Kenyan finance and technology (Fintech) start-ups take a lion's share of 99 per cent of all funding in the region - leaving Uganda, Rwanda and Tanzania to share the remaining 1 per cent, a new research report has shown.
The study, which looks at Fintechs in the region, was supported by Financial Sector Deepening Uganda (FSD), East African Venture Capital Association, UKaid, and FMO bank.
“The East African technology support (hubs, incubators and accelerators) is concentrated in Nairobi, ‘Africa’s Silicon Valley’, said the study titled Fintrek, exploring new frontiers in Fintech investments in East Africa. “Very few ecosystem support players also exist with Tanzania and Rwanda having only one tech incubator.”
It is little wonder then that Kenya, the biggest economy in the region, had its tech companies receive the highest amount of funding between 2010 and 2017. Fintechs in the region received up to $206.4 million in investment between 2010 and 2017 but 99 per cent of this money went to Kenyan established Fintechs.
Also, locally owned Fintechs had fewer deals compared to foreign owned deals with the latter having at least 105 Fintechs able to raise money compared to just 63 in the former category between 2010 and 2017. The report also found limited funding from local sources with more than 80 per cent of funding into Fintechs in East Africa originated from outside Africa.
It also pointed out that there was lack of specific Fintech support for start-ups in the region thus very generic support is provided.
Meanwhile, the report shows that Fintech partnerships have centred on the multinational organisations due to their large customer base, marketing and distribution capability as well as brand credibility.
But even then, some of these partnerships lack of open Application Programming Interfaces (APIs) – standards that allow software components to communicate and exchange information – between the players which hinders effectiveness of these partnerships.
“The region has a huge gaps in a key Fintech talent including data scientists and software engineers. Academic institutions are focused on theoretical rather than practical learning,” the report said.
Very few partnerships witnessed between incumbents and non-telco Fintechs as competitors, rather than collaborators.
Evans Osano, the capital markets development director at FSD Africa, said: “The Fintech sector in East Africa is gaining momentum and has grown tremendously. Fintech innovations continue to disrupt financial markets. We expect this disruption to spread further into the capital markets,” Osano said.
Jacqueline Musiitwa, the FSD Uganda executive director, said the report highlights that Africa attracted $2.2 billion in venture funding between 2010 and 2016 - is no doubt that Fintechs are key solutions for Uganda to meet its financial and technology inclusion goals by 2022.
“I affirm that to achieve this goal, there needs to be collaboration and commitment by all the relevant players ranging from the government to the private sector,” Musiitwa said.