Fintech in Africa - Driving Financial Inclusion through the Digital Transformation of Financial Services

SINGAPORE

11 October 2019

The Unbanked in Africa

Nowhere around the world has fintech been so promising as in Africa where it has the potential to provide the millions of unbanked with access to formal financial services. Currently, 0.8 billion adults are still unbanked in Africa with 40% of them coming from poor households. According to the Global Findex database, 1.7 billion adults remain unbanked. Given that Africa constitutes 47% of that statistic, the impact that fintech can have on financial inclusion cannot be overstated.

Fintech in Africa

Fintech firms have grown to 491 from 301 in 2017, and in 2018, 210 African tech start-ups raised $334.5 million. Of these, 39.7% were fintech investments. South Africa, Nigeria and Kenya are the top markets for these investments as they account for 65.2% of Africa’s fintech firms.

40% of fintechs in Africa are focused on payments and remittances and 20% in lending and financing. A total of 19 African countries rely on remittances for 3% of their GDP, six countries for 10% or more. The African country that has the highest reliance on remittance is Liberia at 31.2% of the country’s GDP. 300 million people in Africa rely on remittances which can be a lifeline to the poor. A global sustainability concern that is geared at alleviating poverty is centered on the high costs of remittance where sending money through banks or a Western Union is 7.3% of the transaction amount in Africa. While this is an existing problem in Africa, it also represents an opportunity for fintechs looking to increase transparency and lower costs for greater efficiency, not just for remittance, but across all sectors.

M-PESA, Branch and Inclusivity Solutions

Fintech allows emerging markets like Africa and other parts of Southeast Asia to leapfrog now redundant eras of technological progression. Mobile penetration and the rise of neobanks have for example, done away with the need to allow financial inclusion through the provision of automated teller machines, which can be difficult to locate in Africa. Two-thirds of the unbanked have mobile phones which can potentially connect them for access to financial services. 66% of the adult population in Kenya, Rwanda, Tanzania and Uganda use mobile money actively. In December 2016, there were 277 million registered accounts, which is more than the total number of bank accounts in Sub-Saharan Africa. Examples of fintechs that are thriving include:

Only 26% of households had access to formal financial services in 2006 in Kenya, and this number has grown to 75% in 2016. This phenomenal growth has been attributed to M-PESA, which has also been credited with lifting 2% of Kenyan households (194,000) out of extreme poverty, allowing 185,000 women to move from subsistence farming to business and sales occupations. When M-PESA first launched, the distance to the nearest bank was 9.2 kilometres. In 2015, it was 1.4km to the nearest M-PESA agent showing the proliferation of the service.

It’s clear that fintech has been a key driver in financial inclusion in Africa and the best success stories in the years to come will be focused around alleviating poverty as well as providing economic empowerment to the populations in these frontier markets. In our next article on fintech in Africa, we will explore a case study of how 4xLabs is working with forex bureaus in Uganda, that deliver essential services to the underbanked population, to tackle some of the challenges they face. Read our interview with Mr Philip Katamba, Chairman of the Uganda Forex Bureau & Money Remittance Association to see how Biz4x is helping traditional non-bank financial institutions with digital transformation for greater efficiency and compliance.