, and invoice factoring services directly through their point-of-sale (POS) systems, e-commerce platforms, or B2B marketplaces,” says Haddad.

“Additionally, digitizing B2B payments has been a game-changer for SMEs,” Haddad adds, explaining that traditional business transactions are often cash-heavy or involve delayed bank transfers, leading to inefficiencies in supply chain financing. 

“Fintechs enable instant bank transfers, real-time reconciliations, and automated invoicing, ensuring that businesses receive payments faster and maintain better liquidity.” 

DIGITAL SOLUTIONS

Fintechs now offer SMEs a wide range of digital financing solutions. Open banking-powered lending, for instance, allows lenders to assess real-time financial data and issue loans based on cash flow instead of collateral.

Automated accounting tools help businesses manage expenses, generate invoices, and improve financial planning, reducing manual tasks and boosting efficiency. Digital payment solutions have also transformed how SMEs handle transactions, minimizing cash reliance. 

“Online payment gateways and modern POS terminals enable seamless and secure transactions, making it easier for businesses to accept payments across various channels,” says Shah.

One of the main advantages fintech companies provide is alternative funding models like crowdfunding, inventory financing, and BNPL. “These models are expanding the range of financing options available to SMEs, reducing their dependence on conventional bank loans and offering solutions better suited to their operational and cash flow cycles,” says Shah. 

“Bypassing traditional lenders, Mansur points out that crowdfunding has become a vital resource for entrepreneurs in North Africa, where startups often struggle with early-stage financing.

Haddad highlights how invoice financing and automated receivables help SMEs turn unpaid invoices into instant working capital. “This is particularly relevant in the UAE, where delayed B2B payments are common, and businesses often experience cash flow constraints due to slow settlements,” Haddad notes. “By digitizing invoicing and integrating automated payment reminders, SMEs can reduce outstanding receivables and improve cash flow predictability.”

Omnichannel digital payment solutions also play a crucial role in SME financial management. “With consumers increasingly shifting to contactless, mobile wallets, and BNPL options, businesses need seamless payment solutions that support in-store, online, and cross-border transactions.”

Fintech platforms also transform B2B transactions by automating supplier payments, facilitating instant cross-border transfers, and offering supplier credit solutions. AI-driven tools aid businesses in forecasting cash flow, tracking expenses, managing invoices in real time, improving operational efficiency, and reducing errors. 

EMERGING TRENDS

The future of fintech majorly lies in AI innovation. “By offering real-time insights and predictive cash flow forecasting, AI-driven platforms will empower SMEs to make proactive decisions and mitigate financial risks,” says Hassan.

“Perhaps most importantly, the future of SME finance in the region will depend on collaboration between local fintech, global technology providers, and traditional institutions,” Hassan adds.

Such partnerships will help deliver scalable solutions tailored to regional challenges, giving SMEs greater access to capital and essential financial tools for growth.

Haddad highlights the growing importance of AI-powered financial automation in SME financial management. “AI-driven expense tracking, predictive cash flow analysis, and real-time fraud detection will become essential for businesses looking to optimize operations and mitigate financial risks.”

He adds, “Fintech platforms will increasingly provide AI-powered dashboards that help SMEs analyze spending patterns, optimize payment acceptance strategies, and forecast working capital needs with greater accuracy.”

By allowing lenders to access a broader set of financial data with SME consent, Shah adds that open finance enables more accurate credit assessments, tailored financial products, improved risk management for lenders, and enhanced financial planning for SMEs.

Blockchain and decentralized finance are gaining momentum in the region, facilitating faster cross-border payments and trade financing, “particularly relevant in MENA’s import/export-heavy economies,” Mansur says.

Given the high demand for Sharia-compliant financial services in MENA, he adds that fintech firms are developing innovative products that adhere to Islamic finance principles.

Regulatory support will play a key role in fintech’s success. “Initiatives like regulatory sandboxes, digital banking licenses, and public-private partnerships are creating a conducive environment for fintech companies to experiment and scale, ensuring that SMEs in the region have access to cutting-edge financial solutions,” says Mansur. 

These trends collectively point to a future where SMEs can unlock new growth opportunities through fintech advancements.