They are the superstar start-ups that have been sprouting up across Africa in ever-growing numbers over the past decade. Fintechs, which have revolutionised how millions of people spend, send and save their money, have proven irresistible to many investors.
It is a bet, premised on savvy entrepreneurs finding ways to fix financial problems associated with antiquated banking systems across Africa, that has so far paid off. Fintechs’ valuations have mushroomed as customers turn to digital platforms to bypass cash, queues and red tape.
Africa is the fastest-growing fintech market, according to a recent study for Boston Consulting Group, which estimates that fintech revenues across the continent will reach $65bn by 2030, some 13 times higher than a decade earlier.
And the rapid expansion shows little sign of slowing. “Growth is still incredibly high because the problem which we are trying to solve is still very profound,” says Tayo Oviosu, at Nigerian payments platform Paga. “The average Nigerian is still paying bills in cash. There are still massive opportunities ahead of us,” he adds.
Millions of Africans still have no access to the financial sector. In Nigeria, 37 per cent of the population does not have a bank account, rising to 51 per cent in Ethiopia and 57 per cent in Egypt, according to the World Bank.
It was simple payments companies, such as Nigeria-based Flutterwave and Moniepoint, that led the charge. But now a second wave of companies offering credit, insurance and facilitation of international transactions is taking up the baton.
“We are talking about moving from access to depth,” says Shalini Unnikrishnan, lead author of the Boston Consulting Group study. “Payments only takes you so far.”
It is firms such as 4G Capital, a fast-growing microlender operating mainly in Kenya and Uganda, that are in the vanguard. The company, 76th in this year’s FT-Statista ranking of Africa’s fastest growing companies, provides short-term and unsecured credit through a mobile phone app to small businesses.
“We give them the working capital they need so they can buy, sell, bank the profit and repeat,” explains founder Wayne Hennessy-Barrett. “We are really operating at the frontier level of risk.”
It is an approach that has found favour in east Africa, where Numida (ranked 14th), based in Uganda, and Inkomoko (fifth), from Rwanda, are also growing quickly.
4G Capital assesses the creditworthiness of a borrower by combing through transaction histories and behavioural data using an algorithm, albeit paired with visits by an agent who provides bite-sized financial literacy lessons.
“It is a hybrid approach,” says Hennessy-Barrett, adding that 95 per cent of borrowers repay on time. It is a model that could well be exportable around Africa and beyond, he says. But for the moment 4G is prioritising steady growth in its east African heartland.
“It is a discipline and execution question,” Hennessy-Barrett says. “We are determined to avoid the risks of premature movements into new countries before the time is right.”
This qualm is not shared by other fast-growing fintechs that are racing to reduce the cost and complexity of moving money across borders in Africa.
Regulus, a Ghanaian firm (ranked third) that works to facilitate currency exchange across Africa, operates in 25 countries. Currenzo, which trades as Africhange and is ranked 11th, is creating pipelines to allow the African diaspora in Europe and North America to send money home more easily.
This could have important long-term effects as money starts to take the path of least resistance. Ebehi Iyoha, an economist at Harvard Business School, estimates that reducing fees, delays and other challenges associated with international payments could create 1mn jobs for remote workers across Africa. “We are seeing fintechs alleviate these frictions by being creative,” she says.
But operating in Africa is still challenging. Hennessy-Barrett says governments can be overzealous when taxing fast-growing sectors. Regulators too are playing catch-up and efforts to facilitate pan-African payments integration have been slower than hoped.
“The most important thing is policy predictability,” says Iyoha. “Volatility is a big issue for start-ups. It is the planning horizon for firms that must be long to allow for innovation to take off.”
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This can be more of a problem for some countries than others. Nigeria is such a big market, for example, that start-ups have continued to forge ahead despite years of economic turbulence and creaking infrastructure.
But entrepreneurs in smaller economies can face bigger challenges. It will fall to governments in those countries to be more proactive in building out infrastructure and business environments conducive to innovation.
Francophone sub-Saharan Africa continues to underperform. Senegal and Ivory Coast, its main economic hubs, count a single company each in the rankings this year, of which only one is a fintech.
“Those markets have to be ready,” says Oviosu. “Customers must be ready. The macroeconomic environment has to be inviting. There is work for governments to do to get this off the ground.” She adds: “Africa remains the largest greenfield financial services market in the world.”
