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GFA Weekend Feature – Funding & Fintech in Africa

Introduction

As part of our monthly themes, for the month of March, we at GetfundedAfrica will place our weekend focus on Fintech business in Africa, as it relates to Funding.

Fintech seems to be going in so many directions at the same time….it seems to be the underlying theme in a development race on the continent. It is a sector where small, medium and large sized players are uncorking opportunities, seizing initiatives and scrambling for relevance.

Fintech has become one of the titanic attractions for investment in Africa and this trend is strongly placed to continue its acceleration in 2020.

The continent’s fintech firms have grown to 491 from 301 in 2017, while there was $132.8 million raised in 2018, according to the  Finnovating for Africa 2019: Reimagining the African financial services landscape report.

A key trend that has emerged is how some companies are focusing on two or more distinct types of financial services. “As African fintechs begin to ‘rebundle’… we see moves towards fully-fledged, all-service digital banks on the continent. This is a process that is quickening as the amount of funding coming into the sector grows,” says Gabriella Mulligan, co-founder of Disrupt Africa.

What is Fintech?

The working definition of FinTech adopted by the IMF’s Financial Stability Board points to “technologically enabled financial innovation that could result in new business models, applications, processes, or products with an associated material effect on financial markets and institutions and the provision of financial services” (Financial Stability Board 2017)

Fintech is challenging traditional structures and is creating efficiency gains by opening up the financial services value chain. Much of the interest in Fintech is related to the way in which innovation in the financial sector can lead to increased access, better services, and gains in efficiency. Such innovation includes transforming all aspects of the delivery of core functions of the financial sector such as settling payments, facilitating borrowing and saving, risk sharing, and allocating capital.

Fintech has the potential to strengthen and accelerate important gains in financial development achieved in sub-Saharan Africa over the past two decades.

While acknowledging the large potential gains from Fintech, there are concerns about new vulnerabilities that these technologies and business models may bring. New competitors without previous experience in the industry are providing innovative financial services.

Financial intermediation and financial inclusion in sub-Saharan Africa remain low, despite progress in recent years. However, mobile money (in particular – Kenya) has underpinned a radical change in the delivery of financial services in sub-Saharan Africa. As a result, the region has become the global leader in mobile money innovation, adoption, and usage.

Highlights of 2019

In one month alone – November 2019. witnessed $360 million invested in Nigerian-focused payment ventures. That is equivalent to roughly one-third of all the startup VC raised for the entire continent in 2018, according to Partech stats.

Interswitch, reached $1 billion valuation after Visa took a minority stake in the company. which Sky News reporting is in the region of $200 million for 20%.

The financial services firm has expanded its physical presence to Uganda, Gambia, and Kenya. The Nigerian company also sells its products in 23 African countries – it is a truly African business play with a continental outlook.

In 2019, 210 African tech startups raised $334.5 million, according to his African Tech Startups Funding Report.  Increasing significantly as active areas for the flow of Fintech funding and investments, are countries like Uganda, Ghana, and Egypt.

From the Start-up view,  77 fintech startups raised $107 million according to Disrupt Africa co-founder Tom Jackson.

What Interests Venture Capitalists In This Space?

“No space has quite the potential impact of the fintech space when it comes to impact – and profits – in Africa, with startups operating such platforms able to significantly address the major issue of financial exclusion on the continent and thus promote development in all sorts of other areas,” according to Disrupt Africa co-founder Tom Jackson. 

According to Africa Private Equity News, international and local investors are increasingly backing tech-enabled companies which are exploiting new opportunities or redefining existing services.

In more advanced economies, fintech is often seen as a disruptor of the traditional financial sector, but in African countries, it bridges gaps not yet addressed by the banking industry.

A heavy appetite also exists for Start-ups. In a study by Disrupt Africa, it noted that African fintech businesses pulled in almost a third of the total funding raised by startups on the continent in 2017.

Africa is also viewed as a battle-ground for the trade wars between China and the United States. From 2019, we have witnessed a flurry of VC investments from China into the African fintech sector.

The progressive upward arc for Africa in terms of development as an emerging economy also plays a unique factor for VC investments.

This untapped capacity available for development also provides prospects for Tech Ecosystem plays. With upward moving tech infrastructure, deeper mobile phone penetration and enlarged use of the internet, VCs are investing in African Fintech companies, that provide new or improved products and services to customers, which provide a basket of offerings to ensure they keep customers within a “community” that can expand. Fintechs that provide scalable solutions, which promote financial inclusion and scalable offerings to Africa’s unbanked and underbanked (one of the largest in the world) population can raise significant interest from VCs.

Thomas Tsao, founder of Gobi Partners, a venture capital firm headquartered in Shanghai and Kuala Lumpur, is quoted as saying “In the past, we believed that there was a sequential progression in development for different markets,” he said. “That meant that China would develop first, followed by India, Southeast Asia and then you’d see a ripple effect through South Asia and the Middle East, and finally to Africa.

Walid Hanna a venture capitalist with 40+ VC investments and CEO Middle East Venture Partners which invests in early-stage and growth-stage tech in North Africa, stated – “We still see a gap in funding in the growth stage compared to the seed and early stages, however, the picture is quickly changing in that respect. At MEVP, we have been focused on early stage opportunities but are now working towards closing a large fund focusing on growth stage VC investments.

GetFundedAfrica observes that VCs also seek out:

  • Business models that disrupt prevailing solutions or with an achievable capacity to develop its reach into untapped markets.
  • Growth projects with active revenues and clear business feasibility
  • Ventures/companies with competent management teams backed by steady and existing shareholders
  • Ventures with prospects to become market leaders via viability, competitiveness or first-mover advantage
  • Ventures with potentially strong customer attainment and customer strength
  • Innovative ventures with a strong capacity to switch customers from offline to digital platforms rapidly
  • Ventures that provide avenues to become one-stop-shop for customer’s financial activities

GFA seeks to enable our subscribers to get active information about the flow investments and funding to Fintechs in Africa. We will focus on small to medium sized Fintech scale-up businesses  & start-ups that may not have the expertise, know-how or capacity to raise funds. Our services include showing them how to pitch for funds, what investors to pitch to, a platform to reach these investors and what fintech opportunities to chase.

Referenced Articles: https://www.forbes.com/sites/tobyshapshak/2019/06/29/africas-fintech-ecosystem-raised-320m-and-grew-60-in-two-years/#254188372262 https://techcrunch.com/2019/12/01/africa-roundup-nigerian-fintech-gets-360m-mints-unicorn-draws-chinese-vc/ https://qz.com/africa/1782232/how-much-did-african-startups-raise-in-2019/ https://digestafrica.com/africa-fintech-ventures-1m-total-venture-funding https://www.howwemadeitinafrica.com/venture-capital-investors-making-big-bets-on-african-fintech/62334/

Our previous weekend’s post is here: https://getfundedafrica.com/2020/03/06/gfa-weekend-feature-funding-opportunities-in-agritech-spotlight-on-twiga-foods-30million/

Click here to subscribe for GetFundedAfrica Newsletters: https://getfundedafrica.com/pricing-plans/

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