Breaking down barriers: innovation in Africa’s financial services sector
The Covid-19 pandemic has accelerated a digital evolution in Africa’s banking sector.
Despite 60% of Africa’s population (around 95 million people) not having a traditional bank account, smartphone sales in Africa represent 6.6% of the global market, offering huge opportunities for a digital transformation in the financial sector. Thanks to this rate of mobile penetration, combined with an increase in digital banking traffic due to local lockdowns across the continent, African fintech has never looked stronger. In 2021 alone, Africa’s fintech sector accounted for nearly $3 billion of the $5 billion raised in venture capital funding and neobanks, such as 4G Capital, TymeBank and Kuda, all aimed at improving financial access and cross-border transactions, are estimated to account for just under $12 billion in financial transactions by 2025.
Outside of the digital banking space, other financial services are also looking at ways to innovate. To tackle decreasing FDI flow to Africa, estimated by the World Bank to have dropped by 16% in 2020, local capital markets, traditionally avoided by investors due to high foreign exchange risk and currency volatility, are now introducing alternative methods to promote local investment and cross-border solutions.
“These types of opportunities have now become attractive to the international investment community, shifting FX risk away from the issuer to the international investor who have better tools to mitigate it.”
The London Stock Exchange Group (LSE) is leading the way on this innovation drive. With over 100 African companies listed on the LSE, the Group sees themselves as a natural partner for African capital markets, working to support the deepening of local markets and improve self-reliance against FX risk. As part of this innovation drive, the LSEG has been broadening its local offshore currency financing, leading to Quantum Terminals, a Ghanaian oil and gas trading group, listing the first Cedi corporate bond on the LSE International Market, which yielded a 20% coupon in 2021.
