NIGERIA – Nigeria, Africa’s most populous nation with more than 200 million people, is on the path to achieving financial inclusion as fintech companies raise more than US$600 million in a space of five years.

The colossal amount of money raised by fintechs reveal a confidence by investors in Nigeria’s financial sector and its capacity to grow beyond its current stature.

Nigeria launched a Financial Inclusion Strategy in 2012, with an ambitious target of including 70% of the population in formal financial services by 2020.

The financial inclusion strategy catalysed favourable regulatory policies to be implemented by Nigeria’s Central Bank resulting in growth of fintech companies aiming to fill the gap in the financial sector.

According to a report by McKinsey, in a space of five years, Nigeria’s fintech companies have raised over $600 million in funding.

The report further noted that Nigerian fintechs attracted 25% ($122 million) of the $491.6 million raised by African tech startups in 2019 alone – second only to Kenya, which attracted $149 million. 

The report highlighted the combination of youthful demographic, increasing smartphone penetration, and concerted efforts to driving financial inclusion as factors that interplay to produce conducive and thriving enabler or platform for the fintech firms in Nigeria.

In general, access, convenience, and trust have all played key roles in the increasing use of fintech products. For example, in the last six months, 54% of consumers have reported increased usage of their fintech products.

The report outlined some of the feedback against fintech companies ranging from poor user experience, underwhelming value-added from using some of the financial products, low returns on savings, and limited access to investment opportunities.

 McKinsey in the report noted that Fintech activity in lending is picking up, thanks to the fact that fintechs are able to leverage payment data to determine lending risk more easily, and utilize smartphones as a distribution channel.

For example, fintech startups such as Carbon and Renmoney have successfully leveraged alternative credit-scoring algorithms, to provide instant, unsecured, short-term loans to individuals.

Banking fintech solutions have been fast followers here, with leading banks launching digital lending platforms like Quick Credit by GTBank and Quickbucks by Access Bank.”

Despite the remarkable investment in the sector, Fintech accounted for only 1.25% of retail banking revenues in 2019, signaling a room for development.

The report opined that full optimization of fintech companies in Nigeria can stimulate economic activity, by creating a multiplier effect, and can drive progress towards development goals.

Economic impact will primarily come from expanding revenue pools and attracting foreign direct investment to the country.

According to the McKinsey report, the sector can unlock a plethora of economic benefits by driving increased fintech productivity, capital, and labour hours through digitization of financial services.

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