Nigeria`s Lagos has become the fintech capital of Africa. It recently overtook Kenya`s Nairobi as the main hub for fintech startups in the continent. Its fintech entrepreneurs have attracted more than US$1bn in venture capital from China, Silicon Valley, Japan, and other places in the past two years.
Nigeria`s population is close to 200 million, the highest in Africa. It offers the largest talent pool in the continent. Facebook plans to open its second African office in Lagos. SoftBank from Japan and a few other foreign venture capital firms are investing heavily in the fintech and e-commerce players in the country.
Most of the investment has gone to network or payment service providers in the country. Two of the three unicorns of the continent are from Nigeria while the third is from Egypt. The country has become the most attractive place in Africa for VC fund managers around the world.
According to some reports, the country`s mobile money market is estimated at $4bn, around 1 percent of its total annual GDP. That may not be a big number from Western standards. However, it is very significant in the context of Africa.
Around 70% of the country`s population is under 30 years. The size of its informal economy is more than 50% of its GDP. 95% of transactions in the country are still done in cash.
But, will the upward trend in foreign investments in its tech startup sector continue in the future? Will It have any positive impact on the growth of Islamic finance? Will the increased activity in its startup sector help reduce poverty and unemployment in the country?
Will the Fintech Sector in Nigeria Continue Growing?
Based on the available data and the global trends in the fintech sector, we tend to believe that the industry will continue to expand despite the challenges it is facing today.
Start-ups like Bankly are already providing banking services to millions of people around the country. Most of the users of these newly-launched apps are working in the informal sector. The tech investments will help them get easy access to credit and hence reduce poverty in the country.
What Are the Challenges?
Nigeria`s infrastructure is extremely poor. The government is not very supportive. Politicians and government officials are mostly corrupt. The country has suffered a second recession in the last five years. The COVID-19 pandemic has also devastated its economy. The electric grid is barely functional.
Where is the Promise?
The country is facing huge challenges in developing its fintech sector. But, despite these problems, international venture capital firms are betting on the tech sector in the country and investing in it to capture the ever-growing share of the largest market in the continent.
Due to the recent funding by foreign companies, it is expected that the Nigerian government will also try to create a favorable regulatory framework to support the local fintech sector.
Will It Benefit Ordinary People As Well?
The young population of the country is fast becoming tech-savvy. The majority of them have already started using these digital services. Economists hope that the recent growth pattern will only accelerate in the country thus expanding its outreach to the poor in Nigeria.