Francophone countries in Africa are lagging behind their Anglophone counterparts in terms of development. According to CNBC Africa, the region accounts for only about 19% of the average GDP of sub-Saharan Africa while Anglophone Africa (excluding South Africa) accounts for 47%. Moreover, English-speaking countries on the continent rank higher on the “Doing Business” report by World Bank which assessed the business environment quality. Most of the challenges hampering development are related to the colonial heritage which has affected the regulatory landscape, language and culture of the region.
Among the reasons for the disparity is the legal and regulatory framework in the region which presents some challenges to investors. In most cases, it consists of a combination of civil law systems derived from France and a common law system. These mostly differ significantly and necessitate thorough research for business entities wishing to operate in the region.
Linguistic and Cultural Barriers
Linguistic challenges are also a major barrier especially in sectors that require high governmental oversight and regulation. Another factor is the poor corporate culture in the region. Some attribute this to a rote-learning education system which produces graduates a low initiative.
How Fintechs have affected Senegal’s Development
The Senegalese business environment is not exactly favorable to development. One of the main challenges has to do with regulatory compliance. There are more than a dozen authorities with whom one needs to check before establishing a business, especially in the financial sector. Furthermore, domestic banks are reluctant to finance emerging entities and in cases that they decide to, their processes are extremely long and arduous.
However, fintech firms are changing the outlook and transforming the banking sector as well as the economy and development of the region as a whole. Senegal is already enjoying the benefits of fintech in various aspects of development.
62.9% of the Senegalese population, about 9.6 million people, currently has access to the internet. This has led to massive growth in the fintech startup ecosystem, with various stakeholders seeking to take advantage of the resulting digital business opportunities.
Investors have taken note of the growth in the ecosystem and more venture capital funds are consequently emerging to support SMEs. Investment company Partech Ventures recently opened an office in Dakar and announced a $122 million fund for startups.
Businesses are also leveraging the opportunity to access funding. For example, Oolu, an off-grid solar startup has raised over $3.2 million in funding between 2017 and 2018. Mobile-driven peer-to-peer savings platform, MaTontine, registered 475 users within a year of its launch and gave out $12,000 in loans.
The Senegalese economy is also growing and the contribution of fintech to this growth cannot be ignored. Though the ICT sector currently accounts for 2% of the GDP, the government wants to raise the figure to 10%. By digitizing 50% of all the country’s national payments, it hopes to realize an economic growth increment of at least $177 million annually. Furthermore, by collecting taxes electronically, local authorities could increase collection rates by a factor of seven.
How working with Fintechs can reduce risks
Running commercial activities in Senegal under the traditional model holds a higher level of risk due to the unfavorable business environment. Higher risk potential means higher costs of borrowing, locking out SMEs from securing financing. However, using fintech to transform the sector reduces the risk potential.
Bridging Infrastructure Gaps
It is much easier to bridge infrastructure gaps such as access to credit history using fintech frameworks. A good example is MaTontine whose peer-to-peer platform includes an in-built credit scoring system. Notably, the platform had a 0% default rate in its first year of operations.
Addressing Collateral Challenges
Traditional financiers shy away from borrowers who lack collateral. But fintech lenders are great sources of unsecured loans. Unlike banks, they use innovative risk-assessment methods before lending.
Leveraging Digital Economy Benefits
Fintech firms are introducing new efficiencies in Senegal and are thus setting the pace for exponential growth in various aspects of the economy and overall development. They have the innovative potential to disrupt countless sectors and allow this Francophone country to leverage the benefits of the digital economy.