Several years ago, on a business trip to one of the African countries, I noticed the large number of houses under construction, which seemed to be intact for a long time. At that time, I was sure it was a negative indication of the state of the local economy, when many residents started building their houses and had to stop in the middle, probably due to the lack of funds. But upon studying the matter in depth, I was surprised to find that the exact opposite is true, and that these houses under construction are not an indication of financial hardship, but rather of their high status, representing the local form of l ‘saving.

For hundreds of millions of people in sub-Saharan Africa, basic economic services like formal savings or loans are still a distant dream. As more than 66% of the population is unbanked and does not have access to the most basic formal financial services, informal and creative solutions are essential. Building houses is one of them; as hundreds of millions of people manage their finances with cash, long term savings do not exist and keeping your money at home is dangerous. So, as I have learned, anytime someone has cash available they start building a house, which presents a much safer option for saving. And so, thousands of under-built homes are popping up, waiting for their owners to have extra money to complete the work.

Additional creative local solutions are peer-to-peer community-run savings circles called “Stokvel”, which make informal financial services available to millions of people. Known under different names in each country (“Ajo’s” in Nigeria, Tontines in Mali and Senegal, etc.), these initiatives address the problems of poverty and income insecurity, and allow members to meet their own needs. base while providing savings opportunities. , invest and even own assets.

It sounds like a nice community business, but looking at the big picture, the market is much bigger than you might imagine. In South Africa alone, the stokvel industry is estimated to have 11.6 million members, collectively saving $ 3 billion a year.

These community fundraising circles foster trust and an honest culture of saving, but they have one huge flaw. Being completely self-sufficient and not connected to any official entity, stokvel users are unable to establish a credit history, or longer term savings, and cannot take advantage of the broader benefits of financial services.

Mobile money is not enough

With hundreds of millions of people using stokvels and other informal means to gain financial access, a huge gap was very noticeable in the continent’s sector, which was, and still is, far behind other countries in the world. Mobile money was invented to fill this gap and began to circulate in Kenya in 2007, when Safaricom launched M-PESA. The service quickly became a success, and as of 2015, there were around 270 mobile money services in more than 80 markets around the world, more than half of which were in sub-Saharan Africa. In 2019, the total number of mobile money users in the region was 469 million, and the total value of 23.8 billion transactions exceeded $ 456 billion, reaching 3.5 times the value of recorded transactions. in South Asia, the second largest mobile-money user.

Problem solved, right? Not exactly. All is not well when it comes to mobile money, to say the least. Although the service is much more inclusive than traditional financial services provided by banks, there are still significant gaps. According to the World Bank, only 25% of adults in the poorest 40% of households in sub-Saharan Africa have a mobile payment account, compared to 46% of those in the richest 60%. High fees are another issue, with higher fees for small transactions, as high as 31%, excluding many people from using the services.

Although this is a massive improvement, mobile money is still unable to deliver the coveted financial inclusion that local communities and governments crave as access to credit, insurance and good savings rates are still insufficient. Small business owners and vendors, for example, who make up a large part of the worker community, have limited ability to integrate merchants with mobile money and are often unable to accept it as a payment method. Cash remains king on the continent, responsible for around 90% of consumer payments, which are expected to reach $ 2.1 trillion by 2025.

A leading financial innovation hub in the world

The African FinTech scene started to flourish with the invention of mobile money, and the market is now booming, with multiple companies and businesses offering a wide range of financial services. The massive proportion of unbanked and underbanked citizens, coupled with a substantial mobile penetration rate of 44%, laid the groundwork for a FinTech boom, with the number of companies increasing from 262 in 2018 to 674 in 2020.

There are interesting companies providing services across the continent. Tala uses mobile phone and behavioral data to deliver fast loans, Sampay is a Zambian startup providing online and mobile payment transactions, and Cryptofully and BitLipa are both crypto-based startups making it easy to transfer money to using Bitcoin.

Among the various technologies embraced by fintech, blockchain is the main presenter of opportunities to tackle problems that banks have not yet been able to solve. It enables cost-free borderless microtransactions, which is a game-changer for many Africans living on less than $ 2 a day. It provides businesses and individuals with increased transparency, secure transactions and data aggregation, and third-party redundancy.

Coming back to community-led Stokvels, technology can be the epitome of these lifesaving circles, as it depends on peer-to-peer trust, which goes even further with a digital guarantee. For the hundreds of millions of people in the region who lack confidence in banks and other formal entities, this is the perfect solution.

The African financial revolution is already here, and with the right policies and smart investments, FinTech could realize its enormous potential to fill the multiple gaps across the continent, while building an inclusive economy for all.

The author is an entrepreneur and investor, leading sustainable development companies in Africa and the Middle East.

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