Analysis / Fintech: Powering Inclusive Growth in Africa
Powering Inclusive Growth in Africa
From cryptocurrencies to blockchain to mobile money, financial technology or “fintech” is revolutionizing the basic structures of the global economy. Financial services delivered through fintech are becoming more accessible, efficient, and personal.
In sub-Saharan Africa, where only 34 percent of adults have bank accounts, 16 percent have access to formal savings, 6 percent to formal borrowing, and where 94 percent of transactions are made in cash, fintech companies are already providing financial products and services to millions of unbanked and underserved Africans in ways that traditional financial institutions cannot. In many African markets, traditional banks are not retail-focused and require expensive account fees and cumbersome paperwork, or they have branches that are far away from where unbanked communities work and live. They are often disconnected from and little trusted by low-income populations.
While not without its challenges, the long-term prospects for fintech to overcome these barriers and drive financial inclusion in Africa are intact and profound. Advances in fintech also have positive spillovers for other sectors including insurance, energy, and agriculture. This brief helps potential investors and policy makers better understand the waves of fintech innovation unfolding in sub-Saharan Africa. It explores trends, opportunities, and challenges in mobile money, cryptocurrencies, and blockchain solutions. Finally, it reflects on the factors necessary for fintech’s long-term success.
Mobile money in Africa
Propelled by the rapid adoption of mobile phones across the continent, fintech companies are introducing new financial distribution models and payment channels that are aligning financial products to the needs of Africa’s low-income consumers. In the first wave of financial innovation, fintech companies began mainly as mobile money platforms on the back of the distribution capabilities of mobile network operators (MNOs). “Mobile money,” broadly, is a technology that enables customers to receive, store, and spend money securely using their mobile phones. At its most basic, it is a cash transfer system: users deposit cash with mobile money agents that electronically transfer it to other users, who withdraw the cash from other agents. Although it is technology based, cash is still at its core. Sub-Saharan Africa today accounts for more than half of all mobile money deployments worldwide, with one-hundred-and-forty active mobile money schemes across thirty-nine of Africa’s fifty-four countries.3 In seven countries—Kenya, Namibia, Ghana, Gabon, Tanzania, Uganda, and Zimbabwe—more than 40 percent of the adult population actively uses mobile money.
The most distinct and celebrated mobile money success story is M-Pesa, which was created by the Kenyan MNO Safaricom in 2007. Initially launched as a simple peer-to-peer (P2P) money transfer system to enable consumers and small businesses to send and receive money, M-Pesa’s estimated 30 million users now pay bills, transfer money, save, make purchases, and perform traditional banking services with just their mobile phone. Mobile money has evolved beyond M-Pesa’s initial offering to include a range of additional functions: mobile wallets, mobile payments, core banking services, and wealth management services. More and more mobile money providers are focusing on solutions beyond financial services like taxation, education, insurance, and business administration.
Mobile money in sub-Saharan Africa has also evolved beyond M-Pesa. Several other mobile money providers have been successful, including MTN Mobile Money, with forty-one million registered customers across fifteen countries; Orange Money, with sixteen million registered customers across fourteen countries; and Tigo Money, with eight million registered customers across five African countries.
The Atlantic Council Washington, D.C.