Why Are Investors Turning to Africa’s Fintech Sector?
Fintech is transforming the financial sphere across the world, but there’s one continent which is particularly benefiting from Fintech, and that continent is Africa. With around 66% of the adult population in Africa referred to as the unbanked, Fintech has the power to drive huge change in the region and serve a continent that has for so long been has had their financial needs neglected.
Innovative Fintech start-ups are rising rapidly in Africa. Businesses such as M-Pesa, Jumo and Kuda are prime examples of FinTechs who are serving those excluded from accessing financing or were underserved by traditional banking companies.
The Rise of Fintech in Africa
The combination of rising mobile phone usage with the bank’s reluctance to provide people with access to its services, meant that Fintech was always going to be a hit in Africa.
Many countries in Africa are now embracing Fintech, but it is in countries such as Kenya, Nigeria and South Africa where Fintech has been instrumental. For example, in Kenya, M-Pesa has revolutionised how people manage their finances. Users can now pay bills, transfer money, and even receive salaries, all without having a bank account.
Since M-Pesa’s launch in 2007, their service has been crucial in providing Kenyan’s with access to financial services. As a result, financial inclusion in Kenya stands at 83%—up from 27% in 2006.
The financial inclusion that Fintech services help facilitate will be crucial in increasing the GDP of Africa. According to the McKinsey Global Institute, financial inclusion could help increase the GDP of all emerging economies by 6%, or $3.7 trillion, by 2025, and lead to the creation of 95 million jobs.
If African countries can commit to backing Fintech through infrastructure development, education and regulatory framework, then Fintech could play a large role in reshaping Africa’s economy.
Why Investors Are Taking Notice
Africa’s growing demand for Fintech has caught the eye of investors around the world. Venture funding has been increasing every year, and in 2019, African tech start-ups managed to raise $2 billion in equity funding, with over 40% of this total funding going towards the Fintech sector.
2019 also saw some large scale investments from major corporations. For example, OPay, an Africa-focused payments company, raised $120m from a group of Chinese investors including Sequoia Capital China and SoftBank Ventures Asia, whilst Interswitch received a $200m investment from Visa.
Investments such as these are causing the Fintech sector to explode in Africa, with the continent now being home to more than 400 active Fintech companies. The success of services like M-Pesa is causing more investors to bet on African Fintech.
More Room for Growth
If the previous five years are anything to go by, then the future looks rosy for the Fintech sector in Africa. Will the industry ever be as big as Asia or Europe? Probably not. However, the rate at which Fintech has grown in Africa is impressive, and it’s no surprise why investors are keen to pour money into the sector.