In 2008, I completed an MBA as a Skoll Scholar for Social Entrepreneurship at Oxford University’s Saïd Business School. It was an amazing experience where I gained an expansive network and learned a lot about venture capital, technology and innovation. However, the application of these themes to Africa was completely absent from the MBA curriculum, mainly because it was also absent in practice. When I declared my intent to move to Africa immediately after my programme to connect socially-oriented investors with high-impact entrepreneurs who were building scalable tech-enabled companies, it was a novel idea. But it was also an idea that few people took seriously as a commercial enterprise.
When I arrived in Lusaka, Zambia in January
2009, I found a cash economy where over 80% of adults were unbanked. People
were constrained to using post office branches or trusting cash envelopes to
minibus drivers to move money around to pay for school fees, health emergencies
and business stock. Unknown to almost everyone in Zambia, a mobile based
person-to-person money transfer service, called M-Pesa, was emerging in Kenya.
Entrepreneur brothers Brad and Brett Magrath saw the opportunity to be first to
market and set out on a journey to replicate M-Pesa’s success in Zambia.
I helped the Magraths secure a $200,000 seed
investment from the Grassroots Business Fund, which none of us knew at the time
was one of the first institutional fintech investments in an African start-up.
After convincing my parents in Canada to mortgage their house to lend me
$100,000 to invest, I joined them and became a co-founder and CEO of Zoona. We
continued our pioneering trend by raising a $4 million Series A at the
beginning of 2012 and $15 million Series B in 2016 to fuel our growth. In
Zoona’s first ten years, we enabled millions of consumers to transact over $2.5
billion across 2,500 micro-franchise agent outlets in Zambia and Malawi.
Africa’s fintech landscape has transformed since those early days of starting Zoona. In 2018, African fintech investments reached $357 million with ecosystems emerging in Cape Town, Lagos and Nairobi. This growth has tracked Africa’s mobile money industry, which had 132 live mobile money deployments, serving 146 million active consumers and 1.4 million active agents in the same year. In Zambia, Zoona was disrupted by this competitive wave after two multinational telcos invested aggressively to roll out 47,000 agents. According to the UNCDF, over 45% of Zambia’s adult population actively uses digital financial services. Across the continent, the fintech landscape has segmented into payments, lending, savings and insurance. Applications have also broadened from financial services to agriculture (agtech), healthcare (healthtech), education (edtech) and even regulation (regtech).
While these statistics and trends are great, they also mask some significant unintended consequences. For example, easy access to unsecured digital credit has fueled an explosion in sports betting, with $2 billion gambled last year in Kenya with 500,000 young people defaulting on loans to fund their habit. In total, 2.2 million Kenyans have non-performing digital loans, with 49% of defaulters having outstanding balances of less than $10. 62% of borrowers also report having more than one digital loan. These are worrying statistics for the industry and warning signs of speed bumps ahead.
So what is the future of fintech in Africa? I
will offer three predictions.
First, fintech itself is not a silver bullet. It is the application of it that matters. Fintech solutions that are embedded in the real economy and help increase people’s incomes and reduce their costs will have tremendous positive impact. Those that drain people’s limited resources and promise short term investor returns will have long lasting negative consequences.
Second, the current investor hype in African fintech will wane as the industry matures, but the good investors will stick it out. Too much of the money flowing in is chasing the hype, and not enough people have been burned by the very real challenges of scaling companies in Africa. But the investors who have been around the longest, like Zoona’s Series A investors Flourish Ventures (a spin off from Omidyar Network) and Quona Capital (a spin off from Accion), are well positioned to ride the wave.
Third, the potential of fintech to deliver both positive impact and financial returns is very real. The opportunities in Africa are enormous for thick-skinned entrepreneurs who are prepared to roll up their sleeves and execute well. As I learned my first time around, there is no guarantee of winning in the end but that is all the more reason to try again. It’s a great time to be a fintech entrepreneur in Africa.
About the author
Mike Quinn, 2007-08 Oxford MBA alumnus and Skoll Scholar. Mike is the co-founder and former Group CEO of Zoona, one of Africa’s earliest fintech companies.
During his 10-year stint at the company that started with the
first transaction in 2009, Zoona processed $2.5 billion of transactions,
generated $26 million in income for 3,000 micro-entrepreneurs and their
employees across Zambia and Malawi, and raised $35 million in investment. For
his leadership, Mike was awarded the Accion 2017 Edward W. Claugus Award for
Leadership and Innovation in Financial Inclusion and with one of the Schwab
Foundation’s 2018 Social Entrepreneurs of the Year.
Mike’s entrepreneurial journey in Africa started as a volunteer in Ghana and Zambia with Engineers Without Borders Canada after graduating with a mechanical engineering degree from the University of British Columbia. He has completed an LSE Master’s in Development Management, an Oxford MBA, and a Harvard Leadership for Systems Change executive education certificate. He grew up in Calgary, Canada and now calls Cape Town, home.
Good ideas tend to cross borders quite easily. This is especially the case with technology. We can easily observe the convergence of new technologies across borders in almost any part of the world. And the reason is simple – the convergence of technologies is empowered by technology itself. Furthermore, technological breakthroughs increase productivity while lowering costs and this quality makes them easily adoptable by new geographies. One such technological breakthrough is FinTech – which is simply to say technologically empowered financial services. Just to give you an idea, technology today can do most of what banks or other financial service institutions do. A basic example is balancing your check book online instead of waiting in line in a bank.
The Power of FinTech
The idea of technology powered financial services has the main quality of a technological breakthrough – it increases productivity while lowering costs. And this is just the tip of the iceberg. FinTech is literally revolutionizing finance – from new scoring models, to giving opportunity to regular people to take part in what only Investment Banks were allowed to partake. As such it has been spreading geographically on exponential basis. Every day a new FinTech product becomes available that changes the way we interact with finance. Everyone, from the general public to investors are hooked on this new industry. However, if you look the map of Europe, there is one region that has had zero activity in the FinTech space. This is the Western Balkans, or more precisely, Ex-Yugoslavia countries. Two members of our team being born and living in the Western Balkans their entire lives found it curious why this phenomenon, that is positively influencing the rest of the world, has overlooked this geography. With the help of the Skoll Centre of Social Entrepreneurship and the Said Business School, the team spent six months in Serbia, conducting in-depth analysis of the Serbian financial market and its readiness to accept FinTech innovations, specifically P2P lending.
The research focused on the P2P Lending industry as a global phenomenon, the history and the current state of the financial industry in the Balkans, the ways P2P Lending can be introduced in the region, the barriers that have kept it out, and the benefits that these countries can have from it. During the six months the team did hands on research, engaged with some key stakeholders in the Serbian finance sector (such as banking professionals, government officials, high net-worth individuals, etc.), and took part in the LendIt Conference in London, the largest P2P conference in the world where it had chance to meet industry experts from all around the world. The key findings will be outlined bellow, accompanied with an infographic for the more visual readers.
Global P2P Lending Findings
P2P lending is a global phenomenon that has experienced enormous growth over the past five years. It can be established as one of several operating models all of which have a more cost efficient structure than traditional banking. The regulation for P2P lending varies across different countries. Finally, P2P lending offers many benefits including: no inherited systematic risk, access to finance, and it Is a new asset class.
Analysis of the financial sector in the Balkans
The financial sector in the Balkans remains to be hugely underdeveloped and it lags behind the financial sectors in developed countries. Commercial banking is the only developed sector in the financial industry in the Balkans. The key challenges to the development of the financial industry in the Balkans are:
Low level of saving
Conservative lending by commercial banks
High borrowing costs and low deposit returns
The legislation in the financial sector in the Balkans is set up to protect the banking industry
P2P Lending in Serbia
Given the local landscape and the key factors to P2P lending two operational models can be set up in Serbia
Partnership with a bank
Fee based model
The revenue model for P2P Lending in Serbia should not be much different than that in the US or the UK. The borrowers market can be split in consumer and business, while the consumer market consists of all the household loans issued by commercial banks, in addition to all the loans not issued due to conservative banking. The business market should focus on working capital financing – invoice trading. The research has shown that the following are the essential areas of activity that must be performed well if P2P lending is to be introduced in Serbia:
Credit risk modelling
The matter of trust
Overall, our view of the market is a positive one and our assessment is that there is space for the FinTech industry. We expect that some form of alternative finance will emerge in the Western Balkans in the near future, and in expectation of this we will continue our work on bringing P2P lending in the region.