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Fated to return through inventiveness

Lebanon cannot but rebuild its financial markets from the entrepreneurial edge

by Thomas Schellen

Banking everywhere is being confronted with deep societal paradigm shifts and digital transformation challenges. Demands for better governance and heightened societal and environmental accountability are being leveled by civil societies, regulators, and, at least verbally, some governments and the community of nations. They are reflected in innumerable global discussions on diverse topics such as universal financial inclusion, climate risk mitigation, and gender awareness, which are augmenting the age-old discourses on the role of finance in economic justice, prosperity, and productivity.  

The challenges of a fundamental redesign of money, banking, and all financial relations matter hugely, perhaps more than ever, for every human being – much more so in a year like 2023 when armed conflicts of historic consequence are shaking every assumption of a world heading towards peace. The reasons for the financial challenges alone are so many that they cannot be enumerated and much less argued in this short elaboration on financial safety in Lebanon. But the combination of operational and fundamental systemic banking challenges in the global financial system are also decisive for Lebanon’s future, although – or rather exactly because – its banking industry has fallen back into a pre-financial, quasi stone age of its own making and the resuscitation of legacy financial structures is looking more difficult with every passing week. 

This means that, with dim prospects for reconstruction of financial markets from the regulatory and political top layer, the gap between the progress in best banking practices in Lebanon’s regional partner economies and the dysfunctional market here widens. Can innovative approaches designed to be disruptive to digital finance invigorate operational integrity and competitiveness? The many disappointing examples of the past 25 years raise doubts. Can digital propositions, from new e-wallet operators to online banks boosted by a regime of yet imperfect licenses, progress into systemic pillars of domestic financial markets? When set against challenges of lacking digital infrastructures, ever growing cyber threats, and not yet clear legal frameworks, the answer is far from certain. Will they find enough trust and fulfill their promises of ethics and inclusiveness to the point of efficiently redrawing financial markets on the domestic scale and fulfill currently still nascent aspirations to perhaps claw back a role beyond the confines of their small economy?

Tracking the year’s global tremors 

On the international banking industry’s operational side, dangers of bank runs and overexposure to various risks have spiked in the first half of the year. These dangers and overexposures have been documented to great international attention in a few hyper-speed bank runs on overstretched US and Swiss lenders. Being digital bank runs, these depositor and investor stampedes underscored a hitherto almost theoretical, severe downside of the digital era.

 In another big financial system tremor with worldwide implications, but one involving the more conventional grounds of a national property market, specters of trouble for China’s financial stability have kept making headlines since early in 2023. Drawing attention of the International Monetary Fund (IMF) and all presumed guardians of global financial stability, this trouble factor, which is linked to the continuing real estate crisis in the People’s Republic, was flagged repeatedly in the IMF’s latest Global Financial Stability Report (GFSR) that was released on October 11, 2023. 

And even at the top of the increasingly stressed development finance system, change pressures have recently been acknowledged. According to recent remarks by Ajay Banga, the new World Bank president, “operational dysfunctionality”, or a diminished ability to meet its purpose of boosting equitable prosperity and reducing poverty, has been hinted at in the world’s eponymous, and largest, development finance institution (DFI).

The World Bank “needs to run better” as it is engulfed in the global economy’s current “perfect storm” of challenges, Banga lectured an audience of sympathetic peers at American NGO, The Council on Foreign Relations (CFR), at the end of September – about four months after taking office. 

Pointing to the current conflagration of global social and economic crises, Banga said that the World Bank was now needed more than ever, but immediately moved on to describing a personal shock: seeing the institution not being able to lead from the front and get things done as needed made him understand, in his words “that there is something dysfunctional in the way the institution needs to be changed and operated with. And that’s kind of what was my biggest surprise.” 

Parallels and divergences, noted from a dysfunctional sliver 

Despite the local banking sector’s strength relative to the size of the national economy, and despite the renown of Lebanese bankers in the international halls of finance, the country’s financial market was a niche market even when it was at its strongest. Today, seen against the broad range of worldwide operational and systemic challenges, Lebanon’s state of continued financial incapacitation is infinitely less relevant than the above cited troubles of the DFI system, the Chinese financial sector, and some surprisingly vulnerable banks in the United States and Switzerland.

In this context, the relative (in)significance of the Lebanese system in the eyes of shakers such as the IMF, can perhaps be read from the fact that a query into the latest GFSR returns 98 matches for “China”, three for “Middle East”, and zero mentions of Lebanon. Similarly, neither the September 2023 issue of the IMF’s Finance and Development magazine, which offered a preparatory focus on Arab financial markets ahead of the October annual meeting in Marrakesh, Morocco, nor the public statement on the IMF’s 2023 Article IV mission to member country Lebanon, were sources of enlightenment on practical or even theoretical solutions for restoring the operational integrity of the country’s financial system. 

This is especially noteworthy against the background that the IMF’s efforts at addressing the Lebanese emergency have not yielded fruits in the past three years. In a side note to this from the Marrakesh annual meeting’s press briefing on the Middle East and Central Asia, a journalist’s question about the prospects for an easing of the IMF’s reform demands before disbursing any funds to Lebanon was deflected with a reminder on the required three “prior actions” for an agreement that were listed in the staff level agreement of April 2022.    

While not answering the question of whether the IMF could have been more creative in its proposed solutions and more accommodating of the Lebanese case (see comment piece on page 18), the painful failures of producing salient banking reforms and legislation to protect the stakeholdes –from the average depositor to the IMF as prospective lender – are the failures in securing minimal operational integrity and must be laid at the doorstep of the local occupants of power. This political constellation has revealed a very inconvenient, deep incongruence in the operational structure of the post-Bretton Woods system of international economic and monetary control, a fissure that is as indicative of this system’s inherent weaknesses as it seems to be embarrassing to the IMF.

Digital, the best or the only gambit on the table?

But enough of that. On the flipside of the coin, or, as it were, the token of future finance in the digital era, Lebanon’s system is subjected to the same immense transformation pressures as the global financial system.

The overburden of under-addressed systemic risks and emerging radical changes in the global economy and especially its weaker clogs coincides with Lebanon’s devastating inability of creating stable and adequate regulatory ground and realizing top-down financial system reforms. Against this backdrop, the only discernible local flashes of hope come from fintech innovators, who are endeavoring on adventures in digital banking and operations relating to  e-wallets – which during the economic crisis astoundingly saw several steps of regulatory progress – with the unquenchable verve of Lebanese entrepreneurs. 

Local plays on the e-wallet proposition 

Market participants say that more than ten licenses for operation of a digital wallet, mobile applications that are also known as electronic or e-wallets, have been issued by the central bank of Lebanon, Banque du Liban (BDL), earlier in 2023. In response to this accommodative regulatory action, several corporate names that represent Lebanese and foreign investor interests as well as some mid to high tier Beirut-based money transfer enterprises and payment processors are either in the process of establishing their e-wallet brands or have already launched wallet apps, including new interoperability deals aimed to improve the apps’ utility and acceptance.

To visualize a digital wallet in one’s pocket, one can say that the common container for carrying one’s essential documents and currency has been restyled from leather or fabric to plastic and glass, and expanded from a few compartments to a portable bookshelf with an integrated strongbox: e-wallet is a catchy term for an app on a smartphone. More than to the pouch of victuals, bag of coins or billfold in the Renaissance-era roots of the term “e-wallet”, this mobile app’s everyday financial functionality can be compared to that of a slick payment card, such as a bank-issued debit card or credit card with numerous conveniences and preset options/limits.  An important mark of distinction of digital wallets is that they do not require their owners to have a bank account. Convenience and tech appeal has been another key selling point.

 Interestingly, the recent cohort of entrepreneurial e-wallet contenders in the local market includes licensees with dedicated visions of contributing to a new made-for-and-in  Lebanon. One example for this is Purpl, a Fintech startup that has commenced operating earlier this year and was conceived in a deep trench of the financial and economic crisis. Then there is MyMonty, a BDL-licensed Financial Institution under Lebanese ownership, which has a transnational profile in online banking and mobile phone-based Fintech services. While very different in scope, both enterprises hold e-wallet licenses and at the same time profess their dedications to Lebanon beyond what the local financial market today offers in size and growth prospects. 

Purpl was formed in 2021 by three entrepreneurs on the basis of a very critical assessment of the costs and services platforms of vitally important remittances in the Lebanese market. “We decided to tackle the problem of remittances,” says Purpl co-founder (CEO as of November) Wissam Ghorra who has previously worked with Lebanese banks domestically and in Switzerland. It was from the idea of creating a price-competitive and convenient digital remittances platform that, “what followed logically was the digital wallet, so that customers could cash out or have peer to peer transfers and spending options,” he adds.

MyMonty is a unit in Monty Holding owned by Lebanese businessman Mountasser Hachem. The company, which has offices in 25 locations around the world, wants to start offering digital lending in Lebanon beginning from later in 2023 and to date has obtained two BDL licenses, a Financial Institution license and an e-wallet license, strategy and business development manager Charles Matta tells Executive

[Editor’s note: this story does not reflect any updates that have occurred between writing and publication]

Self-funded and still under formation but not needing an e-wallet license is Vault-ki, a developer of a password storage solution for decentralized e-wallets – the variant of wallet apps that incorporate the blockchain philosophy of seeking independence from third-party guarantors of trust in a fiat currency. Founder Georges Haddad, who established his fascination and qualifications with both the blockchain and finance,  tells Executive that it is his dream to provide a made-in-Lebanon solution for a ubiquitous security need in the decentralized wallet sphere. 

“Anyone’s journey in the decentralized world starts with knowing how to safely store your passwords,” Haddad outlines as the baseline proposition of his venture , which he characterizes as “a solution on the periphery of Fintech”  that has international competitors but none that is a native enterprise to the Middle East.

 While very different in their business plans and at very different points of their business journeys, the commonality of the three ventures is that their founders, co-founders and executives who spoke with Executive incorporate a passionate commitment to Lebanon in their perspectives on digital finance – even as the concerned enterprises are in the short, medium, and long term clearly focusing on business horizons that range outside of the small Lebanese market. 

In addition to their Lebanese corporate DNA, the interviewed Fintech players share a conviction that the Lebanese financial crisis is an apt argument in support of the digital finance proposition and their respective corporate visions of online banking and lending (MyMonty), money transfer and e-wallet services (Purpl), and ancillary provision of a security product whose design as a stainless steel chain of blocks alludes strongly to the mental image of a blockchain (Vault-Ki). 

Vault-Ki’s Haddad opines that many Lebanese depositors and holders of moderate financial wealth would have been better protected if part of the monies in the Lebanese financial system had been held in decentralized e-wallets. If people come to share this insight, it will be good for his business. “Trying to succeed as a made-in-Lebanon product and operating from here, partly for the [local] market but mostly to sell abroad, is the business vision of Vault-ki,” he says, and enthuses: “This is not only because I am Lebanese and want to contribute on my scale to a better economy, but also because we have that story [of the recent crisis]. What better proof of concept [for owning a decentralized digital wallet] than what happened to Lebanon?” 

However, e-wallet propositions and even online banking in itself are extremely unlikely to become full substitutes of old banking and intermediation pillars in recreating local financial markets. Observers and entrepreneurs alike note that the market still lacks much in digital finance infrastructure and acceptance even as high smartphone penetration rates, general education levels, society’s eager adaption of tech gadgets, and age and other social barriers transcending user profiles of money transfer services signify growth opportunities. 

“I am not here to disrupt the banking system. I am here to offer alternatives to users, services that are complementary to banking services,” Purpl’s Ghorra tells Executive. According to him, the company encountered two client types over its first few months of operation this year. The first is people sending money to themselves from outside of Lebanon and using the platform for its lower costs when compared with cash transfer service providers, and the other is made up of individuals who resort to Purpl to receive remuneration of freelance work they did for their clients abroad. “We saw two personas and this is where our [customer acquisition] focus will probably be.”

MyMonty, whose global concept of an online “impact bank” is targeting unbanked, under-banked, and under-served individuals (which in Matta’s perception today includes every resident of Lebanon), locally uses a direct-to-market approach, something that does not point to quickly seeking a proportionally vast customer base in the country. Moreover, while this does not suggest an extremely rapacious appetite for  a rapid market share acquisition, Matta tells Executive that, “microfinance is definitely part of our proposition,” whereby acquisition of very small merchants and building of credit scores on MSME level is in the longer-term planning under the financial inclusion lens.

A slow but hopefully steady acquainting of scarred Lebanese bank customers with digital options appears to be the rational choice of market entrants, conceivably for a large number of reasons. This begins on the regulatory front where BDL regulators are said to be working diligently on moving their relevant frameworks towards greater completion. Although this is assumed to be done under a central banking rationale that e-wallet adoption by citizens will partially countermand unhealthy trends of informality and growth in the easy-to-subvert cash economy, it deserves also to be noted that minds at the central bank and among decision makers do not appear able to be firmly focused on the digital financial future. Lebanon is already suffering severe deficits in political, financial and institutional trust and now, further unspeakable dangers that outweight lacking a full set of central bank regulations for e-wallets and their providers. 

The long view and wide angle

Finally, on historic terms, the digital age has still much ahead before it can be seen as mature. Over the past 25 years, the virtual sphere has repeatedly been hyped and over-marketed despite numerous incidents showing that digital finance in general and the cryptocurrency realm in specific are not at all immune to human imperfections and criminal endeavors. As are other aspects of digital finance, the e-wallet concept and online banking are loaded with behavioral risks on the part of their users and vulnerable to theft and attacks by digital pickpockets, extortionists and cons. Quite a few technology driven financial solutions, or tech-fin as some experts say is a more apt name, were supposed to be disruptive and revolutionary by design but failed to deliver on their vast promises.  

Systemic points of weakness have been revealed in multiple jurisdictions and presumably digitally advanced societies, with the most significant systemic problems ranging from inept or lagging legislation and regulatory confusion to state intrusion. In the Lebanese financial arena, restrictive and uneven regulation of Fintech forays certainly combined with weak digital infrastructures and cultural reluctance of conservative bankers into creating a digital finance backwater in the 2010s when compared with Fintech sectors in jurisdictions that were hungrier for the competitive edges and unicorn-breeding potentials. 

Today the regulatory situation appears more hopeful but at the same time, the economic and general challenges keep piling up on all fronts. For Lebanon, acute threat of war builds while in tragic irony, the world’s top financial players convening in an Arab setting had nothing more relevant to offer to the Arab world than a formal “call for inclusive growth in the MENA region”, in which IMF Managing Director Kristalina Georgieva claimed that “perhaps one of the most promising changes [in the Arab World over the past 20 years since the last annual spring meeting hosted in 2004 by Dubai] is that inclusive growth has become a household word and a unifying call across the region.”

As the human catastrophes and the violent drivers of emergent geopolitical compunctions seem to be racing into darkness, the Fintech entrepreneurs and stakeholders in Lebanon’s financial fate who spoke with Executive before the outbreak of the acute confrontations in Palestine may very well be fundamentally on point when they enthuse that the future of finance is digital. New and monumental obstacles may rise at any moment against the optimistic and fully confident late September remarks of Purpl’s Ghorra: “We are today building the foundations for the next financial sector in Lebanon and shaping them in the way we would like to see.” But try Lebanon must. 

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Thomas Schellen

Thomas Schellen is Executive's editor-at-large. He has been reporting on Middle Eastern business and economy for over 20 years. Send mail

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