In a recently released report, the European Investment Bank (EIB) reveals that the size of the fintech sector in Africa has almost tripled since 2020, bringing vital financial services to underserved communities across the continent. However, the report, Finance in Africa 2024, also highlights significant obstacles to growth: high financing costs and limited capital, which are hampering Africa’s climate and digital transitions.
“Fintech is revolutionizing the way we think about finance in Africa,” said Thomas Östros, Vice-President of the EIB. “By leveraging technology, we can improve access to finance for millions of people and drive sustainable economic growth. »
The rapid expansion of digital finance solutions is changing the African financial landscape, with fintech companies growing from 450 in 2020 to 1,263 at the start of 2024. This boom increases access to credit, particularly benefiting small businesses and marginalized populations, according to the ninth annual report of the EIB. The banking sector in Africa is investigating.
As digital solutions flourish, the traditional banking sector in Africa faces considerable challenges. About a third of African banks reported a lack of capital and cited funding costs as obstacles to growth. These constraints contribute to the decline of credit to the private sector in Africa, which has fallen from 56% of GDP in 2007 to 36% in 2022, hampering progress in industrialization and economic resilience.
Debora Revoltella, EIB Chief Economist, highlighted the urgency of addressing these challenges to unlock Africa’s potential. “While we are seeing some signs of improvement, the high cost of financing remains a cause for concern. As we confront the twin challenges of climate change and digital transformation, the role of multilateral development bank lending is even more relevant in supporting sustainable growth on the continent.
The report highlights Africa’s increased vulnerability to climate change, with 34% of banks surveyed reporting a deterioration in the quality of their assets due to extreme weather events. Small and medium-sized enterprises (SMEs) are particularly affected, as climate-related risks undermine their resilience and solvency. Revoltella’s call to action highlights the need for financing models that can absorb climate risks while promoting economic growth.
Another notable trend identified in the report is gender-responsive lending. Nine out of ten banks in Africa are considering or implementing a gender strategy, encouraged by data showing better lending performance among women-led businesses. Nearly 70% of banks reported a decline in non-performing loan rates for women-owned businesses, and 17% plan to introduce a dedicated gender equality strategy to expand this promising avenue.
Economic conditions in Africa are gradually improving, with falling sovereign bond yields giving several countries new access to international bond markets. However, the EIB Financial Conditions Index still shows that overall financial conditions are restrictive, posing challenges to private sector growth.
EIB Global, a division dedicated to international partnerships, seeks to fill these financial gaps by supporting sustainable investments in Africa. Through initiatives such as Global Gateway, EIB Global aims to mobilize €100 billion in investment by 2027, with a particular focus on digital infrastructure and climate resilience.
Finance in Africa 2024 The report provides a comprehensive analysis of the structural opportunities and challenges facing the African financial sector. As fintech continues to transform the region’s financial services, the EIB report highlights that easing financial barriers and investing in climate adaptation are essential steps towards a sustainable and inclusive economic future in Africa .
Originally published in The European Times.
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