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Date: 12 October 2022

New Opportunities In Financial Inclusion

The financial ecosystem in Africa is reaching an exciting new phase of development, especially in terms of the provision of financial services for the underbanked and unbanked. Inclusive financial institutions (IFIs) focusing on this segment of the market, and rather than traditional banks, continue to be at the vanguard of financial inclusion. For the IFI sector to continue expanding, it must attract additional capital, which in turn requires commercial success.
 The 2010s was a period of rapid evolution in important technologies, including mobile wallets, mobile payments, and means of data acquisition and aggregation. The middle and latter parts of the decade have seen the establishment of a range of businesses that leverage these technologies to originate, distribute, secure, and collect credit or handle other financial services such as insurance.
What is exciting today from an investment perspective is the breadth of opportunities that have now proven their credit models and have started to scale progressively. Investing in these businesses offer an opportunity to include millions of disadvantaged Africans into the formal economy, as well generating attractive returns. These businesses have proven that having a demonstrable developmental impact can go hand in hand with commercial success.

Financial performance in the IFI sector in Africa has always been sharply contrasting between the “winners”, the most successful operators, which have demonstrated credit portfolio quality and built financial performance and scale, and on the other hand, those operators in the sector with a much weaker credit portfolio performance and profitability. A number of the stronger players are successfully transitioning their business models and credit lifecycles to digitalise, as well as introducing new all-digital products, to manage operating costs per loan and credit performance. Other businesses are “digital-natives”, typically established in the last decade, with tech-driven business models and no legacy costs or assets. We benchmark many of these digital-native businesses to be amongst the top-quartile of performers in the IFI sector overall.

Over time, a key challenge, and a key opportunity is to expand the offering outside the anchor product. Ideally, the new products should leverage the core qualities of the anchor product, for example, how the product originated or how the financing is secured.

This article is a summary of the full article which appeared in the Africa Global Funds magazine. The article can be found here: 
https://verdant-cap.com/wp-content/uploads/2022/10/agf_digital_magazine_september_2022-1.pdf

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