At this year’s GITEX in Dubai, a giant tech show which aims to increase the UAE’s influence in the sector, African startups occupied a more important place than ever.
Inside the enormous Dubai World Trade Centre, the Nigerian delegation had a one-floor green exhibition stand while Moroccan startups presented their products inside a shining white circular structure. The event saw the biggest ever gathering of African startups under one roof, according to the organisers. The excitement and confidence were palpable. Six years ago, Africa did not have a single “unicorn” – a startup worth over $1bn. Today, it has seven.
However, the excitement needs to be put in context. Many of the firms showcased in Dubai are still trying to figure out their business, profit and sustainability models. Most of all, firms are wrestling with challenging regulations that differ from country to country.
When asked about the challenges they face, entrepreneurs – particularly those in the financial technology space – respond with one word: licences. Operating as a fintech requires a licence, or several if the company is engaged in multiple activities. These are usually granted by regulators such as central banks.
“The regulation is still trying to catch up and understand how to govern these new products and services. There is a gap in the regulation that is affecting fintech across the continent,” says Pardon Mujakachi, vice-president of partnerships and strategy at Chipper Cash, an Africa-focused, San Francisco-based fintech valued at $2bn.
While more sophisticated frameworks exist for digital payments or e-money services in some African countries, other financial activities in which emerging fintechs are keen to engage, such as equity crowdfunding and peer-to peer lending, are often not covered by existing regulations.
Towards a thriving tech scene
To get out of the gridlock, some fintechs are applying to foreign central banks to obtain their licences. Knabu, a crypto clearing bank founded by Gabrielle Patrick, tried to operate with the permission of African central banks, but has had more luck with the UK’s Bank of England. Du Plessis says that it “gave them a sandbox of data, and if they meet the extremely high KPI [key performance indicator], they would be given a licence to do international money transfers”.
That approach has precedence in Africa. In 2007, the Central Bank of Kenya, together with Kenya’s Communication Authority, issued a “letter of no objection” to the mobile network operator Safaricom to develop the M-Pesa mobile money service. Fifteen years later, M-Pesa has cemented its position as Africa’s largest fintech platform with over 50m monthly active customers.
Despite a clear excitement for the thriving African tech scene, regulators, central banks, and startup founders are in search of clearer channels of communication.
“These ecosystems take time to emerge,” says Du Plessis. “I have a view that by 2050, considering that Africa gets younger as the years pass, all regulatory processes will be in place.”
