Money Management in Africa Part 2
In the first part of this examination of money management in Africa, I considered how mobile money impacted financial services provision in the region and the subsequent wave of bank and fintech collaboration. Here I turn my attention to what might come next.
Venture funding is coming
The success story of mobile money put the continent on the radar of international investors wanting a piece of the African fintech ecosystem pie. Reports of African fintech funding rounds are increasingly featured in the media and exceeded $200 million in 2018, with venture capital firms as far as Silicon Valley also taking part.
Now, one might wonder where’s the excitement given much larger amounts are injected in single start-ups in other parts of the world. The truth is because innovation is not a word that is usually associated with Africa and the boom has positioned fintech as the most funded startup sector in Africa.
The interesting aspect of Africa is that unlike in developed economies, fintech startups are building and implementing new infrastructures, as opposed to disrupting existing ones.
A lack of access to banking services leaves a large part of the population without borrowing options. This has led to the launch of services such as Branch International, a lending facility start-up, which assesses creditworthiness using smartphone data. With more than 3 million customers and over 13 million loans issued in countries including Kenya, Nigeria and Tanzania.
Branch is working to expand access to credit in countries where the average middle-class borrower might not have a credit history or even a bank account. The provision of easy-access to credit is creating room for small businesses to grow.
The start-up recently announced a new partnership with Visa, following its record-breaking series C funding round which raised $170 million, the largest ever by a fintech focused on Africa. Branch, along with other lending start-ups such as OneFi in Nigeria and Numida in Uganda, is addressing the lack of credit options, which according to World Data was ranked as one of the biggest problems that arise when doing business in Africa.
African startups are not strictly applying techniques borrowed from the west, but innovating solutions and creating specifically for local markets. M-Pesa’s success with mobile money and its impact on Kenya’s economy is an example of what’s possible as fintech startups create sustainable workarounds to solve local problems.
This also paved the way for other platforms such as Moneywave, launched by Nigerian-based start-up Flutterwave. The platform allows local merchants to send money to any bank account or digital wallet, in Africa, instantaneously. Now merchants can easily accept payment from an M-Pesa user and do not have to go through the hassle of managing an account. This was created in response to the high cross border transaction fees (sometimes reaching 31%) faced by M-Pesa users.
Start-ups like Kudi in Nigeria have looked to overcome the reliance on physical cash by forming networks of bank agents that provide a gateway between cash and digital solutions; allowing money transfers, bill payments and cash withdrawals.
From financial deepening to economic development
Six of the 10 fastest-growing economies in the world were in Africa in 2018, according to the World Bank. This was partially attributed to the boom in African fintech, with start-ups finding it easier to build when there are fewer barriers to break. For example, sub-Saharan Africa has lagged behind in access to finance owing to poor infrastructure such as the low number of bank branches, ATMs, and the absence of sufficient internet connections.
However, some nations in the region such as Kenya are now global leaders in mobile money. The west developed new standards in mobile banking and African countries leapt straight to the new, frictionless mobile infrastructure. Entirely avoiding the legacy technology that now plagues western banking systems.
Money management has transformed the African continent from a financially disconnected society into a fast-growing financial hub. While it’s not yet on the level of London or other western finance hubs, the rising middle-class is now a market ready for wealth development and more sophisticated financial instruments thanks to mobile money.