Technology advancement in finance “fintech’’ arrived in Africa with a lot of optimism, promise and potential to the extent that US search engine giant, Google announced that it will invest up to $50 million in African growth-stage companies, targeting Fintech. However, the Fintech industry is moving at the speed of light while government regulators are struggling to catch up.
In 2021, there were 144 fintech startups in Nigeria. Compared to the previous years, the number of startups in this sector continues to increase. Nigeria has, in fact, some of the highest numbers of fintech startups in Africa.
Generally, it has been projected that the sector will contribute about $180 Billion to Africa’s GDP by 2025.
The progress made by Fintech companies such as Flutterwave, Paystack, Accelerex, Paga, Interswitch, E-tranzact, Carbon Paylater has made banking services easily available to more people in Nigeria and the continent as a whole. Banking services have become accessible on the internet. Customers can make remittances, take loans and make withdrawals or send money.
While the progress recorded in that sector has been heartwarming, the government has not found it easy to regulate that sector because it is new terrain to regulators who have been used to traditional business operations for decades.
There have been no specific regulations for Fintech in Nigeria. The Bank and Other Financial Institutions Act 2020, classifies other financial institutions as Payment Service Providers “PSP” and International Money Transfer Activities, regardless of whether their activities are conducted digitally or not.
The Securities and Exchange Commission (SEC), which is primarily responsible for capital market regulation, announced its Regulatory Incubation Program (the RI Program), which is the SEC’s version of the CBN’s regulatory sandbox for Fintechs offering services and products in the Nigerian Capital Market space.
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While the SEC has been lauded for launching the RI Program, many have however expressed worry about the CBN’s restrictions on cryptocurrency exchanges. However, a good look at Africa’s Fintech regulatory framework must take into account the major cities in Africa where the sector is strongest.
Fintech Companies in Lagos Nigeria.
Lagos; Africa’s most populous nation, is ranked third among African FinTech hubs and 71st globally. It is one of the region’s biggest opportunities for FinTech with nearly 40% of the population unbanked and close to two-thirds under 25. In March 2018, the Central Bank of Nigeria (CBN), in collaboration with the Nigerian Interbank Settlement System, introduced a regulatory sandbox even as the CBN is developing a set of regulations for FinTech firms. In December 2019, Financial Services Innovators (FSI), a leading Nigerian community of FinTech entrepreneurs, regulators, companies, incubators, and developers, launched the first FinTech industry innovation sandbox in Nigeria.
Nairobi, Kenya
As one of the leading economies of Africa, Kenya’s financial inclusion has been at its forecast level for well over a decade, increasing by a projected six per cent in the African Development Bank (AfDB) statistics, in 2020.
Similar to Nigeria, the Central Bank of Kenya (CBK) does not recognize cryptocurrency as a legal tender and has repeatedly cautioned the public from dealing with virtual currencies. However, in contrast to Nigeria’s regulatory environment, Kenya’s government has provided new startups with financing and lenient rules, resulting in increased fintech adoption throughout the nation.
Fintech Scene Johannesburg, South Africa
In 2020, the Global Fintech Index City ranked Johannesburg, South Africa as the first African country and 37th on the world’s Fintech startup ecosystem map alongside Kenya, Nigeria, Ghana, Egypt, and Uganda. It is also recognized as a fintech game changer in Africa.
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The increase in fintech innovations in South Africa has improved the efficiency of the financial sector and strengthened the financial integration of all South Africans by addressing their daily needs and helping them to achieve financial targets.
The Global FinTech Index 2020 identifies the four African cities of Johannesburg, Nairobi, Lagos and Cape Town among the top 100 FinTech ecosystems globally. The rankings reflect that these cities are home to Africa’s most valuable tech ecosystems and typically account for the most start-up investment received on the continent.
Home to some of Africa’s leading banks, financial institutions and FinTech start-ups, Johannesburg is the continent’s largest FinTech hub with a global ranking of 62. South Africa is the only African country on the list to boast two FinTech hubs, with Johannesburg followed by its sister city of Cape Town at fourth place in Africa and 87th place globally. On the regulatory front, the South Africa Reserve Bank has overseen several initiatives including Project Khoka, a proof-of-concept interbank payment and settlement system based on Distributed Ledger Technology, and the Inter-Governmental FinTech Working Group (IFWG). In April 2020, the IFWG rolled out an innovation hub with a three-pronged approach of regulatory guidance, testing products and services through the regulatory sandbox, and an innovation accelerator to give firms the opportunity to connect with others using the hub.
Mauritius Fintech Scene
While Mauritius may not breathe the same rarefied air as South Africa, Kenya or Nigeria, it is clear that the small island nation is punching above its weight in the FinTech space. Incidentally, the Global FinTech Index 2020 highlights conducive regulation and small size as two ingredients of successful FinTech hubs. It notes that smaller cities tracked by the index do really well as “proof of the value of an ecosystem where people can connect easily.” On regulation, it stresses that conducive legislation tops the chart of a successful FinTech hub as FinTech-friendly regulations encourage investment.
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Mauritius clearly has both factors going in its favour, as evidenced by the small size of the innovation ecosystem that facilitates networking and interactions among all members, and the focus on developing a regulatory framework that nurtures the growth of FinTech firms.
No wonder then that the island economy counts among the handful of countries in the continent that have implemented a regulatory sandbox regime, under which its Economic Development Board (EDB) has granted licenses to at least 9 companies as of August 2019, including crowdfunding platforms, blockchain services, and crypto-currency exchanges.
Fintech Scene in Tanzania
Financial Technology /FinTech has been growing at a rapid pace in Tanzania. Part of the reason for this rapid rise is that Tanzanian regulators are actively encouraging FinTech innovation, as an emerging industry that uses technology to improve financial activities. FinTech done well is a powerful tool for achieving financial inclusion for Tanzania’s mass unbanked population. The need to harmonize all mobile-money platforms has forced the government to incorporate these platforms through the National Switch Interoperability agreement by Tanzania Communication Regulatory Authority (TCRA).
The government provides Legal and Regulatory framework support but at the same time, government and MNO’s and firms that involve themselves with the FinTech business have entered into an MoU with the Financial Sector Deepening Trust (FSDT) to allow smooth flow of funding and technical know-how.
There are over 21 million active mobile wallets in Tanzania, while those who use Mobile financial services stand at 16.6 million. This includes users of mobile banking, mobile lending and saving, money transfers, online mobile payment systems, scanning and tapping card payment aggregation, and international remittance business. This has led many banks to consider prioritizing mobile banking services.
