Finance

for inclusive finance, Africa must adopt common regulations – Jeune Afrique

According to the members of the advisory board of the Africa Financial Industry Summit (Afis), a network of major decision-makers in the financial industry, it is necessary to develop such a platform in order to exploit the continent’s innovation potential in the field of fintech.

Financial innovation is an extraordinary engine of growth for Africa. The continent’s fintechs alone raised around $1.3 billion (€1.18 billion) in investment in 2021. Players such as OPay and Interswitch in Nigeria or Wave in Senegal have reached unicorn status, with valuations over $1 billion. Their success is based on a promise that until now seemed out of reach: to allow hundreds of millions of Africans to access financial services.

However, the strong growth of fintechs has also raised concerns among the general public and regulators. In Kenya, one in five borrowers finds it difficult to repay their credit, a rate twice as high as in the conventional banking sector. In Nigeria, the National Information Technology Development Agency (Nitda) is concerned about the protection of user data and the sometimes questionable practices of fintechs to recover their debts.

Better protect consumers

The importance of appropriate regulation cannot be underestimated to encourage as much as to supervise the development of these new players in finance, and thus extend financial services to the 57% of Africans who still have to bank. Consumer protection in particular will be essential both to create confidence among new users of financial services and to ensure a level playing field vis-à-vis traditional banking players.

On this point, African regulators, as elsewhere in the world, have had to adapt to a constantly changing environment in a context of extremely rapid technological progress. This is why we are convinced that it is necessary to develop an African-wide regulatory platform. This platform, which would bring together central banks, fintechs, traditional banks and insurers, would help harmonize licensing rules in Africa, develop financial inclusion and better protect consumers.

To do this, we have identified a number of levers to activate.

Allow for ongoing dialogue

While national central banks oversee financial regulation, they face many challenges to keep pace with innovation. This is hampering efforts by fintechs, banks and insurers to increase financial inclusion in Africa through blockchain, peer-to-peer lending or other emerging technologies.

The Central Bank of Morocco (Bank Al-Maghrib), for example, introduced a regulatory framework for payment institutions in 2014, but has since acknowledged that the rules were unclear for fintechs hoping to enter the Moroccan market. . It has opened an innovation office to openly dialogue with fintechs, explain the applicable regulations to them and adapt them if necessary.

This platform would also mobilize innovation hubs, business incubators and fintech networks to involve start-ups

On a continental scale, such a platform would open up an ongoing dialogue between financial innovators and central banks. It would also allow central banks to keep abreast of financial innovations and contribute to the harmonization of national regulatory frameworks. Financial innovations could then be rolled out seamlessly across multiple markets and reach under- or unbanked populations faster.

This platform would also mobilize innovation hubs, business incubators and fintech networks to engage start-ups, while associations such as the AACB (Association of African Central Banks) could help regulators move forward. in synergy. Lastly, it would make it possible to better protect consumers by integrating new technologies such as money lending by mobile phone into the regulations, without harming innovation.

Cross-border “regulatory sandboxes”

We also encourage regional convergence of regulatory sandboxes to allow fintechs to test financial product innovations without regulatory constraints. These “regulatory sandboxes” first appeared in the UK in 2015. The concept has since spread around the world and is gaining traction in Africa. Sierra Leone, Kenya, Rwanda and Mozambique were early adopters on the continent. Ghana launched a pilot sandbox project last year and Nigeria introduced a regulatory framework to encourage their use.

Those sandboxes are a way to introduce and scale financial innovation, while providing SMEs with working capital

Those sandboxes are a way to introduce and scale financial innovation, while providing SMEs with working capital and creating an ecosystem for others to innovate with similar products. However, the few sandboxes existing African institutions have been created at the national level and their implementation has been slow and costly. They are also very different in terms of eligibility criteria, duration and financial innovations to prioritize. This can deter credible innovators and hinders the expansion into another country of a financial innovation that has already proven its worth.

The creation of a regional or national framework would pave the way for cross-border sandboxes. It would then be possible to test the same innovation in several countries at the same time. Two years ago, the Central Bank of West African States (BCEAO) launched a task force fintech, one of whose goals was to create a West African regulatory sandbox spanning multiple countries. We encourage such projects on the continent.

Associations as financial support

The members of the advisory board of the Africa Financial Industry Summit (Afis) finally call on regulators to mobilize international and African associations of the sector to support the infrastructure of financial innovation on the continent. Regulatory sandboxes, innovation hubs and business incubators are costly and resource-intensive for regulators, while their deployment has taken a long time in some countries.

Financial innovation cannot function in the long term without the confidence of consumers and public authorities

Regulatory authorities, which are often cash-strapped, could make greater use of the resources of African and international business associations for financial and operational support. The Global Financial Innovation Network (RMIF), the Africa Fintech Network, the African Crowdfunding Association (Acfa), and the Association of West African Banks (Abao) are among the associations that could be mobilized.

In conclusion, the various avenues of work mentioned are all ways to create a solid and dynamic regulatory infrastructure. Financial innovation cannot function in the long term without the confidence of consumers and public authorities. The sustainable financial inclusion of hundreds of millions of Africans depends on it.

Key recommendations

– Harmonize financial regulation in Africa through several lines of work;

– Create an African public-private platform to define the necessary regulatory reforms;

– Converge the regulatory sandboxes (“regulatory sandboxes”);

– Mobilize the resources of sector associations.

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