For many decades, Africa had limited access to traditional financial services such as loans, insurance, and credit facilities. However, the continent has recently begun to witness unprecedented growth in its Financial Technology sector (popularly known as Fintech). This growth may be attributable to the fact that many countries in Africa have been able to showcase their potential for economic growth, causing them to be attractive to foreign investors across the globe.
According to a report from Disrupt Africa, a tech-focused research and news organization based in the region – the African fintech market has been accelerating, with startup companies securing around $330.5 million in the first half of 2021, which is more than double the amount raised in 2020. As internet and mobile usage continues to grow, financial services in several major emerging African markets such as Nigeria, Kenya, and Egypt are bypassing traditional banking processes in favor of efficient tech-enabled solutions such as mobile money.
From Africa’s skyrocketing young population to innovations aimed at solving the financial service needs of the people on the continent, Unlimint’s Director for Africa, Trevor Goott, explores some of the factors that have contributed to and shaped the pivotal moments in the African fintech space:
Africa Valuation: Not unlike Silicon Valley was in the early 2000s, startup companies in the African Fintech space have begun to draw an increasingly large amount of Investor attention from global venture capitalists, private equity funds, and angel investors.
After decades of petitioning for foreign investors, the last two years have seen a strong inflow of Foreign Direct Investment into the continent. In 2020, approximately $744 million was invested in Fintech in Africa, accounting for 31% of the total inflows into the continent. In 2021, the interest in African Fintech startups exploded, with Fintech start-ups focused on the continent raising $3.03 billion in disclosed funding rounds. This counted for a massive 62% of the total investment inflows, according to the latest Africa Investment Report, which was published by research and intelligence firm, Briter Bridges.
The attractive valuations of African startup companies encourage foreign investors to invest, since other startups particularly in more mature markets tend to have expensive valuations. If the incremental funding for fintechs in Africa right now is anything to go by, then capital injected into African startups is only likely to increase due to the deepening penetration of mobile usage and internet across the continent.
Demographic and Urbanization Trends: Africa has the world’s fastest-growing population, and the UN anticipates at least half of the global population growth between now and 2050 will come from the continent. Let us consider Sub-Saharan Africa for a moment – 15% of the sub-Saharan African population is middle class. However, that proportion is steadily increasing in Africa, which is one of the positive indicators for growth. This growth coupled with urbanization has been followed by increased productivity and economic development.
Pain Point Solutions: Despite the many feats accomplished by African startup companies in the fintech space, together with its youthful, entrepreneurial, and digitally savvy population who embrace mobile usage, Africa unfortunately still has a large unbanked and underbanked population. On the flip side, however, these challenges have provided the perfect opportunities for fintech companies to be innovative and disruptive. Across the continent, this particular sector of the population (banked and unbanked) who have historically been ignored by conventional banks, are now looking to the startups for their financial solutions.
Take for example the payment and remittance space which according to research, accounts for one of the most sought-after segments with a +-24% growth in startup companies since 2019 (Disrupt Africa). Emerging fintech innovators are working tirelessly to find solutions and spur financial inclusion by solving some of the difficulties experienced by businesses and individuals alike —such as loans, investments and money transfers (internationally and locally). It is against this backdrop that companies like Unlimint thrive from both the massive adoption and transformation of the financial trajectory of the world’s soon-to-be largest population.
Future generations of people in Africa will hopefully look back on this moment in time as a massive turning point in the future history of their region. For that to be true, not only will these trends need to continue into the long-term future, but there needs to be appropriate infrastructure in place to support this growth. It is also important to note that foundational support layers like favorable regulation, transparent government participation, and tech-forward educational programs would determine whether or not the story is written by Africans or for Africans.