Faculty of law blogs / UNIVERSITY OF OXFORD

Disruptive Innovations or Enhancing Financial Inclusion: What Does Fintech Mean for Africa?


Zehra G Kavame Eroglu
Director of the Master of Professional Accounting and Law; Lecturer of Corporate Law and Finance Law at Deakin Law School
Isa Alade
PhD candidate at Deakin Law School


Time to read

4 Minutes

Cryptocurrencies, online/mobile banking, robo-advisory services, alternative credit rating systems, and many other fintech products started to challenge regulators and the existing regulatory structures all around the world. In the last decade, the number of fintech companies operating globally has skyrocketed, and the value of investment into fintech firms has reportedly exceeded 1 trillion US dollars. In 2021 alone, over 210 billion US dollars were invested globally in fintech companies, a significant increase from the 14 billion US dollars invested in 2015. Africa has shared in this remarkable growth trajectory: investment in the fintech sector in Africa doubled from 800 million US dollars in 2020 to 1.6 billion US dollars in 2021.

Despite the rise of investments in fintech, financial services in Africa remain inaccessible to a large segment of the population, particularly vulnerable groups including women. About half the adult population of Africa still lacks any form of bank account, and financial exclusion persists even in the largest economy on the continent—Nigeria. A variety of socio-economic factors including the widespread lack of acceptable identification documents and the lack of credit history, as well as illiteracy, poverty, and cultural/religious beliefs, have made accessing the most basic financial services a monumental task for many people on the continent. To put this in context, the World Bank reports that more than half a billion individuals residing in Africa—the majority of whom are women—do not have any acceptable identification document. The implication is that such individuals cannot easily access financial services from conventional financial services providers due to stringent requirements around identification documents. However, with fintech products and suitable regulations, there is now a chance to provide financial services to hundreds of millions of unserved and underserved individuals residing in Africa.

As we show in our paper, forthcoming in the Vanderbilt Journal of Transnational Law, the growth of fintech in Africa is driven significantly by an unmet demand for financial services. Certain fintech products flourished in African countries due to their ability to promote access to financial services. For instance, while technology-based credit platforms gained prominence in developed economies, it is mobile money that reached unprecedented levels of usage in African countries. Mobile money, a service that was pioneered through M-Pesa, enables unbanked individuals to perform various financial transactions using a mobile wallet maintained through their mobile phone. Even though access to traditional banking services remains challenging for most Africans, the wide availability of mobile phones has allowed millions to conduct financial transactions through mobile money services. By 2020 there were about 1.21 billion registered mobile money accounts globally, of which 548 million (about 45%) were in sub-Saharan Africa. There are 11 countries in Sub-Saharan Africa where a larger share of adults had a mobile money account rather than a bank or other financial institution account.

Beyond mobile money, fintech is used to build a new financial services industry in its entirety across several African countries, with unique fintech products addressing specific challenges to financial inclusion. These include alternative credit scoring technology, non-internet based financial products, and digital currencies (private and government) that are being used to address financial inclusion in inventive ways.

In Africa, financial inclusion lies at the heart of fintech regulation. The central banks of Nigeria and Ghana, for instance, both specifically spell out financial inclusion as an objective. On the other hand, while developed economies acknowledge that fintech can deliver financial services to financially excluded populations, enhancing the offerings of such products is not a priority for developed economies. This is simply because developed economies have already achieved a high rate of financial inclusion among their citizens and there are widely available alternative financial services offerings in these markets. For example, the Bank of England expressly acknowledges that financial inclusion does not fall directly within its regulatory remit. This variance is also noticeable in international financial regulations, where policy objectives like financial inclusion are not given critical attention. This means that policy objectives of regulators in African and developed countries differ.

While we propose that fintech regulators in Africa should focus on their regulatory goals, establish a common policy, and set up regulations that enhance financial inclusion on the continent, we also show that it is not an easy task. African countries deal with peculiar challenges of regulations originating from their colonial antecedents that often conflict with their financial inclusion agenda. In addition, financial regulation in Africa is very fragmented and the lack of convergence results in various costs. For example, cross-border transactions across neighbouring economies in the region are more costly than in any developed economies. Africa holds the record for the highest fees paid on cross-border remittances globally (ie any money transfer to or from any African country attracts record high fees). This has also made it difficult for some African countries to take advantage of fintech products available in neighbouring countries. Adding yet another layer of complexity to the regulatory framework, each economy has varying cross-sectoral laws (such as tax and intellectual property rights) that do not interact positively with the promotion of financial inclusion in Africa. To surmount these challenges, African regulators need to cooperate and converge their standards towards increasing financial inclusion on the continent and creating overall efficiencies in the financial system.

There has been much research on the various legal and regulatory issues arising from the emergence of fintech from a global perspective. However, the academic literature has paid relatively little attention to the distinct socioeconomic circumstances that define the African experience in relation to fintech. As we show in our paper, simply adopting the global views on fintech regulation and applying them in Africa would create yet another mismatch and fall short of bringing about fintech's potential in increasing financial inclusion on the continent. We attempt to fill this research gap by providing an up-to-date, bottom-up assessment of the development of fintech products and current regulatory approaches in various African countries. In particular, we examine the rise in the adoption of fintech products in Africa within the context of financial inclusion.

Zehra G Kavame Eroglu is the Director of the Master of Professional Accounting and Law & Lecturer of Corporate Law and Finance Law at Deakin Law School.

Isa Alade is a PhD candidate at Deakin Law School.


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