Africa fintech services are unregulated

Posted on September 17, 2016 12:48 am

With the ever growing use of financial technology services in Africa, billions of dollars are circulating around the continent’s financial technology services also known as fintech.Despite all the benefits it has on the World’s least unbanked population, inconspicuously booming industry remains unregulated, leaving behind a major regulatory loophole.While traditional banks require customers to do transactions at physical branches or through automated teller machine, a lot of fintech companies offer the luxury of doing everything, including signing up, online.Local fintech firms which claims to be fastest growing facilitator of electronic payments, offers consumers an electronic wallet that can be topped up at any time through bank transfers.Such services can be used to make payments at various retail stores, tour and travel agencies, and at electronics shops, as well as at many more merchants that are in partnership with the firm providing the service. The electronic wallet can also be used to pay for donations, TV subscriptions and insurance among others.Withdrawing money is also possible at various points of sale that total more than 500,000 across the sub saharan region. The e-wallet can even be used to transfer money to friends who don’t have a fintech provider account, only requiring the recipient’s email address.These conveniences are just a few examples among many of how fintech is mushrooming in Africa, a region where only 10 percent of the adult population has an account in a formal financial institution.Estimates vary about the size of Africa’s fintech industry. Some estimates that the transaction value of Africa fintech reaches US$25 billion at present and expects it to grow by 27 percent annually until it reaches $40 billion in 2019.There needs to be a clear regulatory framework that creates a win win solution for all stakeholders. Otherwise, it will be chaos without clear standards for the future of Africa’s financial sector.The future potential for fintech is lucrative. Africa’s local marketplace for peer to peer lending launched in different parts of the continent have already disbursed loans worth USD $3billion with zero defaults.Such services facilitates lenders and borrowers for financing, considered by experts as the missing middle lending segment, with a tenure of one to 12 months.

Fintech companies are targeting micro enterprises that total about 150 million in sub saharan Africa, of which only 2 percent manage to grow to the sustainable size of small and medium enterprises , partly because of a lack of access to credit, according to research conducted recently.For Africa, the research suggests regulations should be put in place as soon as possible. Regulators should equip the fintech industry with protective mechanisms before it grows too big and maintain comprehensive vigilance while also keeping regulatory compliance costs down.Financial regulators put fintech in the spotlight at a recent Africa central banks meeting, inching closer to regulating the sector that could potentially disrupt traditional banking, to ensure its rapid growth does not pose any risks to the Africa financial system.The regulation, which could be rolled out before end of 2017 in various parts of Africa, will protect both consumers and fintech and not limit development of the new sector by any means. The regulations are more to regulate business transparency on how they capitalise and manage the businesses and what kind of sanctions are to be imposed if breaches are committed. However, sources privy to the discussions informed your blogger that central bankers are not going into details like setting their loan interest rates or others.The Central Bank of Kenya has yet to put Kenya’s fintech transaction volume on record, but experts estimates it to have been $2.8 billion in the last two years. Major banks such as Commercial Bank of Africa and Kenya Commercial Bank have already partnered with or pledged funding to fintech companies, but most of them have not yet considered the threat of fintech, which has a miniscule market share of less than 5 percent of the overall commercial banking industry assets.Equity Bank of Kenya also forayed in the fintech business and at the time of launch, the bank management was quoted as saying that collaboration with fintech companies should be established as soon as possible as the latter could eat banks’ market shares if ignored.

Contador Harrison