Africa’s Fintech Needs an Elaborate Regulatory Framework to Thrive

Over the last decade, Africa has experienced an expansive transformation in the financial sector. Millions of previously unbanked Africans today use banking facilities via mobile applications that are accessible at their fingertips. With the advent of data analytics and AI (Artificial Intelligence) in recent years, a new type of innovation is now driving the decade-long digitalisation that brought financial inclusion to the most remote areas on the continent.

Although it can be argued that there is nothing technically holding African fintech back, there are a variety of factors that may hinder the continent from fulfilling its full potential in serving the millions of people who remain unbanked and underserved in financial services.

2016 was a revolutionary year for fintech in Africa and there was a range of developments on the continent that were supposed to mitigate this financial exclusion problem at the time. During this time, fintech companies were trying to provide solutions in areas where banks were lacking, rather than the collaborative mindset we saw in 2019.

Nevertheless, the prospects of fintech-led prosperity, as with any technological advancement, bring a host of risks, and a sound regulatory framework is the only strategy that can promote fair outcomes for people and reduce the risks of predatory practices against vulnerable clients.

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Why Regulate Fintech?

The existing regulations of financial services in Africa are increasingly becoming incompatible with fintech in the region. For example, bitcoin remains illegal in countries like Algeria, Egypt and Morroco.

Powerful, cheap, customer-facing technologies like those found on smartphones are broadening the potential size of the market for services that were once restrictively expensive for everyone but the very rich. The new group of individuals that now have access to these technologies may not be as sophisticated as tradition customers and might be unmindful of the pitfalls involved. These parties will require additional protection. For instance, investment in virtual currencies can be very risky.

Fintech innovations spread beyond regulatory jurisdictions because the various business models or the service delivery methods do not comply with existing regulatory structures. Fintech removes the geographical barriers and enables competitors to offer new products on national and global markets This is s can put pressure on regulatory systems which assume a geographical limitation.

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