When the COVID-19 pandemic hit the world in Q1 2020, many countries implemented lockdown measures, even as citizens of the world hid away in their various homes.
In Africa, the fear of the pandemic was very rife. And even though the lockdowns weren’t particularly favourable, most people found ways to navigate the new normal. For instance, African families still managed to buy groceries online and pay for utilities on their phones. And fintech companies played a huge role towards facilitating such transactions.
Never before was the usefulness of fintech companies most pronounced than during the lockdown period. The lockdown gave them a major boost. And they leveraged that appropriately. Little wonder these fintech firms have been on fire ever since, raising $4.65 billion in disclosed funding just last year alone.
But the pandemic wasn’t the only catalyst driving fintech growth in Africa. In an interview with CNBC Africa, Rand Merchant Bank’s Senior Investment Analyst, Dominique Collett, focused on the major factors driving the growth we have seen.
“I think fintech has gained a lot of momentum over the last year. And from an African perspective, one of the big drivers is the maturation of the sector. Like the rest of the world, we now have a burgeoning fintech space. We now have really big fintech companies that are led by very seasoned entrepreneurs. But it has taken a while to really mature,” she said.
As you may well know, the fintech industry around the world has also been booming, with many global fintech firms attracting lots of funding due to their rapid growth and easy scalability.
Ms Collett explained that the reason for the increased global funding for fintech firms is due to the role of VC firms. Apparently, while global investors depend on VC firms to hide their assets amid low interest rate environment, the VCs invest the investors’ money to valuable fintech companies, including African fintechs.
“Globally, fintech has been attracting a lot of funding. I think what we’ve seen globally is that because we’ve had such a low interest rate environment across the globe, investors have been looking to hide yielding assets and venture capital has been a very attractive investment class. And so the VC industry as a whole has attracted a lot of money. And fintech has become one of the stars of the show when it comes to venture capital internationally,” she explained.
Lastly, the expert talked about the viability of African fintech’s business model and how it has contributed to their rapid growth over the past years. According to her, the fintech companies are using their technology to avail many more Africans access to different kinds of financial services. And this has made them very useful as well as positioned them for enormous opportunities.
“International investors have also realised the potential of Africa. There is an enormous opportunity in the African financial services industry because such a low proportion of Africa’s population currently has these financial products. And technology can really go a long way in helping these potential customers to access these financial products. And that’s why these fintechs are really growing so fast and attracting the valuation that they are now attracting.”
Recall that a previous report by Business Insider Africa noted that out of the $4.65 billion that was raised by African startups in 2021, 62% of the funds went to fintech companies.
Credit: Business Insider
