In a panel discussion about The fintech boom: regulating without stifling innovation at the Africa Financial Industry Summit (March 10-11), with the Governor of the Central Bank of Kenya, Patrick Njoroge, the case was made for a more open environment and harmonised financial regulations to create a sustainable innovation culture and help fintech firms expand their footprint in Africa.
Over the last decade, Africa has gradually become the global leader in mobile financial services. The African startup ecosystem has largely been driven by fintechs, which accounted for around 25% of funding attracted by startups in 2020. But much of the continent’s success remains concentrated in markets such as Nigeria, Egypt, South Africa, and Kenya. Other emerging countries include Ghana, Senegal, and Ivory Coast in West Africa, where governments are showing a strong commitment to growing the sector.
While fintechs have helped to boost financial inclusion on a continent where there are only five bank branches per 100,000 people, compared to 13 in other parts of the world, their growth comes with a certain number of risks. Regulations also remain restrictive and hamper growth in markets such as Morocco and Tunisia, despite encouraging initiatives in the North African nations.
With this in mind, financial services experts at the Africa Financial Industry Summit in a panel discussion themed The fintech boom: regulating without stifling innovation called for a more enabling environment and harmonized financial regulations to create a sustainable innovation culture and help fintech firms expand their footprint in Africa.
“It is clear that fintechs have growth potential in Africa when you look at the huge unbanked population. The range of services on offer has evolved since starting with basic mass-market services like payments and then progressing to personal loans, insurance solutions, etc. Fintech players will be crucial for financial inclusion with significant socioeconomic impacts,” said Zied Loukil, Partner & Banking Regional Leader for Africa and the Middle East at Mazars.
One of the continent’s most successful fintech stories is MPesa in Kenya, and much of the success has been helped by favorable regulatory environment, according to Olugbenga GB Agboola, Founder & CEO of Flutterwave, a Nigeria-based fintech firm that joined Africa’s exclusive unicorn club after a landmark Series C Round last week. “I think MPesa is the biggest innovation when it comes to fintech or mobile payments in Africa and this can be attributed to an enabling regulatory environment in Kenya,” he said.
Nonetheless, Governor of the Central Bank of Kenya, Patrick Ngugi Njoroge denounced the notion of “innovation versus regulation,” or that the apex bank may be stifling innovation in some way. “As regulators, we have a duty of care involving the consumer, depositor protection, accountability, etc. This is fundamental. So when an innovator comes out with a product like MPesa, we assess the ecosystem and associated risks” Njoroge said.
“At CBK, we adopt this very proactive approach and look at the business model presented to us, ask ourselves whether it’s fit for purpose and how are risks taken care of? The consumer needs to be protected. But that does not mean regulation should hamper growth or that fintech firms should have the same capital requirements as commercial banks. The goal is, by asking crucial questions, we regulate or minimize the risks and players can come up with better products that will serve consumers and contribute to the growth of the financial services industry,” he added.
As the fintech industry grows, there have been more strategic partnerships emerging between traditional bankers, mobile operators, and fintech firms, confirming the existing synergies between business models and a common interest to work together. Players are also leveraging new technologies such as data analytics, artificial intelligence for credit scoring solutions and blockchain.
“Before now, commercial banks viewed fintech as a threat that they didn’t understand, but the number of existing regulations prevents traditional lenders from innovating as fast,” notes Bola Adesola, Standard Chartered Bank’s Senior Vice Chairman for Africa.
“So now, they are embracing fintech, looking at how they can collaborate with them and much of the efficiency that banks are looking for can be found within the framework they operate. At StanChart, we have a dedicated unit that scouts for opportunities to partner with fintech firms,” she added.
It is important to note that while some progress has been made, a lot still needs to be done to fast-track the growth of fintech in Africa, according to Loukil. In many countries, regulation has not yet evolved to integrate the specificities of fintech. Also, greater cooperation is needed at the continental level, as well as interoperability with the rest of the world, the lack of which is a limitation to international money transfers from the African diaspora.
“The evolution of the regulatory environment will be crucial for further development and access to these innovative services. These new technologies present opportunities, but also risks. All stakeholders must benefit as much as possible from the substantial economic and social impact of fintech in a controlled and sustainable growth environment,” the Mazars executive explained.