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The Future Of Consumer Credit In The Middle East: Empowering Milestones With Fintech Without the right guidance, the future of consumer credit may turn into a tangled web of challenges. But there's a way to tackle it.

By Ammar Afif

Opinions expressed by Entrepreneur contributors are their own.

You're reading Entrepreneur Middle East, an international franchise of Entrepreneur Media.

The way we finance purchases has changed dramatically in the last decade. Today, consumers have greater access to financing their purchases than ever before. These new methods are seeing rapid adoption, and they are helpful for purchasing everyday items like clothing and electronics. But many still have to turn to traditional financing options for bigger investments, which are not as easily accessible, and are not without their inherent risks.

Do consumers have the tools to use caution when accessing finance? Without the right guidance, the future of consumer credit may turn into a tangled web of challenges. But there's a way to tackle it.

The current state of consumer credit in the middle east

Alternative financing solutions take the frustration of traditional credit, with its proverbial hoops, prohibitive credit checks, and somewhat inscrutable terms out of the equation. This is not only ideal for the underbanked, but also for the burgeoning Gen Z population, 36% of whom shop online monthly. Their financing option of choice? You guessed it, buy now, pay later (BNPL) products.

But in an economic climate where traditional loan interest rates are unlikely to drop, and apartment prices are surging by up to 20% in cities like Dubai, people of all ages and income levels are also setting off on a quest for quick and easy alternative lending options. While the TikTok generation views BNPL as a tool for non-essentials like clothing, a look at the millennials in the 26-35 age bracket reveals a greater desire for new credit solutions.

As they embark on bigger life milestones, this older generation has needs that surpass the latest fashion trend: higher education, buying a forever home, tying the knot, and starting a family. These big moments are often marked with substantial purchases, and, as we've all experienced at one point in our lives, limited financing options. That's where new credit solutions from fintech lenders and point-of-sale (POS) financing can, and in some regions, has already come in handy.

Related: A Launchpad For Success: The UAE Is On A Mission To Establish Itself As A Global Hub For The Fintech Industry

The data speaks

A massive surge in the adoption of alternate financing solutions has swept across Europe and then the states, with the Middle East quickly catching on as well. Now, the demand for POS financing on bigger ticket purchases is skyrocketing in the West, with a remarkable 61% of users opting for BNPL services on purchases of US$500 or more. It's only a matter of time until the Middle East embraces this trend with equal enthusiasm.

But this demand for alternative financing solutions does not come without big, loud warning signs. In fact, we're already seeing the adversity begin creeping in. A study on consumer awareness of point-of-sale financing and digital payment options that allow you to pay over time revealed that 39% of users in the UK lacked a comprehensive understanding of the service, encountering missed payments, late payment fees, or falling behind on other expenses as a result of miscalculating future installments.

With great purchasing power comes great responsibility

While falling behind on payments on the new iPhone or even a Boss suit wouldn't shake up the global economy per se, doing so on bigger-ticket items like housing or college fees certainly could. This brings us to a pressing challenge we're facing in the MENA region: the average consumers' limited financial understanding. Bas Kooijman, CEO and Asset Manager of DHF Capital, states that the financial literacy rate in the region is at just 30.7%, an alarming rate that sits approximately 5% lower than the global average.

Amidst the allure of these enticing financing options, it's important to acknowledge the immense risks they carry, especially with the region's financial knowledge gap in mind. Yet, within the folds of these risks lie opportunities waiting to be seized. As individuals embark on their journey towards financing significant milestones, fintech lenders and traditional financial institutions must join forces to offer resources and tools that educate consumers on personal finance, and how to manage debt- without any confusing financial jargon.

Fortunately, both the UAE and KSA governments have already taken proactive steps towards a higher financial literacy rate. In 2020, the UAE rolled out the Ghaya initiative to empower UAE nationals to actively contribute to the nation's economic growth. Similarly, Saudi Arabia's Riyali, the financial literacy program by SEDCO Holding, was launched to encourage financial responsibility and planning amongst the Kingdom's consumers.

The way forward

I'm a strong believer that the future of consumer credit in the Middle East holds immense promise, driven by the need for accessible financing to afford life's significant milestones- without the complications of traditional financing solutions. Fintech companies are already making remarkable strides in meeting this demand, and we're only getting started.

To ensure the responsible use of these easily accessible credit options, however, the Middle East's financial knowledge gap must be addressed promptly to avoid the impending pitfalls of debt, especially when it comes to bigger investments like housing or education. Then and only then can a future where inclusive financial resources empower borrowers to live according to their life's aspirations.

Related: Follow The Leader: Ammar Afif, Co-Founder And CEO, Cashew

Ammar Afif

Co-founder and CEO, Cashew

Ammar Afif is the co-founder and CEO of Cashew, a payments led financing company tackling the challenges consumers face across the MENA region in gaining access to finance at point of sale.

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