KUBATANA MAGAZINE | OCTOBER 2022
AFR I LABS
and services to help them run effectively so they can focus on their core business goal, providing value for the end consumer. One of the contributing factors to the success of MSMEs is access to capital. According to data from the IFC, SMEs in Africa have a financing gap of about $331 billion 4 , which certainly curtails their potential. Nevertheless, Africa is on the right track to close that gap over time given the increase in the number of fintechs 5 on the continent, and with a significant portion of these fintech startups dedicated to solving the lending problem. However, access to financing is not entirely a reflection of a lack of funds. On the contrary, some of the challenges are a result of difficulties in verifying some of the essential Know Your Business, KYB, requirements. These include digital identification, proof of ability to repay funds, proof of use of funds, credit score rating etc. Fintech infrastructure startups solve these problems. One of the other challenges facing SMEs on the continent is that many are still non-digital (beyond social media marketing). This hinders their access to information, larger markets, and financing due to the limited visibility of options. While the slow digital adoption can also be attributed to general factors such as poor internet connectivity in some areas of the continent, there is room to onboard more SMEs onto the digital transformation train. Infrastructure fintech startups are, again, best suited to provide services that would make SMEs achieve a digital presence without draining their resources. Globally, infrastructure fintech startups notably make up the largest percentage of fintech startups at 18.6% 6 followed by lending fintechs with an 18% share and payTechs in third place. In the region, infrastructure startups rank fourth at 11%5 with payments and remittances leading with 26%, followed by lending and wealth tech in third place.
There is a great business case in having more infrastructure fintechs focus on providing services to SMEs and expanding from the more common cross-border payment services. This growth would directly contribute to more SMEs achieving their potential and even empower lending fintechs to do more business with SMEs hence narrowing the financing gap.
WHY STARTUPS FOUNDED TO HELP RUN THE INFRASTRUCTURE OF FINTECH IN AFRICA WILL SEE HUGE SUCCESS
References
“South Africa: SMEs in the national economy.” n.d. OECD Library Org. Accessed August 27, 2022. https://www.oecd-ilibrary.org/ sites/4bada6a3-en/index.html?itemId=/ content/component/4bada6a3-en#section- d1e212290. “Reports.” n.d. Reports | National Bureau of Statistics | National Survey (2017). Accessed August 27, 2022. https://nigerianstat.gov.ng/ elibrary/read/966. “2017 SUSB Annual Data Tables by Establishment Industry.” n.d. Census Bureau. Accessed August 27, 2022. https://www.census. gov/data/tables/2017/econ/susb/2017-susb- annual.html. “MSME Finance Gap.” n.d. SME Finance Forum. Accessed August 27, 2022. https://www. smefinanceforum.org/data-sites/msme- finance-gap. “FinTech investment in Africa nearly quadrupled in 2021, driven by PayTech and Lending deals.” 2022. FinTech Global. https://member.fintech. global/2022/01/19/fintech-investment-in- africa-nearly-quadrupled-in-2021-driven-by- paytech-and-lending-deals/
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BY SYLVIA MWANGI OneVest, Kenya
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their economies, for example, the US reports that SMEs make up 99.9% 3 of all businesses in the country. Whilst the definition of an SME may differ from country to country, it is obvious that small businesses are major employers and significant contributors to a country’s economy. So, given that SMEs are integral to the growth and sustenance of national and regional economies, it is only right that there be a multitude of products
Africa’s economy is largely supported by micro, small, and medium enterprises (MSMEs) that are not only a major source of employment in the region but also make up a significant portion of the GDP. For instance, MSMEs account for 98% of businesses in South Africa, contributing 40% 1 of the total GDP, while in Nigeria, MSMEs make up 96% of all businesses and contribute 48% 2 of the total GDP. This is not unique to the region as most Western countries also rely on SMEs to run
6. “Fintechs by business model, area and sector.” n.d. big-picture.com. Accessed August 27, 2022. https://big-picture.com/fintechs-by-business- model-area-sector.php.
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