The last decade has witnessed phenomenal growth in the use of technology for delivery of financial services – what is known as financial technology (FinTech) – in the developed economies. Commendably, Africa and especially Nigeria has not been left out of the adoption wave. As a matter of fact, the adoption rate parallels the same if not almost exceeding developed economies.
With the growing global attention to Africa, the continent is poised to become the largest single market on earth under the African Continental Free Trade Agreement (AfCTFA), with its 1.3 billion people. The consideration of AfCFTA a little over two years ago has begun to shape a new narrative about a continent that has more than raw materials and unprocessed minerals to offer the rest of the world.
Perhaps there couldn’t be a more auspicious time for African businesses to be in the middle of the global FinTech phenomenon which is an integral part of the Fourth Industrial Revolution that is driven by technology. As a matter of fact, a whole new world of opportunities has opened to African businesses, especially small and medium enterprises (SMEs) that are known all over the world to constitute the engine room of growth in all sectors of the economy – manufacturing, tourism, aviation, hospitality, transportation, etc.
The entry into the market in recent times of organizations offering FinTech services is an indication of its wide acceptability on the African continent. It is evidence of the readiness by African consumers to embrace what has become a normal way of life in other parts of the world. And for service providers, it is an invitation to open the doors to the enormous potential in a huge market that is waiting to be explored.
However, in order to be fully involved in FinTech, African businesses must consider the imperative of adopting the Legal Entity Identifier (LEI) that comes with numerous benefits which include legal identity, visibility in the global marketplace, smarter and cheaper ways of making critical decisions, including choice of partners across all industries, businesses and activities in different parts of the world, as well as ability to ask important questions concerning potential clients or customers. Such questions may include ownership and organizational structures in potential customer or client organizations.
Other benefits of being on the LEI platform are the ability to identify all the legal entities that are on the platform anywhere in the world, and building of trust among them in a manner that promotes openness, transparency and strict adherence to global best practices. Organizations are also able to simplify operations and processes, with access to numerous applications including critical aspects of business like risk management, compliance and client relationship management.
In the area of client relationship management, being on the LEI platform enables a service provider to develop a personal relationship with a client, thus enhancing the Know Your Customer (KYC) efforts. This allows a service provider to know the peculiar needs of clients which are bound to differ according to individual circumstances. He is therefore able to design bespoke services to meet the personal needs of clients. There is nothing like one size fits all. It is the first of its kind in service delivery – thanks to technology.
Lack of digital identity in the global business arena has always denied African businesses access to much needed capital for research, development, growth, expansion and entry into the right markets. In an international business community that is threatened by the preponderance of fakes and scammers, African businesses suffer the consequences of negative stereotypes on account of the fact that potential creditors and business partners cannot trust would-be beneficiaries and partners, respectively, whose identities are not easily verified. This has resulted in a huge finance deficit that is estimated at about $81 billion.
To banks and creditors seeking to expand into a potentially profitable market, this has remained a huge challenge. Lingering doubts have continually kept away from the continent’s international business partners who would otherwise have loved to explore an untapped market.
Now, with the coming of LEI, African SMEs on the platform are going to be equipped with globally recognized business identities that introduce and recommend them to the right sources of finance, partners, customers and clients, since everyone is on the same platform. The necessary information about a potential client or customer is going to be verified easily and efficiently with the touch of the button by anyone, anywhere in the world. The issues of credibility and trust which have stifled economic growth on the continent would be eliminated. The issue of lack of compliance with anti-money laundering regulations would be greatly minimized, if not eliminated.
Recently, GLEIF appointed some prominent Africans to its board to help drive the initiative to promote financial inclusion on the continent. A Nigerian, Dr. Folarin Alayande, an international development economist, financial expert and technology investor, is one of them. This portends well for Africa, as those new board members are expected to influence adoption of LEI for SMEs across the continent, especially with the impact Nigeria’s population, the largest in Africa, is going to have on the initiative.
The LEI is the flagship product of the Global Legal Entity Identifier Foundation (GLEIF), an international organization that was set up by finance ministers and governors of central banks of the 20 leading economies of the world (G-20). The organization manages a network of partners with the main objective of building trust and partnership among businesses around the world, based on reliable and easily verifiable data on organizations. The Foundation created LEI as a platform to help enhance financial inclusion in developing economies, to enable them to participate effectively and more beneficially in international trade.
The philosophy behind LEI is the belief that businesses should have digital and unique identities that allow their identification in terms of location, nature of business, structure and ownership any time, from any part of the world.
The LEI was launched in Africa in August, 2021 to bring African SMEs into the global financial inclusion system, considering their catalytic role in the economic development of the continent.
Akinyele is the founder, Ogaranya, an Online-To-Offline (O2O) seamless payment platform