Fintech in Sub-Saharan Africa: A Potential Game Changer

IMF Blog, February 14, 2019

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Blog published February 14, 2019.
Highlights the rapid rise and diffusion of mobile money in Sub-Saharan Africa, led by M-Pesa (started in Kenya in 2007) and competitors such as MTN Money and Orange Money.
Emphasizes fintech’s potential to democratize financial services, foster a digital economy, and support structural transformation and job creation.

Mobile money has grown exponentially over the past 10 years, making the region the global leader in mobile money innovation, adoption, and usage.
M-Pesa now boasts 30 million users in 10 countries; M-Pesa services are offered in Albania, D.R. Congo, Egypt, Ghana, India, Kenya, Lesotho, Mozambique, Romania, and Tanzania.
Prospective agreements with MTN Group would expand Orange Money and M-Pesa coverage across more countries in the continent.
Mobile money accounts now surpass bank accounts in the region and have expanded financial inclusion for the poor, the young, and women.
Sub-Saharan Africa is the only region where close to 10 percent of GDP in transactions occur through mobile money; this compares with just 7 percent of GDP in Asia and less than 2 percent of GDP in other regions.
Most African users rely on mobile payments for domestic transfers; use is increasingly extending to international remittances, bill payments, wage receipts, and payments for goods and services.

Customers are progressing from mobile payments to mobile banking and other services: opening saving accounts, taking out loans, purchasing insurance, and investing in Government securities or in stock markets via mobile phones.
Innovative services include pay-later models for essentials (example: “borrow” electricity and pay later).
Foreign investors are increasing backing of African fintech firms; firms are developing region-adapted solutions (e.g., catering for relatively lower internet speed).
Falling smartphone prices are expected to facilitate uptake of internet-based financial solutions.

The challenge is to leverage mobile money success to transition to broader fintech services and a digital economy, which can spur economic growth and job creation.
Africa faces a large infrastructure gap that policymakers need to address, starting with electricity and internet services.
Policymakers must balance the demands of fast-moving innovation against the slower pace of regulation: good regulation is needed, but stifling innovation would be costly.
With the right policies, Africa could reap a “digital dividend”; this is especially salient as the continent will see more than half the world’s population growth by 2050.

Policymakers and entrepreneurs are urged to consider fintech’s potential beyond narrow financial services.
Fintech can create jobs and increase productivity of workers and firms.
If exploited well, fintech could be a critical stepping stone toward a digital economy for Africa, helping reduce overdependence on a few dominant sectors and supporting structural transformation.

Publication date: February 14, 2019.
M-Pesa start year: 2007.
M-Pesa users: 30 million.
Countries with M-Pesa services listed: Albania, D.R. Congo, Egypt, Ghana, India, Kenya, Lesotho, Mozambique, Romania, Tanzania.
Mobile-money transaction share: close to 10 percent of GDP in Sub-Saharan Africa.
Comparable shares: 7 percent of GDP in Asia; less than 2 percent of GDP in other regions.
Projected demographic note: more than half the world’s population growth by 2050.

Source: Fintech in Sub-Saharan Africa: A Potential Game Changer (IMF blog, February 14, 2019).