Financial regulation in Africa is a hard problem for fintech startups and companies. Regulation is different across the countries in Africa, and different in difficult ways. I think that’s why fintech startups struggle to scale in Africa. They have to solve expensive regulation problems before they can even begin to execute their roadmaps. That means they are burning through more cash before they’ve even started selling products. It’s tough, and the reason you see so many fintech startups in Kenya, where the regulator has taken a lighter touch.
I’ve met regulators in three African countries, and prepared teams for three more. Regulators are not nefarious, nor do they sit in their offices plotting how to make company’s lives more difficult. Every regulator I’ve met has risk at the front of their minds when I’ve spoken to them about mobile finance. The five main areas usually highlighted are:
- Risk to local partners: The regulator wanted to be sure that any local partner was protected, that the business model was acceptable, and that we were not selling a platform and disappearing.
- Portfolio risk: That our mobile finance platform would not introduce additional risk into our partner’s portfolio, nor be unmanageable by our business if we own the portfolio.
- Customer risk: That customers would understand the risk of using the product, considering it requires no collateral.
- Fraud Risk: Related to systemic risk, in that the product itself had adequate protections from bad actors.
- Systemic Risk: Considering the massive scale of the platform, that the product would not introduce systemic risk into the economy.
Each regulator will have their own approach to these five risk areas. Some will be more focused on portfolio risk, while others care deeply about customer risk. Regulators genuinely care about their countries, and think deeply about how new products and platforms will change the landscape. Change is difficult to manage in economies, so it’s no surprise regulators often take longer than you expect. We’ve been in discussions with one regulator for over a year now. Were getting there, but we are in an enviable position because we can afford to wait. Startups can’t afford that. I think if regulators want to see better lives for the people in their countries, they should be more proactive in bringing startups to their countries, rather than waiting for the change to come to them. The best and fastest solution is to tackle the problems together.