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.