Regulation Key to African Fintech Sector Growth — New Study

According to the findings of a study by Afriwise, Kenya, Nigeria, and South Africa have the most developed fintech ecosystems on the continent. The study points to early regulation as one of the reasons for the industry’s success in these countries.

Regulated Fintech Ecosystems Attract Investors

Explaining the key role that regulation has played in the growth of the fintech sector in these three countries, the study states:

The connection between regulations and a flourishing fintech sector is an important one. It is no coincidence that investors and businesses in fintech are drawn to markets with more robust financial regulatory ecosystems. It is one of the reasons that funding remains concentrated in a few markets.

Indeed, the three countries along with Egypt “are recognised as the four fintech hubs in Africa, securing 80% of fundraising in 2020.”

Importance of Regulation

In contrast, investors have steered clear of African countries where there are no fintech regulatory ecosystems. As explained in the report, “the absence of robust regulations can expose both end-users and fintech service providers to a multitude of risks.” Such risks in turn discourage investors from setting up shop.

In addition to the lack of fintech regulatory systems, the study also notes that there is generally “not enough funding allocated toward government training or entities to address regulations for new and constantly evolving sectors.” As a result, regulators often lack the resources to oversee not just fintech but also “cross-border operations for financial service providers.”

Therefore, to overcome these as well as other challenges, the study encourages fintech start-ups to “work directly with regulators, build relationships and ensure they keep up with constantly evolving regulation.” This, in turn, will supposedly ensure that any new regulatory frameworks covering fintech will lead to the growth of the industry.