How Digitalization can Finance Sustainable Development Goals
Edmund Higenbottam, Managing Director of Verdant Capital – IMAP South Africa, looks at how digitalization is enabling businesses in the Fintech sector to finance their Sustainable Development Goals (SDGs).
Greater Data Availability Increases Cost Effectiveness
The increased availability of data has created an advantage for fintechs in Africa. Likewise, there have been significant changes to the ecosystem and how data is aggregated, collected, screened, and measured, be it for mobile money, mobile wallets, or mobile payments, all of which greatly enhancing the cost effectiveness of providing financial services.
This means that many of the mature financial services businesses we are investing in are now in a bid to modernize and move into the digital area, transforming and updating their business models, both in terms of new products and digitizing their loan life cycles. One such example of this is LOLC, one of our investments, which has been very successful in digitizing its lending processes.
The Evolution of Digital Payments is Paving the way for Financial Inclusion
We expect to see an increase in opportunities for fintech companies and mobile network operators (MNOs). There is growing evidence that digital payments improve access to payment data, route to market, transaction efficiency, reduce costs, and drive financial inclusion.
The significant growth in mobile phone subscriptions in Africa has created new opportunities in the market for mobile financial services, resulting in a remarkable increase in the previously unbanked population gaining access to financial services through digital channels. This aligns with the broader continental goal of leveraging technology to bridge the financial inclusion gap that has long existed thus empowering marginalised communities.
The digital transformation of lending in Africa has witnessed significant progress and it’s clear that the fintech companies have emerged as the key players. We have observed MNO-driven lenders making small loans through mobile wallets, several of which have been very successful. The ultimate goal is to reach the unbanked population at the bottom of the pyramid and these lenders have clearly demonstrated that digital lending can positively impact financial inclusion and by partnering with MNOs it gives them an advantage in the market in terms of increased access to market and scaling their business. We hope to see investment opportunities from both the credit and payment parties as they look to exploit this synergy.
Creating a Positive Impact Without Compromising Commercial Return
High impact generates high returns when we talk in terms of a market that’s currently highly underserved. For example, providing financial services to those at the bottom of the pyramid that until now, have been excluded from the formal financial system. Developing technologies enables you to serve the market while yielding a competitive commercial return.
Mature Businesses Are Driving Investment Opportunities
More and more mature businesses are gaining access to the financial services offered by these lenders. This means there are a lot of opportunities to deploy equity, junior debt, and mezzanine capital into the investment base and get a good return.
