Africa can’t Afford a Declining Fintech Sector

Africa can’t Afford a Declining Fintech Sector

Fintech has proved to be the main driver of investment on the continent. With Africa’s fintech sector still at its early stages, it has transformed the financial market structure, allowing Africans access to a digital lifestyle. Africa’s burgeoning fintech sector has produced wealth, employment, and skills across the continent. By 2030, over 230 million jobs in sub-Saharan Africa are predicted to require digital skills, according to an IFC analysis, opening up potential in related industries, most notably training.

Africa’s fintech market is a market of tomorrow capable of fostering an ecosystem that could have a number of positive social effects, such as expanding access to lending in vital industries like agriculture and healthcare and facilitating more widespread access to insurance and healthcare. Newcomers will also help to advance financial inclusion. Africans need a steady thriving fintech sector. It is why we’re saddened by the fallen narratives surrounding the fintech sector recently.

Fintech continues to be one of the industries receiving the most venture capital funding, just like in 2021. However, funding for fintech startups has been declining globally throughout the year. Fintech funding in Q3’22 totaled $12.9B across 1,160 projects, a 64% year-over-year (YoY) decline. Since Q4 of 2020, this was the industry’s lowest quarter. The funding level decreased by 38% quarter over quarter (QoQ), as investors withdrew funds and the economy headed toward a recession. At the current pace of the Q4, we’re likely to see the lowest levels yet.

The last two years have witnessed a significant increase in the amount of foreign direct investment coming into the continent after decades of appealing for international investors. Fintech investments in Africa totaled $744 million in 2020, making up 31% of the continent’s overall inflows. African-focused Fintech start-ups attracted unprecedented attention in 2021, raising $3.03 billion in disclosed investment rounds.

Over time, foreign investors have been tempted to invest due to the appealing valuations of African fintech startups. If the current decline in investment for Fintechs in Africa is any indication, then the amount of money invested in African startups is decreasing, which is slowing the progress of digital penetration throughout the continent.

More people should have access to financial services provided by Fintechs. The informal makes up nearly two-thirds of the workforce in Sub-Saharan Africa and whose livelihoods are dependent on the informal economy, which generates more than half of the region’s total GDP.

The majority of undocumented workers face expensive inefficiencies, are unable to access conventional banking services, and are excluded from social protections offered by the labour market. Less funding for Fintechs means decreased financial inclusion in Africa.