Digital lending set for exponential growth in Africa
The African continent will see a rapid growth in digital lending in the coming years. This is according to Thabo Molefe, the newly appointed senior director for TransUnion's African operations outside of South Africa.
TransUnion announced Molefe's appointment last week. Molefe, who took up his new role on 24 August 2020, has a deep knowledge of the African marketplace, having operated across the continent in a senior capacity for almost 20 years. He has previously fulfilled leadership roles at both LexisNexis and technology giant HP, says Lee Naik, the chief executive officer of TransUnion Africa.
Molefe takes responsibility for business development, stakeholder and regulatory engagement, and overall operations in seven countries in East and Southern Africa in his new role. Outside of South Africa, the company has operations in Kenya, Rwanda, Zambia, Namibia, Botswana, Eswatini and Malawi.
Biztech Africa interviewed Molefe about why he believes that Africa will see a rapid growth in digital lending ( what measures he used to quantify the predicted growth and what the key drivers for that growth were). Additionally, what did the projected growth mean for Fintech industry?
Molefe notes that according to the July 2020 report by the IMF, Africa and Asia have seen the largest increase in digital payments, with East Africa, China, and India taking the lead.
The GMSA’s annual State of the Industry Report on Mobile Money also reports that 50 million new mobile money accounts were created on the continent in 2019. This is a 12% increase in registered users, bringing the total number of users up to 469 million across the region. An estimated 181 millions of them are active users, Molefe says. He adds that the total value of the 23.8bn transactions carried out in 2019 exceeds $456bn, representing a nearly 28% jump compared to 2018.
“When tracking the growth of the sector, we look at several key measures: the number of mobile loan users, the total number of accounts and the total value of new loans booked,” Molefe says. The IMF takes it even further to look at measures like the value of mobile money transactions as a percentage of GDP – and in Africa, this ranges from 20% in Senegal to 140% in Zimbabwe, he says.
Molefe highlights South Africa and Kenya as the two biggest countries where TransUnion has operations. “Kenya was the birthplace of the global mobile money phenomenon in the last 2000s, and it continues to grow. TransUnion’s latest data shows there are around 9.1 million mobile loan borrowers in Kenya (down from 10.2 million in Q1 2020), with an average of 11 mobile loans each. Today, mobile loans make up 74% of loan accounts offered by the banking sector,” he says.
In South Africa, fintechs are making significant inroads as digital lending starts taking off, but most activity is centred in the major urban business centres of Gauteng and Western Cape provinces, which suggests that awareness of the local fintech industry is still relatively low.
Molefe adds that the key drivers for this rapid growth include Africa’s booming mobile network, which has provided the infrastructure for mobile money; convenience; low entry levels (basic feature phones are sufficient, and it is simple to use); and a lack of banking networks in remote and rural areas. “But perhaps the biggest driver right now is COVID-19, as mobile lending is reducing or eliminating the need for physical interactions and the need for cash.”
Opening up opportunities
On the benefits of these developments, Molefe sees consumers and the fintech industry as the potential winners. From poor households to SMEs, digital lending has opened up opportunities for far wider sections of the population to participate in formal economic activity, he says.
“Digital lending is quick and easy: by using alternative scoring data, under-banked and unbanked consumers are catered for,” he says. Consumers don’t need formal credit records, and don’t have to physically go into a lending institution,” he says. Importantly, many of these loans are micro-loans, which have given consumers, small businesses and farmers across the continent the ability to overcome a lack of cash flow to become part of the economy.
As for the fintech sector, Molefe says that there’s no doubt that fintechs represent the new era of financial services. “They’re not only bringing new products, services, and channels to the table: they’re also creating value with differentiated consumer experiences, and empowering the consumer by providing frictionless, multi-channel financial access.” Digital lending is set for exponential growth in Africa in the coming years – and that’s great news for consumers who’ve been excluded until now.