Excessive Regulation of Fintech Startups in Nigeria and the Implication for Africa

Talks about the government’s over-regulation of the Nigerian startup ecosystem dominated discussions during a recent stakeholder engagement that was organised by startup founders in Lagos, Nigeria’s commercial capital. 

“Government is the biggest problem for startups and businesses, and many firms have become uncompetitive largely because they are hampered by red tape and government failures,” Folake Osho, an angel investor, who spoke at the webinar lamented.

In the last few years, the development of the fintech industry has been a bright spot in Nigeria’s stuttering economy, with a potential to get brighter — amid the challenges posed by the COVID-19 pandemic.

According to the Mckinsey 2020 report titled ‘Harnessing Nigeria’s fintech potential’, in the past three years, fintech investments in Nigeria grew by 197 percent, with the majority of investments coming from outside the country.

Also, between 2014 and 2019, Nigeria’s burgeoning fintech scene raised more than $600 million in funding, attracting 25 percent ($122 million) of the $491.6 million raised by African tech startups in 2019 alone — second only to Kenya, which attracted $149 million.

However, recent development with inconsistencies in government policies and regulations may soon erode the gains recorded in the industry.

Clampdown on bike-hailing platforms

The first to get a feel of the excessive and inconsistent government regulations and policies are the bike-hailing startups. 

These startups, having seen an opportunity to transform the means of transportation in Lagos, invested hugely in the training of riders, provision of safety helmets, and acquisition of bikes.

Giving the reason behind the choice of Lagos, Fahim Saleh, the late founder of GoKada had said “we wanted to see if there was a future in motorcycle ride-sharing transport in Lagos,” and “decided to go to Nigeria and try it out.” 

Between 2015 and 2019, Max had raised at least $9 million, including a $7 million Series A round in June 2019, as bike hailing in Lagos gained traction.

That same month, Gokada closed a $5.3 million round. ORide, meanwhile, benefited from the $170 million raised by its parent company, OPay, in 2019 as investors continued to pour money into these new ventures.

Sadly, these startups were operating in an environment where bikes had not always been a welcomed means of transportation. In 2012, the former governor of Lagos banned okadas from 475 major routes in the city.

A new legislation in 2018, under a different administration, relaxed the laws and offered leeway for bike hailing platforms. 

According to Lagos state government Transport Sector Reform Law, no one is allowed to “ride, drive or propel” a motorcycle or tricycle on a major highway. But a section within the same law exempts motorcycles from those same restrictions, as long as riders and passengers follow the listed rules, and operators ride bikes above a 200 cylinder capacity (cc). 

For the average okada rider in Lagos, an expensive 200 cc bike would have been an unrealistic purchase — most of their bikes are 150 cc’s and lower — so the new laws paved the way for cash-rich startups to enter the market. Gokada, ORide, and Max, which first began as a bike delivery service, were major players…

EDITOR’S NOTE: This article was written by Olufikayo Owoeye. To read the rest and other amazing articles, check out our Top 30 African Women Entrepreneurs and Influencers below.