The economies of sub-Saharan Africa differ, and trying to replicate fintech solutions from one part of the continent to the other can have the same effect as blindly importing fintech from the West
Alleviating poverty starts by facilitating access to the broader financial system. Financial services like sending, receiving, and storing money strengthen local economies by making transactions easier and giving households an opportunity to save money in case of emergencies. In sub-Saharan Africa, two-thirds of adults over the age of 15 do not have a bank account, leading to a cycle of income inequality. Financial technology, or fintech, leverages increasing levels of mobile penetration to bring financial services to rural populations. Since its introduction in the early 2000s, sub-Saharan Africa has become the world’s largest user of mobile money, a technology that allows users to maintain basic accounts using simple feature phones. Mobile money has seen great success in Africa, especially in Eastern Africa, and proponents are keen to replicate that success throughout the continent.
Fintech has the potential to lift millions in sub-Saharan Africa out of poverty, but governments and firms looking to implement fintech initiatives must carefully examine the needs of their specific populations and adapt existing fintech solutions as needed. Programmes that attempt to copy-paste Western solutions into African economies are inefficient and may actually worsen financial inequality in the region.
Innovative approaches to financial inclusion
In Kenya, financial inclusion skyrocketed because companies tailored their fintech offerings to Kenyan consumers. Starting in 2002, cellular providers in Kenya began to realise that users were purchasing data as a substitute for currency because it could be transferred and resold over the cellular network. Safaricom, the biggest phone company in Kenya, launched the M-Pesa programme in 2002, which allowed users to send and receive money through their mobile phones without using data as a proxy. The M-Pesa programme also allowed clients to deposit and withdraw cash through local money agents instead of travelling to banks or ATMs, increasing the cash flow in rural areas.
Whereas fintech in Western countries largely revolves around internet connectivity, the M-Pesa programme relies on cellular connection to complete transactions through text messages. This model is much more accessible in Kenya, where mobile penetration far outpaced internet penetration, especially in rural areas. The text message interface also means that transactions can be completed using a feature phone instead of a smartphone, significantly lowering the entry barrier. Today, 90 percent of Kenyans are connected to the financial ecosystem through an M-Pesa account.
Safaricom, the biggest phone company in Kenya, launched the M-Pesa programme in 2002, which allowed users to send and receive money through their mobile phones without using data as a proxy.
The M-Pesa programme was ultimately successful because it responded to the specific needs of the Kenyan economy. The mobile money model catered to a market that had relatively high levels of mobile device penetration, relatively low levels of Internet penetration, and a large unbanked population. These characteristics are common in sub-Saharan economies and have contributed to mobile money’s popularity across the continent. Widespread adoption was only made possible because M-Pesa was mindfully tailored to the problems facing African economies. Other initiatives that have attempted to replicate Western fintech without significant modifications have been unable to reproduce the success of the mobile money sector.
A cautionary tale for cryptocurrency
In contrast to the M-Pesa initiative, the Central African Republic’s (CAR) Sango project prioritises the allure of the cryptocurrency industry over the needs of the average Central African citizen. Introduced by President Faustin-Archange Touadéra, the Sango project is an overarching scheme that aims to reinvigorate the Central African economy through cryptocurrency, including the minting of a national cryptocurrency built on the Bitcoin blockchain and the tokenisation of natural resources. In exchange for investments in Sango coin, Touadéra has offered investors the opportunity to buy citizenship, e-residency, and plots of land in Bangui, the capital city.
Domestically, the Sango project has faced immense opposition, most significantly from the judiciary. Key incentives for Sango coin investors like citizenship and e-residency were ruled unconstitutional in 2022, yet the government has continued to mint Sango tokens with the promise that the incentives will become available in the next issue cycle. Even if Touadéra managed to secure the legal status of the project, the Sango project is complicated even for a cryptocurrency venture, making it entirely inaccessible to the majority of Central Africans. Instead of promoting financial inclusion, the Sango coin only serves to give wealthy foreigners influence over the Central African economy and further neglect unbanked populations.
In exchange for investments in Sango coin, Touadéra has offered investors the opportunity to buy citizenship, e-residency, and plots of land in Bangui, the capital city.
Internationally, the Sango project has been condemned by regional partners. The Central African Republic is part of a currency zone that uses the Central African CFA Franc as its national currency. The Central African CFA Franc is pegged to the Euro as a holdover from the colonial era; it also has a one-to-one exchange rate with its counterpart the West African CFA Franc. Officials at the Central African Economic and Monetary Community (CEMAC) say that encouraging Central Africans to use the Sango coin instead of the Central African CFA Franc will make it harder to manage monetary policy throughout the region, especially because the rollout of the Sango coin initially recognised bitcoin as legal tender and guaranteed convertibility from Sango coin to Central African CFA Francs. That particular measure has since been repealed; however, concerns about weakening the monetary sovereignty of the Central African CFA Franc still remain.
The CAR’s lack of dialogue with economic partners when developing the Sango coin is further evidence of the project’s failure to engage with local communities to develop effective solutions. In sub-Saharan Africa, remittances make up 2.5 percent of GDP. The ability to securely send remittances back to family members in rural areas is a primary reason for mobile money’s popularity. Any system that isolates itself from the broader economic community and eliminates the possibility of intraregional integration fails to meet the immediate needs of the Central African economy. For proponents of fintech for financial inclusion in sub-Saharan Africa, the Sango project ought to serve as a reminder of the importance of open communication between fintech initiatives and the populations they aim to uplift.
Expanding the positive impacts of fintech
Fintech plays a completely different role in Western and African society. In the West, fintech often takes the form of cryptocurrency dominated by white, male investors. For fintech initiatives in Africa aimed at increasing financial inclusion, pre-existing approaches must be tailored to African audiences to avoid entrenching inequality instead of alleviating it. The M-Pesa project in Kenya is a good example of fintech meeting the needs of local communities. On the other hand, the Sango project in the Central African Republic is an example of fintech leaving local communities out of the loop.