Welcome back to our series on Africa’s FinTech revolution. Have you read the last episode? We concluded by saying that payments are dominating African FinTech. Indeed, FinTech is easing the payment process between individuals, so they do not have to go through the bureaucracy of opening a bank account. In fact, with most mobile money companies in Africa also serving as telephone providers, many customers get access to these services as an extension of their mobile plans.
What other good is financial technology doing in Africa? Today, we made a list.
Financial inclusion and mobile money
According to Quartz Africa, in the race to capture the remaining 57% of African adults who are not included in financial institutions, mobile money companies are ahead of traditional banks. Banks are jumping on the FinTech bandwagon as well – banking apps and other digital services are increasingly popular. However, the fact that customers need to open a traditional bank before they access these digital services still presents a downside.
The near-universal availability of mobile phones is affording millions the access to mobile money services. Mobile money accounts have surpassed bank accounts in Africa, resulting in greater inclusion. According to weforum, the falling price of smartphones will also help the region reap the rewards of internet-based solutions.
Financial services and funding
Through mobile payments, customers in sub-Saharan Africa are gaining access to mobile banking and other services. They are opening savings accounts, taking out loans, purchasing insurance and investing in securities with a few touches of their mobile phone. They can even “borrow” electricity and pay later instead of sitting in the dark.
Particularly, FinTech is helping small business owners to access credit from lending institutions. For instance, it is assisting smallholder farmers in accessing formal credit in the agriculture sector. In 2017, the Food and Agriculture Organization of the United Nations (FAO) reported that more than 90 percent of the 48 million smallholder farmers in Africa did not have access to formal credit from financial institutions. Fintech is providing solutions to the financial constraints within the agricultural sector, it is facilitating lending credit to smallholder farmers.
Business and talent
Africa has proven to be the best place for FinTech startups. The immense growth of internet users is fueling African entrepreneurship. According to Digipay, African startups have grown by 32% with the funding of more than 70%. In 2018, the total funding for African startups touched the $1 billion mark. FinTech is attracting global top talent to the continent. Top executives can now consider a move to an African country with enthusiasm.
Best practice: M-Pesa
M-Pesa is our best practice.
It laid the foundation for Africa’s FinTech revolution. It has revolutionised mobile transacting, starting from Kenya in 2007 and extending to East and West Africa. What is more important is how the company empowered people and communities by affording them the access to basic banking facilities. This means that undeserved people in remote communities could open bank accounts, send & receive money, make payments for essential utilities and so on. M-Pesa has empowered tens of millions of African people in some of the world’s poorest communities.
Mobile money has impacted the nation’s economy as well. According to Kenya’s Central Bank, their citizens have moved as much as half of the country’s GDP via their mobile phones in the year 2018.
FinTech and Covid-19
How is Covid-19 affecting Fin-Tech?
The ongoing crisis has affected both lives and livelihoods. Concerns are increasing about a recession in Africa and one-third of jobs are at risk. According to Mickensey, FinTechs are not immune to the challenges the banking sector may face, such as loan defaults, low debt and profit ratios. Thanks to FinTech however, money has been transferred during the crisis. Though people spent most of their time indoors, their lives did not come to a full stop.
FinTech and policy
Cyber-security and risk pose as additional challenges. According to CGTN, while mobile banking and FinTech present opportunities for people to save and spend money, it also opens up sophisticated, subtler financial crimes to be committed. Policymakers must therefore create an effective regulatory framework that will ensure that FinTech companies, banks and telecommunication providers adopt standard measures to mitigate cyber fraud.
Overall, Africa needs to leverage the success of its FinTech sector. It must transition from the narrow confines of financial services to a digital economy. This would be a landmark for a continent that is still overly dependent on a few dominant sectors. Greater digital inclusion and innovation can spur economic growth that comes with jobs and increased productivity of businesses. These must form the priority of a continent that will see more than half the world’s population growth by 2050.
With the right policies in place, Africa could reap a “digital dividend”. First, policymakers need to address the existing infrastructure gap, starting with electricity and internet services. Also, the continent would need to balance the demands of fast-moving innovation against the slower pace of regulation. Always, regulation is necessary, but stifling innovation could prove costly. Clearly, the current FinTech revolution is forging a path to a prosperous Africa with a thriving digital economy. However, the continent must find ways to clear the hurdles that lie on the industry’s path.