The startup ecosystem in Africa is currently thriving and this is especially true for financial technology or fintech. In 2021, Africa received $4.9 billion in funding and an estimated $300 million resides in undisclosed deals. 62% of this funding was captured by the fintech sector, followed by health and biotechnology, logistics, education, clean technologies, agriculture, e-commerce, mobility and the data sector and of the analysis. Growth has doubled in total volume since 2020 and a 25% growth in announced deals recorded since 2020. Most funding has gone to Nigerian start-ups, followed by South Africa, Kenya and India. ‘Egypt.
Fintech is a growing industry
The largest share of funding went to fintech start-ups. More than two-thirds of the total funding went to fintech start-ups and this trend is confirmed even when it comes to deals over $50 million. Fintech startups outpace both volume and funding activity.
The top 20 deals of 2021 that Africa managed to secure covered 65% of the total volume. Much of the fund came from the United States and the United Kingdom. In addition to this, Asian players also join investment agreements when it comes to larger investment rounds. Even if the investment was quite good, it should be noted that only 8.2% of the transactions went to companies led by teams co-financed entirely by women.
Why do fintech companies choose the majority of investments?
The dominance of fintech in Africa raises the question of why fintech? Surely it is not because they make a profit equivalent to Dhankesari but much more than that. Investor interest in fintech companies can be attributed to the increased penetration of mobile phone usage and internet penetration. It is expected that by 2025, half of the population of the African continent will become mobile subscriber users. With increased mobile phone penetration, growth can be seen in the adoption of digital payments, such as receiving the winning sum from events like the Sambad lottery through online methods, loans, payment services, etc. insurance and banking services.
With the population growing, Africa has huge potential with its growing economy and underdeveloped financial services ecosystem that has huge potential for growth. With an increase in internet penetration, start-ups that deal with digital and mobile payments are attracting more attention from investors. The digital payments space in Africa has also seen the highest growth in terms of funding within the fintech space. With Africa’s adoption of mobile phones and internet penetration, it is now possible to move away from the restrictive traditional banking infrastructure.
Currently, Africa has an unbanked population and is massively underbanked. However, Africa’s middle class is growing and communications infrastructure continues to develop in Africa alongside increasing mobile phone penetration, which presents a huge platform for mobile financial services and fintech innovation.
According to a report by McKinsey & Company, Africa is the world’s second fastest growing and most profitable payments and banking market. This indicates that investor interest in this sector will still be high and more funding can be seen in this sector. Currently, Africa is the global leader in silver adoption.
Even though the funding has been huge for Africa, it should be noted that the bulk of the funding has gone to a very small number of startups. The same can be said with the fact that only 20 companies managed to raise a fund of $3 billion and the other 700 startups together raised a fund of $2 billion.
Which startups got the most funding?
The start-ups that have managed to secure the most funding are Flutterwave which raised $170 million, TradeDepot secured $110 million in funding, Kuda raised $80 million and it was followed by Moove which raised raised $63.2 million in funding and Daystar Power seized $62 million in funding in Nigeria.
With the high financings of the African continent, more and more investors are joining different financing rounds in Africa and this also creates many jobs in the continent. Community employment can certainly be seen as an outcome of these start-ups which reduces the unemployment rate and helps improve the country’s economic prospects.