March 1, 2021Nigeria
Nigeria Fintech: A big opportunity for financial inclusion
Approximately 40% of Nigerians (83 million people) live below the poverty line, while another 25 percent (53 million) are vulnerable to fail into poverty (World Bank, 2020). With an abundance of natural resources, it is Africa’s biggest oil exporter, and has the largest natural gas reserves on the continent. Nevertheless, with the emergence of Covid-19, unemployment and underemployment are expected to increase, affecting poor households and increasing the share of the population vulnerable to falling into poverty. Furthermore, approximately one third of the 99 million adults in Nigeria were financially excluded as of 2018.
Likewise, there are approximately 40 million SMEs in Nigeria; however no more than 5% of SME´s obtain bank loans, mainly due to banks considering it high risk. Thus, this lending gap represents the principal problem for the growth of the SMEs, which generally do not live for more than 5 years. (PWC, 2020).
Nigeria´s Fintech Ecosystem
Nigeria´s Fintech activity has expanded in recent years and is now ranked at place 52th in the ranking of the countries with the most advances in the Fintech sector, which places it in 3rd place in the African continent, only behind South Africa and Kenya (Findexable, 2020).
Moreover, between 2011 and 2018, the investments in Fintech exceeded 200 million dollars. Also in the last 3 years, Nigerian Fintech investments grew by 197%, mainly due to foreign investors. Furthermore, between 2014 and 2019, the Fintech ecosystem raised more than 600 million funds and in 2019 alone, it collected 25 percent ($ 122 million) of the $ 491.6 million raised by African tech startups (Mckinsey, 2020).
This growth in the Fintech sector is due to the level of internet penetration which reaches 51%, which is above the African average, which is 34%. Likewise, there is a clear level of dissatisfaction with traditional banking due to the cost and difficulties in accessing loans, which leads them to opt for Fintechs, which offer a similar but more accessible and cheaper service (Mckinsey, 2020).
Nevertheless, there are still some obstacles that impede the growth of the Fintech Sector, with the main being the lack of proper regulation, the increase in cybersecurity attacks (which in 2018 was 54%) and the unlimited infrastructure (such as broadband, cloud computing, data center, etc.)
Lending Fintech in Nigeria
There are more than 200 Fintechs in Nigeria and 80% of the Fintech market is made up of Digital Retail Payment (36%), Lending (25%) and Payment Infrastructure (19%) firms.
In the case of the lending sub-sector, many innovations have been carried out. For example, fintechs startups such as Carbon and Renmoney have successfully leveraged alternative credit-scoring algorithms to provide instant, unsecured, short-term loans to individuals. A few fintechs, such as Migo, have also stepped up to offer unsecured working-capital loans to SMEs with minimal documentation. Moreover, banking Fintech solutions have been fast followers with leading banks launching digital lending platforms like Quick Credit by GTBank and Quickbucks by Access Bank (Efina, 2020).
The opportunity that fintechs represent for financial inclusion are great, however it is necessary to work on the obstacles that are impeding the growth of the sector such as lack of regulation or cyber attacks.
