Rwanda just hosted the flagship International Fintech Forum. The event, which was organized by the Kigali International Financial Center (KIFC), brought together over 3,000 delegates from all over the world ranging from investors, innovators, and policy makers. The forum’s aim was to foster an open dialogue between the public and private sectors to advance FinTech in the digital economy. Africans are invited to tap into the ever-growing Fintech landscape on the continent.
When most people think of Financial technology in Africa, MPesa comes to mind – a groundbreaking mobile money transfer service launched in Kenya in 2007. Beyond that, Africa’s Fintech industry has grown by leaps and bounds with unicorns such as Chipper Cash and Flutterwave valued at 2.2 and 3 billion dollars respectively, both with operations across the continent.
The event presented a unique opportunity for innovators to have a conversation with policy makers on streamlining innovation, ease of doing business, and expansion across the continent.
Speaking to the CEO of Flutterwave, Olugbenga Agboola, at the sidelines of the event, key to his agenda at the conference was to hammer home the need for harmonization of fintech regulation across the continent.
Ahead of Flutterwave’s much-anticipated IPO, Agboola’s focus has been keeping the customers happy, streamlining service delivery, expanding to more countries, and acquiring licenses. To that effect, Flutterwave expanded into Rwanda in March, acquiring three licenses to do business. The irony is the company is in operation in Kenya and Tanzania but needed separate licenses to set up operations in another East African country.
While regulators and policy makers are softening their stance on Fintech, there is a long road ahead in creating an enabling environment. For example, the central banks of South Africa, Kenya, Ghana, and Nigeria have launched fintech sandboxes – which allow start-ups and fintech-based initiatives to conduct ‘live’ experiments under regulatory supervision. Since 2015, there has also been a gradual updating of licensing requirements, and implementing digital guidelines and regulations.
However, there is more work to be done. Speaking at the Capital meets policy dialogue fireside chat, John Rwangombwa, Governor of the National Bank of Rwanda, and Ravi Menon, Managing Director of the Monetary Authority of Singapore highlighted the lack of regulatory alignment as a key challenge in scaling up, not just for the FinTech sector, but SMEs at large.
According to McKinsey Fintech in Africa-the end of the beginning report, 65 percent of Africans are unbanked or underbanked. Further, cash is still king with digital transactions only accounting for 5 percent. In Côte d’Ivoire, Cameroon, Tanzania, Uganda, and Nigeria, more than 40 percent of the population are technically unregistered, without formal identification. On top of this, internet penetration in these countries was below 50 percent in 2020 and payment rails are limited.
The ability for Fintech startups to set up businesses with ease across the continent will rope in the unbanked population allowing them access to the financial sector and its perks. Indeed, the McKinsey report reveals that Fintech transactional solutions can be up to 80 percent cheaper. FinTechs can also unlock the potential of saving accounts with interests up to 3 times higher than those provided by traditional players such as banks. Innovations such as digital lending allow access to credit to a population left out of the formal banking system due to a lack of collateral. This unlocks revenue for small businesses. To this date, these solutions have addressed a finance gap of over 400 million dollars. Further diaspora communities will ease sending money home as the cost of remittances could be up to 6 times cheaper.
With the Africa Continental Free Trade Area Agreement coming of age, Fintech could accelerate the pace at which it takes shape. According to a 2019 IMF report on Fintech in Sub Saharan Africa, a well-functioning payment system is indispensable to reduce the costs of exchanging goods and services in the economy. This is because the cost of sending remittances to sub-Saharan Africa is the highest globally largely influenced by oligopolistic nature of the banking industry, low regional and financial integration, and the existence of multiple currencies and inefficient payment systems for intra-African cross-border payments.
Some of the innovations in finance could be applied to the fiscal sector to improve the efficiency of the interaction between the state and citizens. A longstanding challenge in many sub-Saharan African countries is the efficient collection of taxes and delivery of public services and social spending. For example, estimates suggest that digitalizing government payments could create value of roughly 1 percent of GDP for most countries.
The potential of the industry can be attested to by increasing investment on the continent. According to the McKinsey report, the funding for FinTech companies in Africa jumped to a record high of $131.5 billion in 2021. Further, the number of FinTech unicorns reached 235, with 34 alone born in Q4 2021. Despite the global economic slowdown, the enthusiasm in Fintech continues to grow as the International fintech forum attracted private investors with 3 billion dollars up for investment and public private partnerships with 500 million up for grabs.
Jean Marie Kanarura, Chief Investment officer at Kigali International Finance center says the first round of conversations between investors and innovators happened at the conference. Further rounds will be taking place soon that will see some Africans fintech companies benefit from investment funding.
Beyond access to capital, Jean Marie also points out that a continental ecosystem is needed to catapult the growth of fintech across the continent. Jean says talent development and retention is important to build up the industry. Further, regulatory barriers such as government bureaucracies should be done away with. He points out that digitization of certain government functions enables investors register their companies within 6 hours in Rwanda. The country is working to not only fasten the license acquisition process but also harmonize regulation with partner countries across the continent.
With both the President of Rwanda H.E Paul Kagame and the president of Zambia H.E Hakainde Hichilema present at the opening ceremony of IFF, Fintech for economic growth dominated the conversation.
“Financial technology and access to finance, capital, is of utmost importance to our quest to achieve accelerated economic and social development, so we can take care of our populations”. President Hichilema concluded his remarks by noting the role of policymakers in enabling a thriving ecosystem, “it is a duty we have to support young entrepreneurs (and) innovators.”
Recognising the importance of the topic, President Kagame highlighted that “FinTech’s are accelerating Africa’s digital transformation and the impact is evident,” while noting the importance of ensuring inclusivity in the development of the sector “The digital economy is not a zero-sum game. Everyone must benefit. That is why we must do more to ensure that women are more active participants in the FinTech space”.
Africa’s financial services market is undergoing a structural shift and could grow at about 10 percent per annum, reaching about $230 billion in revenues by 2025. FinTech players are taking advantage of this expanding market and, as the fastest growing startup industry in Africa, FinTech revenues could grow by 8 times to reach $30 billion by 2025.