The number of deals closed by Africa’s tech start-up scene mushroomed in 2021 to 681. In total, the deals, closed by 640 start-ups, brought in around $5.2bn – nearly three times the amount raised in the previous year. Will the tech bubble keep growing or is it bound to burst?
Despite the absence of a governing legal framework, Finance Minister Ahmed Shide announced that the country’s first-ever private telecoms operator, Safaricom, has been given the nod to introduce its M-Pesa mobile money service to the Ethiopian market.
It is a milestone for the fast-evolving and increasingly lucrative domestic DFS scene.
The number of active mobile money accounts has doubled to 43 million over the past year – placing Ethiopia among the largest mobile money networks globally.
The state-owned Ethio telecom’s Telebirr mobile money platform, the industry’s top dog, stands as Safaricom’s biggest competitor.
Telebirr has racked up over 25 million users within a year and a half of its launch as the nation’s first telecom-led mobile money platform.
Drivers have transacted over Br100m at fuel stations using Telebirr in the first two months since the option was introduced.
More recently, Telebirr began offering uncollateralised digital micro-credit and micro-saving products. In nearly three months, Ethio telecom has managed to provide loans worth Br160m to 50,000 people.
It is a significant achievement for the financial sector, as the number of lenders covered by traditional banking still lingers at around 300,000.
DFS is expanding beyond Telebirr and Safaricom. Kacha Digital Financial Services is readying to enter the market as the first private mobile money service provider after the central bank granted it a licence in July.
The firm’s executives look to make the debut with micro-credit and micro-insurance services (including Sharia-compliant products) and Br200m in capital.
“We strongly believe that fast adoption of any DFS is an opportunity for the whole ecosystem. It will raise the level of public awareness, build informed consumers, and drive providers to innovate,” says Yigermal Meshesha, Kacha’s marketing and business development manager.
Chapa Financial Technologies, a firm that has been a financial technology provider for the last year, also recently received a licence to operate as a payment system operator.
Chapa has launched its payment integration service after onboarding all the major payment options in the sector, which together have over 30 million customers.
Despite the recent spurt, growth in the DFS scene is far from new.
Technology providers who were innovators a decade ago despite the absence of a licensing scheme and regulatory frameworks are still innovating in the digital space.
Among them is Kifiya Financial Technology, a veteran that gained a reputation through a digital utility bill platform that was operational until 2019.
Digital lending options
The company has since expanded its portfolio. It has introduced Qena, an uncollateralised digital lending product that utilises behavioural judgment to determine creditworthiness.
Partnering with the Cooperative Bank of Oromia, Kifiya has provided loans to over 9,000 small and medium enterprises. The duo looks to expand to 50,000 borrowers, while Kifiya is working to create similar products with other banks.
The slow adoption of digital products is preventing companies in the digital ecosystem from scaling up their businesses.”
Tila, an agricultural microinsurance service piloted by Kifiya for over five years, has managed to sell 12,000 policies to farmers.
“The slow adoption of digital products is preventing companies in the digital ecosystem from scaling up their businesses,” says Munir Duri, CEO of Kifiya.
“It is difficult to raise capital and for institutions to trust and invest in digital when customer adoption is low. Another challenge is access to human capital that is exposed to digital. But there is hope on the regulatory front.
“Over the last three years, more than ever, the government has adopted regulations to facilitate access to DFS,” he says.
The government’s pledge to liberalise the financial sector is among the most important prospects going forward.
In September, the Council of Ministers approved a bill allowing foreign investors into digital financial services. Safaricom’s M-Pesa is expected to be the first to take advantage of the new regime if the House of Federation legislates the bill.
Nonetheless, regulatory frameworks are undergoing amendment, while industry insiders say Safaricom Ethiopia has already begun integration with financial institutions and e-commerce sites.
Regulators at the National Bank of Ethiopia (NBE) are also attesting to have created an enabling environment for the fledgling DFS scene and pledge to continue to do so, according to a central bank representative. Saying it wants to strengthen its regulatory capacity, the central bank has decided to impose hefty licensing and oversight fees on fintech.
Loans and digital credit
The NBE is also developing a key digital lending framework that would untie digital credits from depending on banks. The current regulation requires fintech companies to source loanable funds from banks while the upcoming one would allow funds to be sourced from elsewhere. Such practice is widely used in other mature markets such as Kenya.
Another challenge is access to human capital that is exposed to digital.”
At the same time, the government has been making preparations to welcome foreign banks.
Federal officials plan to allow foreign investors to acquire equity in domestic banks, and permit foreign banks to set up subsidiary companies or operate a branch network, according to a draft law that has been circulating among industry insiders.
Though it is difficult to tell when the long-anticipated shifts will become reality, they will undoubtedly have a profound impact on the financial sector and the economy that is grappling with a lack of funds, especially foreign currency.
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