A significant segment of Egypt’s populace is without access to conventional banking services, compelling many individuals to depend on cash for transactions and informal lending systems. Established in 2019, Khazna, a fintech innovator, is addressing this gap by providing financial solutions specifically designed for low- and middle-income workers. The firm supplies services like salary advances, digital payment options, and microloans, empowering employees and contractors with essential financial resources.
Recently, Khazna secured $16 million in pre-Series B funding, elevating its total funding to over $63 million. This injection of capital will facilitate its growth ambitions as the company seeks to obtain a digital banking license in Egypt and extend its operations into Saudi Arabia.
When we last reported on the fintech in 2022, it had just gained $38 million in a Series A funding round and had over 150,000 customers utilizing its offerings. Today, Khazna has expanded its user base to more than 500,000 individuals, a number that is half of what it aimed to reach by the end of 2022, according to insights shared by Saleh at that time.
The company primarily serves workers earning three times below Egypt’s minimum wage, equipping them with cost-effective financial tools. Approximately 100,000 users process their payroll through Khazna, enabling the firm to seamlessly incorporate financial services like loans and insurance into their payroll systems.
For the remaining 400,000 users, Khazna extends lending options, assisting gig economy workers and retirees in accessing credit. CEO Omar Saleh indicated that the company’s initial focus was on payroll-backed credit alongside pension loans, which contributed to achieving break-even last month.
“Over the past two and a half years, our emphasis has been on perfecting our core product, which consists of credit offerings to pension and payroll beneficiaries, as well as unsecured loans for gig economy workers,” explained co-founder and CEO Omar Saleh to TechCrunch. “This profitable and central aspect of our business has been crucial for reaching profitability.”
On the path to becoming a digital bank
In addition to these services, Khazna offers bill payment, buy now pay later options, medical coverage, and a rent-to-own scheme. By embedding itself into payroll and lending systems, the company is strategically positioning itself to become a comprehensive digital bank catering to Egypt’s underserved demographics.
However, there’s a crucial limitation: unlike traditional banks, Khazna currently cannot accept customer deposits, resulting in higher loan funding costs. To date, the company has depended on wholesale debt financing in both US dollars and Egyptian pounds to support its lending activities.
To lower borrowing expenses and provide more competitive loans, Khazna is now focused on acquiring a deposit-taking license in Egypt. This license would enable the startup to accept customer deposits, thus decreasing its funding costs.
“The major game changer for us will be gaining access to user deposits. There’s a substantial opportunity to capture a segment of that market which will enhance our funding conditions significantly, ultimately positioning us very favorably compared to competitors,” he commented.
Khazna aims to secure the banking license from Egypt’s Central Bank by mid-2026, following the establishment of its regulatory framework for digital banks in July 2024.
While starting this process, the six-year-old fintech is also eyeing Saudi Arabia, where the demand for consumer finance solutions is on the rise. Unlike buy now, pay later (BNPL) services like Tabby and Tamara that focus primarily on short-term credit, Khazna attempts to distinguish itself with medium-term credit offerings that include earned wage access (EWA), payroll-backed loans, and pension-related credit.
Expansion plans, including a not-so-imminent IPO
Another factor motivating Khazna’s focus on the Saudi market is its strong ties to Egypt, as noted by Saleh. With nearly three million Egyptians residing in Saudi Arabia, the remittance corridor between the two countries is among the largest in the world, creating an opportunity for cross-border financial services that integrate credit offerings with foreign exchange (FX) options.
Beyond market potential and product compatibility, the dynamics of capital markets in Saudi Arabia also influenced Khazna’s strategy, according to Saleh. The Tadawul stock exchange is one of the region’s most liquid platforms, fueled heavily by retail investors, witnessing multiple IPOs in recent years.
Consequently, Khazna anticipates that 40-50% of its revenue will be generated in Saudi Arabia over the next four years, paving the way for a potential public offering on Tadawul. This strategy provides an attractive exit scenario for early investors who have supported the firm over the last four to five years.
Indeed, Khazna will utilize the recently acquired growth capital to fund this expansion. However, the broader economic challenges in Egypt during the past two years also shaped the structure of this pre-Series B funding round.
From 2022 to 2023, Egypt faced currency fluctuations and economic uncertainty, complicating fundraising efforts for startups. The overall slowdown in investment activity reflected this cautious investor sentiment towards Egyptian startups. Nevertheless, 2024 heralded a significant turnaround, with more than $50 billion in foreign direct investment (FDI) flooding into Egypt following economic reforms and adjustments to the exchange rate. This influx revitalized investor confidence, rekindling interest from both global and regional investors.
As a result, Khazna welcomed participation from both new and existing backers, including global entities such as Quona and Speedinvest, as well as regional financial institutions and investment firms like the SANAD Fund for MSME, anb Seed Fund (managed by anb Capital), Aljazira Capital (the investment arm of Bank Aljazira in Saudi Arabia), Tibas Ventures (the venture capital branch of İşbank in Turkey), Khwarizmi Ventures, Nclude (the fintech fund established by Egypt’s major national banks), and ICU Ventures.
Compiled by Techarena.au.
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