May 3, 2021Africa
Digital Lending in Africa. How are Fintechs changing the landscape of lending in Africa?
According to the African Development Bank (2021), Africa is expected to recover from its worst recession in half a century and reach 3.4 percent growth in 2021. This despite the challenging backdrop of global pandemic and external economic shocks suffered in 2020. Nevertheless, the impacts of the pandemic were really bad, as an estimated 39 million Africans could possibly slip into extreme poverty this year, following about 30 million who were pushed into extreme poverty in 2020 as a result of the pandemic.
Moreover, debt in Africa skyrocketed since the average debt-to-GDP ratio for Africa is expected to climb by 10 to 15 percentage points in the short to medium term, due to the surge in government spending and the contraction of fiscal revenues as a result of Covid–19.
In terms of regions Eastern and Southern African countries were hit hardest by the economic impacts of COVID, while West and Central Africa had a decline in growth mainly by less oil exportations. Sub-Saharan African countries have managed to keep the COVID-19 virus under control with relatively low number of cases. Still, the substantial downturn in economic activity will cost the region at least $115 billion in output losses (World Bank, 2021)
Fintech in Africa
Africa has been growing in terms of the number of fintechs as well as the number of investments made. In the first quarter of 2020 alone, new fintechs raised almost $ 350 million. South Africa led the way with $ 112 million in investments, followed by Nigeria, which raised $ 74 million, Kenya with $ 62 million, and Egypt with $ 51 million. (Fintech Magazine, 2021). Likewise, Ghana, Uganda and Zambia also gained prominence when it comes to the number of investments in 2020. Moreover, just in Africa there are over 500 fintechs as of 2020 and between January 2018 and November 2020, over $821.94 million had been invested in the sector (Medici, 2020)
Lending Fintech in Africa
Lending Fintech companies in Africa are constantly on the rise, some examples being Kenya and Nigeria, which have lending Fintech as their main Fintech sector. However, better regulation is still required as the number of defaults and malpractices is also increasing.
Moreover, as of 2018, Africa’s financial gap for small and medium-sized enterprises (SMEs) was $ 331 billion. This despite the fact that Micro, small and medium-sized enterprises (MSMEs) are the backbone of most African economies and give employment to millions in Africa. The informal sector contributes 38% of sub-Saharan Africa’s GDP, but 51% of the continent’s 44 million formal MSMEs lack the financing they need to grow (Sme finance forum, 2018).
Also, as Covid continues, new MSMEs will appear and Fintech solutions will be much needed in a continent where a significant proportion are not only unbanked but there are still 800 million Africans without even internet and the poverty rate as of 2015 was still at over 40 per cent (Fintech Times, 2020)
Thus, lending Fintech is an excellent opportunity to reduce the current credit gap in Africa and also to help the region’s economy recover.
