An Africa-wide regulatory platform is needed to harness the continent’s potential for innovation in financial technology, according to members of the AFIS Advisory Board, a network of leading financial industry decision-makers in Africa.

Financial innovation is an extraordinary growth engine for Africa. The continent’s fintechs raised approximately $1.3 billion in investment in 2021 alone with players like OPay and Interswitch in Nigeria and Wave in Senegal reaching unicorn status (valuations of over $1 billion). Their success is based on a promise that previously seemed out of reach: to give hundreds of millions of Africans access to financial services.

Yet the rapid growth of fintechs has also raised concerns among the public and regulators alike. In Kenya, one in five borrowers [ON1] using fintech platforms have difficulty repaying their loans, a rate twice as high as in the conventional banking sector. In Nigeria, the National Information Technology Development Agency (NITDA) is concerned about the protection of user data and the sometimes-questionable collection practices of fintechs.

Appropriate regulation providing checks and balances while supporting these new financial players to develop is thus of paramount importance to extend financial services to the 57% of unbanked Africans. Consumer protection will be essential both to create confidence among new users of financial services and to ensure a level playing field with traditional banking players.

This is why we are convinced that it is necessary to develop a pan-African regulatory platform to keep pace with rapid technological progress. This platform, which would bring together central banks, fintechs, traditional banks and insurers, would help harmonise licensing rules in Africa, develop financial inclusion and better protect consumers.

To achieve this, we have identified several levers to activate.

Pan-African regulatory platform

National central banks are the overseers of financial regulation but face ample challenges keeping pace with innovation. This is a bottleneck for fintechs, banks and insurers looking to expand financial inclusion across Africa through blockchain, P2P-lending or other emerging technologies.

The Central Bank of Morocco (Bank Al Maghrib) for instance introduced a regulatory framework for payment institutions in 2014 but has since acknowledged the rules had been unclear for fintechs hoping to break into the Moroccan market. The bank has now opened an innovation office to have an open dialogue with fintechs, helping it to explain and if needed adapt current regulation accordingly.

We see scope for a pan-African platform allowing regular discourse between financial innovators and central banks. A pan-African platform would allow central banks to abreast of financial innovation and help harmonise national regulatory frameworks. This could allow financial innovations to operate seamlessly in multiple African markets and more rapidly reach Africa’s underserved population.

Existing innovation hubs, incubators and fintech networks across the continent could be leveraged for input from startups, while associations such as the Association of African Central Banks (AACB) can help the regulators unite. The platform could also be a win for consumer protection by bringing novel technologies currently outside of central bank licensing regulations – such as mobile money lending – within its scope without harming innovation.

Converging sandbox regulatory frameworks

We also encourage regulatory sandboxes – permitting fintechs to test financial product innovations without regulatory constraints – to converge regionally.Regulatory sandboxes first emerged in the UK in 2015. The idea has since expanded globally and is gaining pace in Africa. Sierra Leone, Kenya, Rwanda and Mozambique were early African adopters, while Ghana this year launched a sandbox pilot and Nigeria introduced a regulatory framework. Sandboxes can be a vehicle to introduce and scale financial innovation, while offering SMEs working capital and creating an ecosystem for other players to innovate with similar products.

Yet the sandboxes emerging in a small handful of African countries have been at national level and have been slow and expensive to setup. Africa’s sandboxes also vary widely in eligibility criteria, length, and priority financial innovations. This can deter credible innovators from applying and creates a barrier for a tried and tested financial innovation coming out of a sandbox in one country to expand to another.

A regional or pan-African sandbox framework could open the possibility of cross border sandboxes arrangements, allowing an innovation to be trialled in multiple countries at once. Two years ago, the Central Bank of West African States launched a FinTech Task Force, which has among its objectives a West African sandbox spanning multiple countries. We encourage further arrangements across the continent.

Mobilising industry associations

The AFIS Board finally urges regulators to leverage international and pan-African industry associations to support Africa’s financial innovation infrastructure. Sandboxes, innovation hubs and incubators are cost and resource intensive for regulators and have taken significant time to roll-out in some African nations.

Cash-constrained regulatory authorities can do more to call upon African and international industry associations resources for capital and operational support. The Global Financial Innovation Network (GFIN), the Africa Fintech Network, the African Crowdfunding Association and West Africa Bankers Association are among the associations that could be mobilised.

We conclude that a pan-African regulatory platform and harmonised sandboxes, both reinforced by industry associations, will create a robust and dynamic regulatory infrastructure that can catalyse financial inclusion across the continent. Financial innovation cannot work in the long term without the confidence of both consumers and governments. The sustainable financial inclusion of hundreds of millions of Africans depends on it.