The Rationale Behind African Fintech's Rapid Expansion

Despite the overcrowded market and funding retreat, Africa’s fintech proves its resilience in the market by serving as a lever to financial inclusion and bringing innovative solutions to a market designed for the growing African population.

FREMONT, CA: Predictions of steady population expansion and the potential to reach unbanked, underserved sectors encourage capital providers. Recent data highlights that 71 percent of adults in developing economies have an account at a bank or regulated institution with associated expenses, lack of knowledge, and geographical isolation are indicated as key inhibitors to financial inclusivity.

In Sub-Saharan Africa, around 62 percent of unbanked adults in the region are rural dwellers, while 31 percent regard distance as an impediment to entering the formal banking system. At the same time, the African population is anticipated to double by 2050, with much of the growth in urban centers, creating a growing market for fintech innovation.

There is a low financial inclusion rate on the continent and a steady improvement. The World Bank highlighted in its global index database report that the adults' share of making or receiving digital payments in developing economies grew to 57 from 35 percent within seven years, including that mobile money has become a significant financial inclusion enabler in Sub-Saharan Africa.

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Despite a global fintech funding winter, even in the post-pandemic world, Africa remains on the list least hit by the venture capital (VC) retreat due to the opportunity posed by the augmenting size and African economies' progression. A prominent African fintech company triples its valuation following a series D funding and contemporary firms' funding greatly. This resulted in total VC investment in Africa reaching 1.8 billion USD within a few months. It represents a 150 percent increase over previous years.

Among all countries on the continent, Kenya attracted more venture funding in the first three months, with 482 million USD, than in the previous year. However, start-ups need to remain alert in this unpredictable economic condition and refocus on creating sustainable, long-term business models as venture capital begins to introduce stronger and stricter funding terms. Investors also favor start-ups in ancillary industries that support fintech, such as logistics, blockchain, education, and green energy.

Despite significant start-up funding, many start-ups and SMEs in Sub-Saharan Africa require additional efforts to secure loans or funding because they are unable to provide capital providers with critical insights about their businesses, such as clear financial statements, detailed business plans, market studies, credit profiles, and tangible track records.

With fintech growth, various development funding facilities have emerged, with the African Development Bank’s Africa Digital Financial Inclusion Facility wishing to tackle systemic hindrances to the growth and digital financial services uplift by making strategic and catalyst investments in the ecosystem throughout Africa.