Leveraging Digital Technology in African Financial Services

LAGOS (Capital Markets in Africa) – Before technology was as accessible as it is today, cash and cards consisted the main ways to access finance on a mass scale. However today, in many of the African economies, most of the population still does not have the ability to open a bank account, due to the lack of the required source of revenue and the challenge with many Africans not having the necessary information to sign up for an official bank account – such as the lack of proof of address or no proof of stable income to be able to put on the bank forms. Bank accounts are still unattainable to the average person, making it difficult for small businesses to retrieve loans and grow into bigger and more impactful structures. The most basic form of transaction, cash, is bringing challenges when used for every transaction between individuals, companies and government institutions: actors of the economy have no reliable way to track cash usage and the credit-worthiness of businesses and individuals. Living day to day on each pay check and hiding money in their homes is how a big part of the African population manages their finance. “On average, less than 20 percent of households have access to formal financial services” showing a disconnect between the people and the banks.

This gap in the market has to be attended to because of the disconnect causing millions of dollars to the economy and holding the economy at a standstill. A few ways have emerged for SMEs in Africa to receive loans and grow. Crowdfunding has become a way for SME’s to receive money for projects and tasks needed for their development. But in 2016, only 1% of the capital raised went to African businesses and institutions, with the majority staying in North America. Large challenges being the lack of regulations, as well as the lack of clarity about legality of crowdfunding in African nations. Micro-financing is also a significant resource to low-income countries and clients, giving small loans to try and stimulate small business growth. A major issue with micro-loans has been to disburse funds to customers with no background data – as majority are unbanked, investors must give blindly with hope of a return on their investment. Due to this, Africa is often overshadowed by other countries receiving much more financial services and support.

An extract from the INTO AFRICA August Edition: Driving Africa Opportunities. The article is written by Ghita Sqalli (Head of Product Marketing, RedCloud Technology) and to read full article, please download by clicking: INTO AFRICA PUBLICATION: AUGUST 2018 EDITION.