Regulations can accelerate the development of Africa’s FinTech. How? – TechEconomy.ng
African economies are at a pivotal moment. The narrative of Fintech in Africa has mainly been spun around the story of unbanked, poverty alleviation and economic development. But success lies in balancing new benefits and risks, as with any change.
While traditional banks still have a lot to cover in how to solve the problem of financial inclusion, Africa is increasingly dependent on digital and mobile services.
At the last retreat of the Monetary Policy Committee (MPC) held in Lagos, Godwin Emefiele, the Governor of the Central Bank of Nigeria stressed the need to review financial system regulation, supervision and implementation of monetary policy in the country.
He added that while post-COVID growth recovery in Nigeria can be judged to be moderate and stable, “we have seen a major shift in the key sector drivers of this stable growth phenomenon, including the services sector, modernized agriculture and manufacturing, suggesting that technology and innovation play an important role in manufacturing growth and economic development in Nigeria”.
This is important because it reiterates the regulator’s stance on the importance of regulating the fintech sector, particularly new frontiers such as digital assets and cryptocurrencies.
In 2017, the CBN had previously warned that cryptocurrencies were not legal tender and that investors were unprotected. In a circular dated 5 February 2021 (the “CBN Letter”), the CBN had asked all regulated operators to refrain from dealing in and with entities dealing in cryptocurrency.
In October of that year, the Central Bank went on to launch a digital currency with officials at the apex bank saying it would allow financial inclusion and tax benefits to boost the economy.
The eNaira was therefore launched as part of the CBN’s cashless policy to improve cross-border trade, expand access to financial services, increase remittances from a large diaspora base and ultimately grow the country’s economy.
With emerging new asset classes such as Non-Fungible Tokens (NFTs) and Decentralized Finance (DeFi) built on Blockchain technology, it is clear that digital currencies are the next evolution of the fintech ecosystem.
How might this affect the development of fintech in Nigeria? What are the benefits of building a structured and regulated ecosystem that is open to innovation and collaboration between traditional institutions and new operators?
Regulatory frameworks will ensure safety and consistency in policy development
The Nigerian payment system has evolved significantly over the past decade, leapfrogging many of its counterparts in emerging, frontier and developing economies driven by some key reforms by the various regulatory bodies.
The regulatory developments for the Nigerian fintech market have contributed to the ecosystem’s growth as they have demonstrated a commitment to creating an enabling environment that will support innovation in financial services, without compromising the stability of the overall financial system.
Nigeria is also spearheading the adoption of CBDCs in Africa with the launch of eNaira, while the Securities and Exchange Commission also issued new digital asset regulations in May 2022.
In April, the Nigerian Communications Commission held a workshop in collaboration with the Bureau of Public Service Reforms (BPSR) and stakeholders, where it was concluded that Blockchain can be a bedrock for economic innovation and growth through effective implementation of policies and regulations.
While we can still expect some policy harmonization in terms of how regulated entities will engage, it is clear that Nigeria is benefiting from digital economy frameworks and regulatory initiatives enabling new technologies in the country. This is important because a regulatory environment that is clear about its objectives will ensure that decision makers are always aligned.
Promote inclusion by encouraging innovation
The advent of blockchain technology has made it possible to store digital records in a form that is even more permanent than physical records.
Blockchain technology stores many copies of the same records across multiple computer systems in a way that is completely tamper-proof. This makes records on the blockchain less likely to be destroyed than physical ones.
This has created a situation where digital records are increasingly more reliable and trustworthy than physical equivalents.
As the development of the financial system continues, the theme of decentralization will go hand in hand with it. It is inevitable because the conversation about how to ensure built-in transparency and accountability in the relationship between businesses and citizens is not stopping anytime soon. Blockchain technologies are the future and will play a role in empowering both the public and private sectors.
The application of blockchain technology in the Nigerian financial industry is gradually gaining traction as industry players are now using it in their service delivery.
Notably, in 2021, Appzone, a Nigerian fintech software company, announced the launch of Zone, Africa’s first blockchain payment processing platform that facilitates local and intra-African payments in fiat and digital currencies (we understand that a number of commercial banks in Nigeria are currently using the company’s zone product in processing the transactions of their customers).
HouseAfrica is another example of the revolutionary way blockchain technology is being used to solve important challenges.
The company aims to develop intelligent and affordable homes while providing investors with maximum security for funds through the blockchain. In 2020, the company signed a partnership agreement with the Nigeria Mortgage Refinance Company (NMRC) to implement a digital/land title authentication and verification system.
The system will enable individuals and organizations – including financial institutions – to authenticate, validate or confirm the value of any property or land across Nigeria and ultimately improve the volume of mortgage financing transactions in Nigeria.
While blockchain technology remains generally unregulated in the Nigerian financial industry, the adoption of blockchain technology via cryptoassets is now being regulated in certain respects. According to the 2020 SEC Statement on Crypto-Assets, crypto-assets are by default classified as securities unless proven otherwise. Accordingly, the SEC also regulates crypto-token or crypto-coin investments when qualified as securities transactions. Well-defined regulatory guidelines like this will be key to driving further expansion and global use of digital assets, while encouraging innovation in Africa.
Economic impact across continents
Despite the rise of operators and stakeholders pushing for inclusive finance, the digital payment ecosystem across the continent – and indeed within most countries and regions – is “highly fragmented, without an overarching regulatory framework that can tie all the payment solutions together”.
Cross-border payments are often both expensive and slow. This is due to a combination of conflicted regulatory coordination in many regions, and private sector players in the instant payments landscape constantly chasing short-term profits and market share over long-term regional growth and inclusion agendas.
Coordination of regulation will mean greater interoperability of instant payment systems and will help promote peer-to-peer (P2P) interactions, small-scale trade and cross-border e-commerce between African countries.
Conclusion
While no one can predict the future of fintech in Africa, what we do know is that it requires a non-traditional regulatory approach – one as invested in the importance of experimentation and entrepreneurship as the practices it oversees.
