The Trajectory of Fintech Diplomacy in Africa
Fintech diplomacy in Africa refers to the efforts of various actors, such as governments, multilateral organisations, investors, and entrepreneurs, to foster collaboration and innovation in the fintech sector across the continent.
These efforts aim to leverage technology and digital financial services to drive financial inclusion, economic growth, and development in Africa. The trajectory of fintech diplomacy in Africa has been steadily increasing, with a growing number of countries implementing policies and initiatives to support the growth of the fintech sector and attract investment. The emergence and growth of fintech diplomacy in Africa have been driven by the increasing adoption of digital financial services across the continent. As African countries strive to bridge the financial inclusion gap, fintech solutions have become crucial in providing access to banking and payment services for unbanked populations. This has led to a surge in partnerships and collaborations between African governments, international organisations, and fintech companies, with a focus on leveraging technology to drive economic development and financial empowerment.
Evolution of Fintech Diplomacy in the African Continent.
African fintech is emerging as a hotbed for investment, with average deal sizes growing and the proportion of fintech funding in Africa increasing over the past year, bringing jobs and growth to African economies. The first phase of fintech diplomacy in Africa was mobile money, which started in the late 2000s with the launch of M-Pesa in Kenya, a mobile-based money transfer and payment service that revolutionised financial inclusion and access for millions of unbanked and underbanked people. Mobile money soon spread to other countries, such as Tanzania, Uganda, Ghana, and Zimbabwe, creating a network of mobile money operators, agents, and users across the continent. The second phase of fintech diplomacy in Africa was digital finance, which emerged in the early 2010s with the rise of digital banks, lending platforms, remittance services, and insurance products that leveraged mobile money infrastructure and data to offer more diverse and affordable financial solutions to individuals and businesses. Some examples of digital finance players are Branch, Tala, WorldRemit, and JUMO.
The third phase of fintech diplomacy in Africa is innovative fintech, which started in the mid-2010s and is still ongoing with the emergence of new technologies and business models that are disrupting and augmenting traditional financial services, such as block chain, crypto currencies, decentralised finance (DeFi), artificial intelligence (AI), machine learning (ML), and bibiometrics. Examples of innovative fintech players are BitPesa, Flutterwave, PiggyVest, and Cowrywise. These three phases of fintech diplomacy in Africa have been driven by several factors, such as the growing demand for digital financial services, the emergence of local fintech champions, the increasing interest of global players, and the supportive regulatory environment. They have also resulted in some notable achievements, such as the establishment of the Africa Fintech Network, the launch of the Africa Money and DeFi Summit, the creation of cross-border payment platforms, and the development of innovative solutions for various sectors, such as agriculture, health, education, and energy.
Benefits of Fintech Diplomacy for African Nations
Fintech diplomacy in Africa can strengthen diplomatic relationships with other nations by fostering collaboration and innovation in the fintech sector across the continent and beyond. For example, the Africa Fintech Network is a platform that unites Africa fintech leaders, organisations, and stakeholders through their country associations to exchange information and ideas, promote, and support the creation of innovative technologies and their deployment across and beyond Africa. It also organises the annual Africa Fintech Festival, which enables a best-in-class convergence of ideas, innovations, and debate across key issues in the fintech sector.
Fintech diplomacy in Africa can enhance economic cooperation by creating cross-border payment platforms and solutions that enable seamless, fast, and low-cost transfers of money across different countries and regions in Africa. This can facilitate trade, remittances, and integration among African economies. Some examples of cross-border payment platforms are MFS Africa, which connects over 320 million mobile money wallets in 36 African countries; Chipper Cash, which offers free peer-to-peer money transfers and supports multiple currencies; and Wave, which allows instant transfers to mobile money accounts in Kenya, Uganda, Tanzania, Ghana, and Nigeria.
Fintech diplomacy in Africa can attract foreign investment by showcasing the potential and opportunities of the African fintech market, which is projected to reach $65 billion by 2030, representing a 13-fold increase over 2021. The technology industry, in particular, is seeing tailwinds, as venture capital spending in Africa is up nearly 10% in 2022 and 2023, while it has cratered worldwide. Fintech diplomacy in Africa can also leverage the interest and involvement of global players, such as multilateral organisations, investors, and entrepreneurs, who are supporting and partnering with local fintechs to scale up their solutions and impact. Fintech diplomacy in Africa can drive socio-economic development by improving financial inclusion, access to services, and quality of life for millions of Africans.
Fintechs in Africa are delivering significant value to their customers by offering cheaper, faster, and more convenient financial solutions than traditional players. They are also developing innovative solutions for various sectors, such as agriculture, health, education, and energy, that address the challenges and opportunities in these domains. Some examples of innovative solutions for various sectors are FarmDrive, which uses alternative data and machine learning to provide credit scores and loans to smallholder farmers; M-TIBA, which is a mobile health wallet that allows users to save, send, and receive funds for healthcare services; M-Shule, which is an adaptive learning platform that delivers personalised education to primary school students via SMS; and PEG Africa, which is a pay-as-you-go solar company that provides affordable energy access to off-grid households.
Fintech innovation hubs as catalysts for diplomatic collaborations
Fintech innovation hubs are physical or virtual spaces that provide a conducive environment for fintech startups, investors, regulators, and other stakeholders to interact, exchange ideas, and co-create solutions. Fintech innovation hubs can facilitate knowledge sharing by organising events, workshops, trainings, and competitions that showcase the latest trends and best practices in fintech, as well as the opportunities and challenges in different markets. For example, the Africa Fintech Festival is an annual event that brings together fintech leaders, policymakers, investors, and innovators from across the continent and beyond to discuss and debate key issues in the fintech sector. Fintech innovation hubs can enhance skill development by providing mentorship, coaching, incubation, and acceleration programmes that help fintech startups develop their products, services, and business models, as well as access funding, markets, and networks. For example, Flat6Labs4 is a regional startup accelerator that supports fintech startups in Egypt and other countries with seed funding, strategic mentorship, training, legal support, and access to a network of partners and investors. Fintech innovation hubs can enable joint projects by fostering partnerships and collaborations among fintech startups, financial institutions, regulators, and international organisations to address common challenges and opportunities in the fintech space. For example, the Kenya Bankers Association (KBA) is an industry association that works with fintech startups, banks, regulators, and development partners to promote innovation and inclusion in the banking sector through initiatives such as the PesaLink platform, which enables real-time interbank money transfers.
Conclusion
The growth of fintech diplomacy in Africa has had a significant impact on financial inclusion in the region. Currently it is a dynamic and evolving field that offers many opportunities and benefits for African nations and international partners. Fintech diplomacy in Africa can strengthen diplomatic relationships, enhance economic cooperation, attract foreign investment, and drive socio-economic development. However, it also requires more support and collaboration from various stakeholders to overcome the existing barriers and challenges. Fintech innovation hubs can serve as catalysts for diplomatic collaborations by connecting and empowering fintech players across the continent and beyond. By fostering collaboration between fintech startups, banks, regulators, and development partners, initiatives like the PesaLink platform have helped to bridge the gap between traditional banking services and underserved populations. As a result, more individuals and businesses in Africa now have access to affordable and convenient financial services, ultimately driving economic growth and empowerment. However, it is important for stakeholders to continue addressing challenges such as regulatory frameworks and cybersecurity to ensure the sustainable growth of fintech in Africa.
By: Eric Muhia Author
Article Reproduced with Permission from Diaspora Digital
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