How Fintech is Transforming Economies in Sub-Saharan Africa

Fintech in Sub-Saharan AfricaThe number of unbanked people in Sub-Saharan Africa represents around 57% of the total population of the region. That equates to approximately 360 million people across the continent without recognized assets. South Africa, Mauritius and Kenya have maintained robust financial infrastructure for decades, while areas with the lowest levels of urbanization surrounding Ethiopia and Rwanda continue to struggle with provisioning traditional financial services with spotty internet and lacking identity documentation.

With the right strategy, overcoming these challenges carries great potential to change the livelihoods of millions. Experts at McKinsey, a global consulting firm, found that the market for financial services in Africa could reach $230 billion in collective revenue in the next two years. Boston Consulting Group and QED Investors estimated that Africa’s fintech sector could reach a revenue compound annual growth rate of 32% by 2030. In fact, fintech companies are expected to make up nearly a quarter of all banking valuations worldwide by then.

Fintech in sub-Saharan Africa: A Frontier For Change

Fintech encompasses any kind of platform that sidesteps traditional roadblocks to saving and spending in some form of credit or cryptocurrency. Alternatives like blockchain, peer-to-peer lending and equity-based crowdfunding can be up to 80% cheaper, with interest rates on savings up to three times higher. By using technology to keep all users accountable, these systems incentivize honest transactions and sustainable supply chains.

These technologies can streamline the investments necessary to facilitate small business ventures, eco trade and agriculture. Pula Advisors underwrites climate risks that negatively affect crop yields with digital micro-insurance for over 1 million farmers across Zambia, Kenya and Nigeria. In Mozambique, Vodafone has piloted an electricity initiative that provides customers with off-grid solar devices they can buy and recharge with mobile transfer service M-Pesa.

Online banks are longer lasting and relatively less capital-intensive to establish in Africa. For perspective, about 65% of companies in the United States (U.S.) fail within the first 10 years. In 2022, the Bureau of Labor Statistics found that U.S.-based companies raise the most capital and experience the least longevity. African companies raise the least from investors and fare the longest. The difference between the two lies in prioritizing change readiness rather than investor relationships. Successful African entrepreneurs can secure stakeholder support by ensuring market acceptance and engaging customers on a community level

E-commerce Giant Chips In

Amazon Web Services launched its inaugural FinTech Africa Accelerator in June 2023. The equity-free program is hosting a cohort of 25 startups to fast-track their go-to-market strategy, technical development and fundraising efforts. Exxtra, Chumz and Vargent have already validated their proof of concepts, exemplifying the unmet niche fintech addresses across Africa.

Exxtra provides over 10,000 Ghanaians short-term loans in under 24 hours with no collateral or guarantors required. Chumz uses Kenyan software to create group saving accounts with interest rates up to 8%, free of charge. Vargent is like a Nigerian Venmo for instant money transfers around Africa with safeguards for illicit laundering.

Summit Scheduled for November in Zambia

The 10th bi-annual Africa Fintech Summit is happening this fall in Lusaka. Past meetings have been held throughout the continent, in Lagos, Addis Ababa, Cairo, Cape Town and internationally this past April in Washington, D.C. The conference hosts panels, workshops and a pitch competition to foster conversations between industry regulators, investors and founders. Its tech exhibition has welcomed over 4,000 participants from 100 countries since 2018. Zambia is regarded with optimism within the industry, recently cited as Africa’s next major tech hub. Between 2015 and 2020, the country’s mobile money penetration increased by 10%. Also, Its current administration is prioritizing digital inclusion as a means for economic growth with business-friendly legislation.

Looking Ahead

Self-sufficient economies are on the horizon, and this is a result of the emergence of fintech in Sub-Saharan Africa. Already on Amazon’s radar, African fintech is emerging as a viable initiative for empowering the underbanked.

– Avery Pearson

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