Fintech in Africa: Reshaping the financial sector

Editor’s note: Alexander Ayertey Odonkor is an economic consultant, a chartered financial analyst and a chartered economist with an in-depth understanding of the economic landscape of countries in Asia and Africa. The article reflects the author’s opinions and not necessarily the views of CGTN.

In the last decade, the impact of financial technology (fintech) on Africa’s financial sector and other key sectors has been phenomenal. As a key driver of growth in the region, fintech is a viable alternative to traditional banking in urban and rural areas. In Africa, fintech creates an enabling environment that opens up the financial sector’s value chain and promotes efficiency gains. Across many countries in Africa, fintech is improving financial inclusion and stimulating innovation and productivity in major sectors, such as the small and medium-sized enterprises (SME) sector and the agriculture sector, the backbone of the region’s economy.

For instance, in Egypt, North Africa’s largest banking sector and banking powerhouse for more than a century, fintech is an indispensable component in scaling up financial inclusion in the country. For banks in Egypt, advancement in fintech reduces operation costs and increases their customer base efficiently. The reliance on fintech augments the capacity of the banks, as they are able to extend digital banking services to the country’s large and dispersed population.

With an ultimate goal of providing reliable financial services to a large unbanked population in Egypt since 2011, the financial sector has recorded strives in financial inclusion via fintech in recent times. In 2017, about 33 percent of adults in Egypt had bank accounts, an upswing from less than 20 percent in 2014. While the extension of financial services to rural areas through the traditional banking system is quite challenging, adopting fintech to deliver financial services to a large population of the unbanked and underserved in Egypt is a sustainable panacea in boosting financial inclusion and shared prosperity. 

Similarly, in Sub-Saharan Africa (SSA), fintech is a catalyst for growth in financial inclusion and innovation. Although poverty is prevalent in SSA, with a large proportion of low-income households in the region, the remarkable growth in digital financial services has created a newfangled market that allows the people in the region to access reliable, affordable and sustainable financial services. A study conducted by the European Investment Bank (EIB) asserts that about 11 percent of SSA’s entire population had mobile bank accounts in 2014, the highest in the world. Digital financial services have been heavily subscribed in rural areas where access to traditional banking is limited.

With poor infrastructure such as low access to the electricity grid, underdeveloped road networks, low access to clean water and predominant low-income households, most traditional banks do not prioritize rural banking penetration, as they consider operating in such deprived locations highly risky. This has led to the reduced availability of financial services in rural areas in SSA. However, an increase in mobile phone penetration, low transaction fees and growth in fintech innovation have boosted the subscription of digital financial services, improving lives in the rural areas where most of the extremely poor are located and agriculture is the main source of livelihood.

According to the International Finance Corporation (IFC), access to digital financial services, such as mobile money, has increased the daily per capita consumption levels of SSA households. Through mobile money services, many poor households have been lifted from extreme poverty, and their standard of living has improved tremendously. Smallholder farmers constitute a large share of farmers in the region. However, a huge financing gap for smallholder farmers and difficulty accessing agriculture insurance have…