Fintech companies triple despite tough funding environment

The number of fintech companies in Africa has almost tripled since 2020, according to a report from the European Investment Bank.

The Finance in Africa report noted that the number of African companies offering new products and services in finance jumped to 1,263 at the start of 2024 from 1,049 in 2022 and 450 in 2020. 

Less than a decade after the emergence of fintech, Africa boasts seven fintech unicorns (privately owned startups valued at over $1bn.) 70% of fintech operators in Africa are located in Nigeria, South Africa, Kenya and Egypt and attract around 80% of funding. Nigeria is the leading country in the fintech market with 28% of all the fintech companies on the continent.

The near-tripling in the number of active enterprises comes despite a difficult funding landscape – fintech investment in Africa and other regions of the world slowed dramatically in 2023, the report says. Research from the Global Private Capital Association revealed a 78% decline in fintech investment value in 2023 year-on-year, “mostly driven by the sharp increase in funding costs for venture capital investments caused by global financial tightening.”

Redefining the landscape

Still, fintechs are fundamentally redefining the landscape of financial services in Africa, with a wide variety of innovative financial services and products on offer – especially relating to mobile money, digital payments, remittances, digital lending, buy-now-pay-later, insurance and virtual assets. 

In January 2024, 33% of African fintech firms were offering payment solutions. Lending was the second most popular product area, offered by 19% of African fintech companies. 

Mobile money is instrumental in the development of digital financial services in Africa. Data provided
by Global Satellite Mobile Association shows that in December 2023 alone, total mobile money
transactions in sub-Saharan Africa increased by 2% in nominal value over December 2022 to $80.9bn and by 9.6% in terms of transaction volume. The whole of Africa (including North Africa) accounted for about three-quarters of global mobile financial transactions in volume (74%) and two-thirds in value (66%).

“Fintech is revolutionising the way we think about finance in Africa,” said EIB vice-president Thomas Östros. “By leveraging technology, we can improve access to finance for millions and foster sustainable economic growth.”

Women boosted but climate a concern

Mobile money accounts have become major enablers of financial inclusion for women in sub-Saharan
Africa. Since 2017, financial account ownership rates for women in the region has risen 12 percentage points, driven entirely by increased adoption of mobile money accounts.

The report also reveals that banks in Africa are reporting better loan performance among women-led firms, with nearly 70% of banks reporting lower rates of non-performing loans for these businesses.

Nine out of ten banks could soon have a gender strategy in place, while two-thirds of banks have financial services or products specifically targeting women.

However, based on the Bank’s Climate Risk Scores, Africa is also among the most exposed regions in the world to the physical risks stemming from climate change. 34% of the banks in the survey report asset quality deterioration due to extreme weather events and identify small and medium-sized enterprises as the most affected borrowers.

In addition to the challenges of climate change, other barriers that are restraining economic development include funding issues, with one-third of African banks reporting a lack of capital and availability of funding as an issue.

“While we see some signs of improvement, the high cost of finance remains a source of concern,” said EIB chief economist Debora Revoltella.

“As we navigate the dual challenges of climate change and the digital transformation, the role of multilateral development bank lending is even more relevant in supporting sustainable growth on the continent.”