Singapore is a leading facilitator of African FinTech
African FinTech firms have raised more than US$1.4bn in new capital – more than they were able to achieve in all of the past decade, with Singapore’s sovereign wealth fund Temasek alone putting US$500m in investment firm LeapFrog for taking up the exposure in African FinTech. At the 2021 Singapore-Africa Business Forum in August 2021, the continent’s FinTech opportunities were a key highlight.
The 2021 Singapore FinTech Festival (8-12 November) also features a robust African showcase. And credibly so. Singapore’s central bank has been entering into various international partnerships to enable greater SME financing access in developing countries, for instance.
The Bank of Ghana and Monetary Authority of Singapore (MAS) is currently working to create a Financial Trust Corridor (FTC) – an ecosystem that will allow firms to create mutual ‘recognition’ and build trusted partnerships.”
In late August 2021, Rwanda and Singapore agreed to establish another FTC on similar lines. In mid-July 2019, MAS signed a FinTech cooperation agreement with the Central Bank of Kenya (CBK) for the development of basic digital infrastructure services including identity, data, and Know-Your-Customer (KYC) utility in Kenya that are based on a common set of standards between the two countries.
In February 2020, Nigerian FinTech start-up and micro-loan provider Aella Credit, whose product line includes Creditcoin, a blockchain-based lending application, received US$10m in debt financing from Singapore’s HQ Financial Group (HQF). Another example is Singapore’s Credolab, which is deploying innovative credit risk assessment tools to enable easier financing access for African SMEs, with operations already in Ghana, South Africa, Kenya, and Nigeria.
Kenyan FinTech startup WapiPay has a base in Singapore, and Singaporean investors are involved with South African FinTech startup Troygold, which allows gold owners to digitize their holdings for day-to-day transactions using its mobile app and gold-backed debit card.
The prospects of leveraging Singapore’s FinTech expertise and resources and strengthening the Asia-Africa economic partnership has become stronger, especially since the African Continental Free Trade Area (AfCFTA) became operational in January 2021.
More than half of the initiatives in 2021 thus far by Enterprise Singapore, which facilitates international business opportunities for Singaporean firms, have been related to digital technology. Africa, where Singapore is a top 10 investor, is a key focus, particularly in FinTech, where Singaporean firms have a demonstrable competitive advantage, especially as MAS has taken a keen interest in facilitating digital financial linkages between the two continents.
Conclusion and recommendations
SMEs often complain about a lack of access to finance. They lack the scale, information, and credit history that traditional banks ask for. Nor can they come up with the necessary collaterals to raise loans. Small businesses across the world suffer a financing deficit of more than US$5trn yearly.
In Africa, the credit gap is US$140bn. FinTech has the potential of reducing that gap and covering up for the many disadvantages. African SMEs are particularly well-suited to FinTech approaches. DeFi or blockchain-based financing approaches have huge potential for African SME credit extension as well.
Singapore is leading the charge in African FinTech adoption. MAS has been entering into linkage agreements with African countries to facilitate seamless digital financial interactions, especially for SMEs.
Singaporean FinTech firms have also been making significant strides on the continent; Credolab is a case in point. And even as African FinTech firms are increasingly spoilt for choice on financing, most of the investments thus far have been towards the payments and remittances category.
Lending and financing, whether via P2P lending or equity crowdfunding, remain relatively untapped, an opportunity Singaporean firms would do well to seize.
While I have demonstrated how African SMEs are indeed faring better owing to FinTech, it is also clear that when it comes to long-term financing, the surface has barely been scratched. Although the outlook for FinTech-based credit extension for African SMEs looks bright, not until the infrastructural and regulatory constraints are addressed would the potential be fully realised.
Read also: How SMEs in northern Nigeria are leveraging gas to grow their business
I suggest the following recommendations:
· Credit bureaus: Information on African SMEs remain scarce and difficult to acquire. There are still too few credit bureaus across Africa. Ample opportunities exist for filling this gap
· Regulatory sandboxes: African governments would need help to make this approach work. Singapore has huge expertise and through MAS, has been reaching out to African countries to facilitate the exchange of knowledge and expertise.
· Financial trust corridors: Following in Singapore’s example, other key international trade partners to African countries could similarly establish financial trust corridors that FinTech allows to be done relatively easily.
· DeFi-friendliness: DeFi relies on blockchain and tokens. If stablecoins continue to be difficult to interoperate/exchange with fiat currencies or CBDCs, the potential advantages for dealing with the financing constraints faced by African SMEs would be lost.
· Financial literacy campaigns: Most managers of African SMEs are not financially literate enough. FinTech adds complexity to what was already a difficult subject. Financial and FinTech literacy campaigns are therefore required to bridge the knowledge gap.
· Government SME-focused support programmes: Without governments’ financial guarantees, tax concessions, etc., African SMEs would continue to be seen as overly risky by banks and financial institutions.
· Multilateral lending support: Government facilitation might still not be enough. Multilateral lending institutions, from the AfDB, IFC to the World Bank, have numerous programmes targeting African SME lending that could be scaled up for effectiveness, especially towards FinTech approaches.
· Tech infrastructure build-up: FinTech relies on power and information and communication technology (ICT) infrastructure, which continues to underwhelm in most African countries and would require significant investments to upgrade or build.
An edited version of this article was first published by Nanyang Business School’s NTU-SBF Centre for African Studies, Singapore. References, figures, and tables are in the original article. See link viz.https://www.ntu.edu.sg/cas/news-events/news/details/can-fintech-meet-the-financing-needs-of-african-smes
