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The Benefits of Microfinance Institutions in Africa

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The continent of Africa has experienced exponential growth in the last few decades, which has attracted attention and investment from several multinational firms and corporations. International corporations such as Facebook and Google have then concentrated on accessing this booming market of newly prosperous consumers. The World Economic Forum has recorded the astronomical growth of African markets and outlined a very optimistic economic trajectory for many of its developing nations.

Growth and Debt

The Forum’s findings revealed that the “continent demonstrated an average real annual GDP growth of 5.4 percent between 2000 and 2010, adding $78 billion annually to GDP. Growth continued at 3.3 percent from 2010 to 2015.” A major reason why Africa experienced these high levels of growth is the recent influx of microfinance institutions providing affordable loans to farmers across the continent.

Farming is the primary source of food and income for Africans and provides up to 60 percent of all jobs on the continent.  Microfinance institutions have tailored their lending to this fact and the results have been extremely beneficial for both the farmers and firms themselves.

The loans give African farmers the opportunity to invest in profit-generating activities that improve their economic security and access the most important benefits of microfinance institutions in Africa. Activities such as providing better food for their families, improving access to clean drinking water and sanitation, and enrolling their students in school instead of work have all driven the impressive growth rates on the African continent.

Benefits of Microfinance Institutions in Africa

The benefits of microfinance institutions in Africa also extend to the lenders and their companies. The microfinance industry in Africa currently has a gross loan portfolio of $8.5 billion and attracts a consumer base of 8 million people. According to Mix Market microfinance institutions’ data, the African continent has developed one of the fastest-growing MFI bases.

This gross loan portfolio and base of African microfinance institutions continue to grow and has witnessed an exponential growth of 1,312 percent between 2002 and 2014. The farmers themselves have excellent repayment rates despite the daily hardships they face, which continues to foster growth in the African microfinance industry.

The mutually beneficial partnership between these microfinance institutions and African farmers and the continuing innovation from both sides has helped foster growth in several African countries. In fact, a perfect example of such interaction and progress can be found in the nation of Mali.

Mali

In Mali, microfinance institutions began offering an innovative loan product tailored to farmers’ seasonal cash flow. The results of this new product were outstanding for both the firms and the farmers.

The households offered these loans saw an increase in investment on agricultural inputs such as fertilizer, herbicides and insecticides; this led to an increased value of agricultural output by $32 and value of livestock by $168. The repayment rate among those that took out loans was perfect, which ensured profits for the lending institutions as well.

Room for Improvement

While microfinancing has been an overall beneficial lending practice, there are still some challenges to overcome. The predominant issue that needs to be addressed is increasing access to rural communities. Some 70 percent of the population in Sub-Saharan Africa lives in rural areas, where financial services are scarce.

This issue is compounded by the areas’ lack of infrastructure to help microfinance institutions reach them. Microfinance institutions must continue to expand their operations in Africa in order to maximize its benefits and keep Africa on its current growth trajectory.

– Anand Tayal
Photo: Flickr

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Improving the Economy: Three Fintech Startups in Africa

fintech startups in AfricaFinancial technology, or fintech, refers to innovations aimed at new ways of delivering financial services. With the goal of changing lives, fintech startups in Africa are moving people forward on a digital route. Fortunately, such firms have no lack of funding.

According to a recent report from Disrupt Africa, the overall funding from venture capitalists jumped by 51 percent to $195 million from 2016 to 2017, with fintech funding accounting for one-third of the funds. The regions that were considered as the top three investment destinations were South Africa, Nigeria and Kenya.

Over the past several months, the African tech scene has trended in a positive direction as consumers turn to more digitally driven services in the region. After the success of MPesa in Kenya, many fintech startups in Africa are aiming to bridge the digital gap across other unreached communities in the region.

Here are three leading fintech startups in Africa that are rethinking ways to digitalize communities in Africa.

 

Flutterwave


Flutterwave was founded in 2016 and provides payment technologies and infrastructure to the continent’s largest financial institutions. With the aim of disrupting the traditional banking style in Africa, its instant rise captures the current tech scene of Africa.

The company currently operates in more than 36 countries and has partnered with 10 bank partners in Africa. With as much as 34 percent of adults in sub-Saharan Africa with bank accounts, Flutterwave has a practically untapped market to reach.
Founded by ex-bankers, entrepreneurs and engineers, the technology aims to make banking simple for its customers. With 10 million transactions processed, Flutterwave has processed $1.2 billion in payments and receives the backing from venture capitalists like Y-Combinator, Ventures and Social Capital. The company provides solutions for banks, enterprise and entrepreneurs, with no upfront, annual or special project fees.

According to a World Bank report, roughly $20 billion a year is sent to Nigeria alone, and foreign remittances made up the second-largest source of foreign exchange receipts in Africa’s biggest economy after oil revenues. Flutterwave aims to target the digital payment gap, enabling users to transfer money into different bank accounts. Such fintech initiatives will allow the communities and families in Africa to receive digital payments from family members and business relatives from across countries and, in turn, will spur growth in the developing region.

 

Pezesha


Launched in Kenya, Pezesha aims to become Africa’s largest peer to business microlending marketplace by including Africa’s low-income borrowers in the financial system. As one of the leading fintech startups in Africa, Pezesha is driven by the core values of integrity, security, reliability, excellence in teamwork, accountability, responsibility and innovation.

Instant loans can be availed by borrowers on the peer-to-peer lending platform via SMS, provided the minimum criteria is met. Such services allow low-income borrowers in Africa to generate credit scores using data analytics. Pezesha also extends funding for small and medium enterprises (SMEs), which could indirectly benefit jobs and employment in the small business sector.

SMEs create 80 percent of the region’s employment and fuel demand for new goods and services. But according to The World Bank, an estimated 50 percent of SMEs have no credit access and are less likely to secure loans when compared to larger firms. By providing microcredit access, small businesses will get funding support and allow entrepreneurs to design bankable projects.

Pezesha was recently selected to participate in the BlackBox Connect 20 accelerator programme, powered by sponsors like Google, IBM, Stripe and Silicon Valley Bank.

 

Riby

Riby has become one of the best 50 emerging fintech startups in the world, according to the recent annual Fintech 100 report by KPMG and H2 Ventures. Based in Nigeria, Riby offers a mobile app-based service for a range of financial management features including the digitization of collaborative saving, lending and investments.

Riby acts as a platform for groups, employees, individuals, associations and financial development institutions and remotely helps them controls their financial activities.

The app includes features like personal savings, cooperative savings and loan management, peer-to-peer lending, agent management and personal and group investment management. Through the digitization of collaborative saving, lending and investments, Riby aims to increase financial literacy amongst individual members of the groups.

A major reason for the fintech rise is the usage of mobile phones in Africa, which has increased from five percent in 2003 to 73 percent in 2014. With 650 million mobile phone owners in the continent (more than in the U.S. and Europe combined), the 3G mobile network is also growing rapidly.

According to Disrupt Africa, more than 300 fintech startups are active across the African continent. It is evident that fintech startups in Africa are attracting the attention of banks and investors, but more importantly, they are helping the lives of many unbanked customers in Africa and indirectly improving the economic condition of the country.

For the African economy, the tech wave has just started. The untapped market could provide a wealth of opportunities for many fintech startups, equipping customers with more sophisticated digital tools.

– Deena Zaidi

Photo: Flickr