Identity crisis: How KYC rules are stunting Nigeria’s financial inclusion
This article was contributed to TechCabal by Kingsley Ndimele and Kehinde Durodola-Tunde. The 2022 McKinsey Report revealed that the financial service market in Nigeria has a potential yearly growth of 10% and projected revenue of $230 billion by 2025. The Fintech sector in Nigeria contributes 33% of this market. However, the EFinA 2023 A2F Survey states that 28.9 million adults are financially excluded in Nigeria. This exclusion is significantly due to the limitations of KYC regulations from the financial institutions in Nigeria. Know Your Customer (KYC) guidelines are vital, multi-layered components of financial procedures in Nigeria. They are accompanied by sustained supervision of customers’ transactions and activities. These due diligence and identity checks operations are targeted to counter terrorist financing, money laundering, and other financial crimes in the country. According to the World Bank Group’s 2018 ID4D Global Dataset, almost 1 billion people lack official distinct identities globally. This is common among people living in developing countries. Nearly 500 million people living in Sub-Saharan Africa lack legal identities. That is 46% of the entire African population. Of all developing economies across the world, sub-Saharan Africa ranks the lowest. Amidst the Covid-19 crisis, FATF introduced regulations for digital identity for financial institutions to onboard users and offer financial services digitally. Gallup World Poll 2018 data revealed that mobile phone ownership among adults in emerging economies had increased to 83%. The 2022 McKinsey Report showed that one out of every 10 transactions in Africa are now digital. Consequently, fintech startups have become critical players in the African financial services sector. Digital financial services have brought about online KYC verification using integrated API systems to validate identity documents and authentic pictures uploaded or scanned by the user. Disrupt Africa’s Finnovating for Africa 2023 report estimated that there are 217 fintech companies in Nigeria. This figure speaks to the significance of identity verification in Nigeria’s financial service sector. Initiating KYC processes is essential but not without difficulties. It is challenging to match seamless onboarding with KYC regulatory compliance. ABBYY Survey 2022 Report revealed that 90% of organisations witnessed their customers switch to a rival fintech because of inefficient onboarding experience. McKinsey reported in a 2022 Survey that 40% of user onboarding time is allocated to KYC procedures. The KYC regulatory framework is dynamic. Numerous KYC guidelines from different authorities must be adhered to, and they change often. Therefore, adapting to technology and dynamic guidelines is challenging. Incorporating KYC procedures with the current onboarding framework is usually challenging because various systems have different abilities, and data swap needs extra development inputs to function seamlessly without considerable alterations. After verifying over 100 million identities in Africa in the past five years, Smile ID reports that 80% of fraud attacks in Africa are targeted at national ID documents. There is an absence of cross-border harmonisation. EY reported that the global cross-border payment industry was projected to be approximately $156 trillion in 2022. The need for clear regulations on regional transactions for tier 3 and tier 2 accounts hinders the positive effect of the system on Nigeria’s huge remitter society. According to the LESG KYC Compliance survey, the average yearly spend on global KYC is US$48 million. Celent predicts that financial institutions worldwide will incur approximately $37.1 billion in 2021 on AML-KYC compliance operations and technology, aside from the cost due to increased customer churn and time investment. In June 2024, KYC regulations by the CBN requested compulsory physical address verification for fintech companies. This applies to every user and POS agent. For a country with a rural population of over 101 million (according to the World Bank collection of development indicators), proof of address is still explicitly demanded as a KYC requirement for tier 1 accounts in Nigeria. Financial institutions still require specific utility bills (issued by electricity distribution companies) as proof of address for identity verification. This makes it difficult for fintech companies to onboard the unbanked in rural areas who use clan-based address systems instead of house numbers. Most of these rural dwellers are not served by electricity distribution companies. The Nigerian Electricity Regulatory Commission 2019 Q2 Report showed that 43% of those who have electricity do not have meters for proper bills. According to WASH 2021 Survey Findings, 33% of the Nigerian population does not have water delivered to them. More so, it is not easy to verify addresses in gated estates. KYC compliance issues, such as a lack of scalable KYC solutions, make cost-effective compliance and holistic maintenance difficult for fintech companies. Traditional KYC procedures, paper-based documentation and manual data entry result in a higher probability of mistakes, inefficiencies and delays. Inaccurate and incomplete data, data privacy issues, and time-demanding and time-consuming KYC procedures significantly affect customer acquisition, experience and retention. The EFInA Access to Financial Services in Nigeria 2023 Report showed that approximately 6% of Nigerians are excluded from accessing financial services due to a lack of KYC identity documents. The financial exclusion rate in Nigeria is about 26%, while the rural exclusion rate is approximately 37% (A2F 2023 Survey Report). Some causes of financial exclusion include the NIN Barrier, BVN limitation and lack of access to KYC identity documents. Furthermore, tiered KYC excludes customers without high-value accounts from performing complete financial transactions. Only basic financial transactions are permitted on tier 1 accounts. Drawing lessons from countries like Brazil, South Africa, Bangladesh, Indonesia, Malaysia, Peru, Egypt, Tanzania, Uganda, Eswatini, and Gabon that have achieved impactful regulations, innovative solutions and effective KYC implementation for their financial institutions, Nigeria needs to introduce new policy innovations and review its existing regulatory Frameworks. To facilitate this, a bill that mandates the identity documentation and digital birth registration of every child between 0-5 years should be passed into law. Proof of Address and utility receipts for KYC verification may be made alternative or absolved for Tier 1 accounts that use clan-based address systems or are unserved by utility firms. A collaborative effort by regulators, fintech innovators, policymakers, and agents is needed to enable fintechs to launch
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Flutterwave will accept American Express card payments as AMEX continues Africa push
African payments giant Flutterwave will allow Nigerian merchants to receive payments from American Express card customers as the credit card provider continues its push into Africa. In 2023, American Express cards were launched in Nigeria through a partnership with Access Bank, and by May 2024, AMEX had launched four new credit cards in Nigeria. The company has also partnered with payment processors and banks on the continent, where cash is still the preferred payment method, according to one Bloomberg report. With the new partnership, Flutterwave merchants will unlock a new customer base of American Express card users in Africa and around the world. It will also give shoppers more payment options when dealing with Flutterwave merchants. “This is one of our initiatives to ensure that more people across the world can pay using Flutterwave in Africa. We understand the value of providing shoppers with payment methods that work for them, as well as helping businesses to expand their customer bases, Olugbenga Agboola, Flutterwave CEO said. Flutterwave will later extend the service to merchants in its other African markets—including Tanzania, Rwanda, Ghana and Uganda. “The collaboration is a win-win because it also increases the number of places where our Card Members can use their Cards in Nigeria,” said Briana Wilsey, Vice President and General Manager of Global Network Services EMEA at American Express. Have you got your early-bird tickets to the Moonshot Conference? Click this link to grab ’em and check out our fast-growing list of speakers coming to the conference!
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IHS Towers lays off 100 employees as devaluation in Nigeria erodes profits
IHS Towers ($IHS), the world’s fourth-largest independent tower company, has laid off over 100 employees as currency devaluation in Nigeria, its biggest market, squeezes its profits. One person with direct knowledge of the business told TechCabal that the layoffs, which cut across several departments, mostly affected senior employees and the network surveillance team. Most of the affected senior employees have spent a decade at IHS Towers and received “significant” severance packages, the same person said. “[The company said] it was not because of underperformance but because of the economy,” they added. IHS Towers did not immediately respond to requests for comments. Since 2022, IHS Towers has faced pressure from investors over its poor financial performance. The company lost $409 million in the fourth quarter of 2023 after a currency devaluation in Nigeria shrunk revenues and caused FX losses from USD loans. The company, which currently employs 1,600 people, reported a $1.9 billion loss in 2023, a 304% increase from the previous year’s losses. Its market capitalisation is $1.3 billion, a $6 billion decline since 2021. While its share price has slightly rebounded in August to $3.56 after trading at $2.98 in July, it is still a far cry from the highs of 2021, when it sold for $21. IHS Towers operates over 40,000 towers in Africa, roughly 25% of the continent’s entire tower infrastructure, which it leases to telcos like MTN and Airtel. This service is crucial for Africa’s digital economy plans, as towers provide the backbone for internet connectivity. However, rising fuel prices, maintenance costs, inflation, and FX volatility in Nigeria—which accounts for over half of IHS’s sales and revenue—have threatened the business. In the first quarter of 2024, the business spent $88.8 million on power, its largest operating cost. “The company used more than $1.5 billion in cash last year for investing activities, but the line items on the company’s published statement of cash flows for such investing activities are not explained in any meaningful way,” a shareholder said in a June 2023 letter. Gimba Mohammed, the director of government and external relations at IHS Towers, said at a conference in August that it cost the business more than ₦14 billion to fix fibre cuts between 2022 and 2023. Why IHS Towers is facing a shareholder revolt
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👨🏿🚀TechCabal Daily – A renewed hope in investing
In partnership with Lire en Français اقرأ هذا باللغة العربية Good morning We’re excited to announce our partnership with Wimbart on the second edition of their pioneering pan-African research publication, “Startup Performance Reporting in Africa”. This report will shed light on the intricacies of investor relations within the African tech ecosystem. If you’re a founder, take a couple of minutes to share some key insights with us by filling out this survey. Inside Renew Capital’s move to invest in West African startups Ghana moves to regulate crypto MTN liquidates Visafone Kenya plans for an eco-levy The World Wide Web3 Events Investment Inside Renew Capital’s move to invest in West African startups Image source: TechCabal At the beginning of August, Ethiopia floated the birr, ending years of strict currency controls. As with many countries with currency controls, repatriating money could be impossible. Here’s what that looks like if you’re a foreign investor: you could invest $1 million in that country, make 10x but struggle to get your profits out of the country. We’ve seen this play out in Nigeria in 2021, with companies using unorthodox ways to get money out of the country. If you make money in a country but can’t get it out, it might as well be monopoly money, and if you’re an investor, when you get your money out, you want to move to a country or region where FX policy is market-determined and predictable. It’s unclear if that was Renew Capital’s experience in Ethiopia, but CEO Matt Davis concedes the firm learned lessons. After 10 years of investment, it figured it would look to other parts of Africa. The VC firm now invests in asset-light and tech-enabled businesses in West Africa and North Africa. It has started its investment in West Africa by investing in Affinity, a Ghanaian digital bank. Renew Capital invests through two funds: a $6 million angel syndicate and a $15 million follow-on fund. It invests between $50,000–$500,000 in startups in its accelerator, and gives a follow-up of $1.5 million to startups that meet its metrics set during the accelerator. The VC firm employs an unusual method of vetting founders including giving founders exercises to see how they perform. The VC firm believes in backing founders who are trustworthy, focused, and very disciplined. While Davis has learned a lot of important lessons in investing, he believes the biggest lesson yet is continuous learning. To learn more (pun intended) about Renew Capital and its investment thesis, read the full interview here. Read Moniepoint’s 2024 Informal Economy Report Did you know that 57.7% of the business owners in Nigeria’s informal economy are under 34 years old? Click here to find out more about the demographics of Nigeria’s informal economy. Regulation Bank of Ghana to issue new VASP licences Image source: CCN Ghana wants to regulate its crypto industry. In a recent draft framework, the Bank of Ghana (BoG) outlined the processes that VASPs and other crypto players operating in the country must take to avoid regulatory non-compliance. BoG said that the high popularity of crypto has made it necessary to regulate digital assets—deviating from its earlier stance to ban all crypto transactions. In a similar fashion to other African countries that have made plans to regulate crypto, Ghana will soon issue VASP licences to crypto operators in the country. The released framework emphasises that Virtual Assets Service Providers (VASPs) must provide financial trading accounts, carry out customer due diligence to ensure risk compliance with anti-money laundering (AML) policies, and operate physically in the country. BoG also stated that VASPs must apply for their licences within a specified timeline once its regulatory framework is finalised. Companies that do not apply within this period will be chalked up as operating illegally in the country. It’s not surprising that cryptocurrency adoption has grown rapidly in many countries—especially in Africa—despite attempts to suppress it. When governments fail to regulate a technology that attracts many users, it often flourishes underground. The mistake made by many African countries, and others worldwide, is their failure to understand cryptocurrency. Instead of trying to comprehend and effectively regulate it, they opt for the simpler but less effective approach of attempting to suppress it entirely. The changes now suggest they’re adopting another approach. Collect payments anytime anywhere with Fincra Are you dealing with the complexities of collecting payments from your customers? Fincra’s payment gateway makes it easy to accept payments via cards, bank transfers, virtual accounts and mobile money. What’s more? You get to save money on fees when you use Fincra. Get started now. Companies MTN liquidates Visafone Image source: Premium Times Nigeria For those who nostalgically recall the names Visafone, Multilinks, and Starcomms, you’re likely part of a select group who lived through Nigeria’s early mobile era. These pioneering networks, the last of the country’s CDMA breed, relied on technology that now seems quaint, dwarfed by the speed and efficiency of GSM and LTE networks. Before the NCC phased out CDMA in 2019, Visafone, the country’s last CDMA operator, had an 800MHz LTE spectrum licence needed for 4G mobile network services. Although the company was struggling and neck-deep in debts, MTN acquired it for ₦43 billion ($26.9 million) to use its 800MHz spectrum to launch fourth-generation Long Term Evolution (4GLTE) services which it would use to compete with Glo. Jim Ovia, CEO of Visafone at the time said that acquisition was necessary as the company didn’t have the ingredients needed to compete with other telecom companies. That partnership may have well served its cause. MTN’s financials for the first half of 2024 showed that the telecom has liquidated Visafone after recording losses of ₦30.3 billion ($18 million) on the 2016 acquisition. The move marks the final chapter in Visafone’s journey. Paystack Virtual Terminal is now live in more countries Paystack Virtual Terminalhelps businesses accept secure, in-person payments with real-time WhatsApp confirmations and ZERO hardware costs. Enjoy multiple in-person payment channels, easy end-of-day reconciliation, and more. Learn more on the Paystack blog →
Read MoreKenya Airways is profitable for the first time in a decade, posts $3.9 million net profits in H1
Kenya Airways has reported its first profit since 2013, driven by higher income and lower operating costs. The national carrier posted a $3.9 million (KES513 million) net profit in H1 2024, a 102% increase from the previous year. This is a major reversal of fortune for the company, which posted a $168.3 million (KES21.7 billion) loss in H1 2023. The company is eyeing its first full-year profit in over a decade next year. “It goes to show what we can do as an airline. There is still room for improvement, and the board is happy with these results,” Michael Joseph, Kenya Airways chairman, said at an earnings call on Monday. KQ’s total income rose 22% to $709.8 million (KES91.49 billion). Its operating costs dropped by 22% to $699.8 million (KES90.20 billion). Allan Kilavuka, the airline’s group managing director, said that KQ is looking to break even by the end of 2024. “We are not there yet, but this is a significant milestone that indicates our intention to continue transforming this organisation to a fully stable and sustainable airline so this is something we want to celebrate,” Kilavuka said. The carrier, which the government holds a 48% stake in, was insolvent in 2018 after years of expansion left it with huge dollar-denominated debts.
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OAU DE screening exercise for 2024 admission begins
Obafemi Awolowo University (OAU) has announced the start date for the Direct Entry (DE) screening exercise for the 2024/2025 academic session. Here’s everything you need to know about the OAU DE admission 2024 process: Registration starts on 19th August 2024 Direct Entry candidates can begin their registration for the screening exercise on Monday, 19th August 2024. This is a vital step for all DE candidates seeking admission into OAU, so early registration is strongly advised. What to expect during the screening No additional exams: Direct Entry candidates will not have to sit for any further exams. The screening will focus solely on the verification of credentials. Document submission: Ensure all required documents are correctly uploaded during registration. This will be the primary basis for your eligibility assessment in the OAU DE admission 2024 process. Important documents for OAU DE admission 2024 Candidates applying for OAU DE admission 2024 should ensure they have the following documents ready for upload: Direct Entry form: The official DE form filled out and submitted during the JAMB registration. O’Level Result: Original and photocopies of your O’Level result(s) (WAEC/NECO/GCE), showing at least five credits in relevant subjects. A-Level result: For candidates who completed A-Level studies, include your A-Level result or its equivalent (e.g., IJMB, JUPEB). Diploma certificate: For candidates who obtained a diploma, include the certificate and transcripts from the awarding institution. Birth certificate: A valid birth certificate or sworn affidavit of age declaration. Recent passport photographs: A clear, recent passport-sized photograph meeting the university’s specifications. Key steps for candidates Register early: Avoid last-minute issues by starting your registration as soon as the portal opens. Double-check documents: Ensure all your academic credentials are correctly uploaded to avoid complications during verification. Final thoughts on OAU DE screening exercise for admission cycle The OAU DE admission screening exercise is a significant part of the admission process. Staying organised and following the instructions carefully will help secure a place in the Obafemi Awolowo University.
Read MoreMTN liquidates Visafone, recognises $18 million loss years after winning spectrum battle
MTN has liquidated Visafone, recognising a loss of ₦30.3 billion ($18 million) on the 2016 acquisition of Nigeria’s last-standing CDMA network. “Following the absorption by MTN Nigeria, Visafone is now fully liquidated,” a note in its H1 2024 financial statement said. “The liquidation process was completed during the period, and all remaining assets and liabilities of Visafone have been transferred.” When MTN Nigeria acquired Jim Ovia’s Visafone, its goal was to improve the quality of broadband internet. It had its eye on Visafone’s 800MHz spectrum licences, which would have helped MTN deliver 4G LTE Internet services to its subscribers. MTN Nigeria did not immediately respond to a request for comments. That spectrum licence made Visafone—with 2.2 million registered subscribers—strategically important. It would also prove to be a bone of contention for three years. With Nigeria’s Communications Commission (NCC) reluctant to approve the transfer of the spectrum licence, MTN initially considered pulling out of the acquisition. Competitors Airtel and 9mobile argued that if MTN Nigeria acquired the spectrum, its stake would increase from 38% to 50% of the entire spectrum available. For MTN, the acquisition was important to allow it to compete with Globacom which launched 4G LTE services in October 2016. It was not the first time MTN was acquiring a spectrum licence holder. In 2006, it bought VGC Communications Limited (VGCCL) for $70 million (N9.3 billion). VGCCL was licensed by the Nigerian Communications Commission (NCC) to provide cabling and radio telephone services nationwide. While Visafone did not disclose the terms of the acquisition in 2016, the filing shows MTN invested ₦43 billion.
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After expensive lessons in Ethiopia, Renew Capital wants to back West African startups
After stepping back from investing in export-focused businesses in Ethiopia, Renew Capital, a venture capital firm that began life as a private equity firm, is expanding. “We did [private equity] for 10 years in Ethiopia, and it didn’t work. We have been through so many painful learnings and had to pivot and change up our investment model,” Matt Davis, Renew Capital’s CEO, told TechCabal. The firm will invest between $50,000 and $500,000 in more than 40 asset-light asset-light and tech-enabled businesses within a year. It has opened its West African portfolio by investing in Affinity, a Ghanaian digital bank. “We believe that the [Affinity] deal is going to open the gateway for us in West Africa,” said Chuka Ofili, Renew’s investment manager for West Africa. Renew Capital runs two funds: a $6 million angel syndicate and a $15 million follow-on fund. The $6 million fund powers an accelerator program that offers startup executives management training, digital marketing, and fundraising support. Startups that hit the metrics Renew Capital sets during the accelerator program will get up to $4 million in follow-on funding. “We invest $150,000 on average into a high volume [of startups],” Davis said. The firm will accept around 50 startups into the accelerator, with only 20% receiving the average follow-on check of $1.5 million. Besides investing in startups, it partners with foreign governments like Canada and the United States to promote investing in Africa. “We have this passion to change the way the world views Africa from a place of giving to a place of investing,” Davis said. As part of this partnership, Renew Capital invites foreigners to Africa as it pitches investing on the continent to them. “They have no clue what’s going on here, so we bring them here and they spend a week. It helps us because we need people to think differently (about investing in Africa),” Davis said. Matt and his wife, Laura Davis, the managing partner, run the firm together. “It’s our child,” Matt said about Renew. While acknowledging the risks of a couple running an investment firm, he told TechCabal that working with his wife has been “amazing.” “Getting married [to Laura] is the best decision I’ve ever made. She has a unique set of skills that are very different from mine. I design and come up with the concepts and she executes them and turns them into results,” he said. TechCabal spoke to Matt Davis for this interview in which he shared Renew Capital’s investment thesis and why they are backing African startups. Most of your portfolio companies are based in East and Southern Africa. Why the shift to West Africa, especially Nigeria? Davis: Our vision is to be in 27 countries and we are currently in 14 countries. You have to be extremely intentional about country selection because each country has its own unique risk profile and opportunities. We spend a lot of time evaluating countries. As far back as 18 years ago, we knew we wanted to invest in Nigeria but we had to be ready. We had to learn and make our mistakes because when we go to Nigeria, we would have to be on our A game. I didn’t feel we were even close till now. Nigeria is going to become one of the major global powerhouses, both from an investing and economic perspective. Right now, I think the country’s leadership is trying a big shift and it is starting to make progress, although it’s painful because change is painful. The indicators we track allow us to monitor, on a fairly regular basis, the movements that are happening at the country level. Those indicators show that it’s a good time to start investing in Nigeria despite the current state of the currency and the macroeconomic environment. Have you got your early-bird tickets to the Moonshot Conference? Click this link to grab ’em and check out our fast-growing list of speakers coming to the conference! Nigeria is going through one of the worst economic conditions in thirty years. How are you considering that when you are investing? Davis: I think it’s cyclical. I know it’s painful for the country to be going through this but I think it’s growing pains. In a way, it is a fortunate pain because the country has to rebuild fundamentals. Just like a business, Nigeria got overlevered by borrowing and spending a lot and now the revenue needs to catch up. During the global financial crisis when Spain, Portugal and Italy had to go through a painful period and now they are doing alright. Things will improve, judging by the sheer size of Africa and the size of Nigeria within that ecosystem. I won’t say you’re too big to fail, but the will and the strength of the population will make the gears start to click. It is going to take some time, but the country will get there. What is your investment thesis? Davis: Finding amazing founders comes first. We think the future is Africa, but the people who are going to build that future are trustworthy, focused, and very disciplined founders. We look for them in any market that we enter. We are sector-agnostic. We go after tech-enabled, highly scalable companies that are asset-light and disrupting industries by eliminating massive friction that has prevented those industries from getting to the enormous population that needs to be served. It all comes down to finding amazing founders. What do you think is the difference between the East and West African tech ecosystems? Davis: From what I see in our pipeline, I was surprised to realise that the Nigerian tech ecosystem is more mature and humble with valuations than I was expecting. In East Africa, now, I feel like there’s a little bit too much hype and startup euphoria that needs to be hardened. Founders in West Africa understand that the trust band is low for startups generally in Africa. We all have to prove ourselves. In East Africa, you hear founders wanting a $10 million
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Next Wave: Venture debt’s role in Africa’s startup ecosystem
Cet article est aussi disponible en français <!– In partnership with –> <!–TopBanner Join us for TechCabal Battlefield, Moonshot’s startup competition where you can showcase your startup idea to a global audience and an esteemed panel of judges and stand a chance to win up to 2.5 million naira in funding for your business! Click to register for TC Battlefield First published 18 Aug, 2024 Africa’s startup ecosystem has faced challenges in recent years, with some running behind their fundraising targets while others have been forced to lay off or close. The distressing scenario is attributed to a decline in VC deals since 2022, and a tough macroeconomic environment that has seen a slowdown in economic activity. In 2023, the global VC market fell 35% year-on-year, the lowest in four years. African VC deals decreased by 31% year-on-year, according to African Private Capital Association data. With investment slowing, experts are divided on the future of venture debt, as founders seek alternatives to equity financing which has been the darling of the ecosystem. While equity financing remains the go-to for African startups, venture debt is gaining traction because of its unique value proposition. It gives startups the working capital they need to scale operations, but without diluting ownership. This has given early-stage firms a lifeline, considering access to conventional debt in most African countries can be limited. However, the recent upheavals that have seen startups like Kenya’s Sendy, a B2B logistics firm, and Copia, a B2C e-commerce platform, close and enter liquidation have sent panic over the future of VC debt. VC analysts observe that firms that entered administration did not have enough recoverable assets to settle creditors. However, this cannot be a problem for VCs with robust risk assessment models and strong local partners like banks and microfinance institutions. VC funding to African startups from 2019-2023 (in USD millions) The African debt market is still relatively nascent, compared to its global peers, with limited data and credit history making it hard to secure funding. Venture capitalists trying to navigate this without much support from local lenders who have the infrastructure are bound to face challenges. Big African banks like South Africa’s Standard Bank, Nigeria’s Access Bank and Kenya’s Equity Group, have all developed asset-backed and revenue-based lending models that VCs can borrow or rely on if they build local partnerships. Accurate credit risk assessment is required to evaluate startups’ creditworthiness in a region where financial data is scarce; local banks have made progress here. Next Wave continues after this ad. Driven by passion and experience, Africa’s seasoned entrepreneur, Kola Aina identified a gap in African startup funding. In 2016, he founded Ventures Platform with the goal of replicating Silicon Valley’s success by providing capital, mentorship, and a supportive ecosystem for African startups. Despite numerous challenges, Aina’s determination and strategic investments have fueled remarkable growth and success for startups across Africa. Kola Aina is a featured speaker at Moonshot 2024, joining other innovators and industry leaders who are developing groundbreaking solutions to Africa’s most pressing challenges. Save your seat at Moonshot! Get tickets here A growing number of African tech startups are reaching a later stage, requiring larger funding rounds. This will allow lenders to create more structured debt products. Limited success stories to look to have made it hard to project the future of venture debt, experts say. Like other regions, some tech innovations have failed to pick up after receiving millions in VC backing. Those who borrowed have failed to repay the loans after struggling to make profits. With more startups hitting maturity, lenders will have historical data to determine companies’ creditworthiness. As the debt component gains traction, analysts say local players, including VCs, will come up with technological solutions to assess, underwrite and manage venture debt. Additional capital can help startups expand, develop new products, and increase marketing efforts. Therefore, the ecosystem will find solutions to respond to the hurdles stopping alternative financing. VC investment in African tech by category from 2019-2023 (in USD millions) Founders also have a role in ensuring venture debt remains a viable financing option. The challenges that have faced the African tech ecosystem have offered valuable lessons. To secure more funding options including debt, startups will need to have a clear revenue generation plan to return investors’ money and manage debt repayments. This will be achieved by building strong financial models that demonstrate clear paths to profitability and repayment. With this, lenders will not hesitate to close large-size funding deals with promising innovations. In addition, startups will allocate borrowed funds to well-thought programmes to increase impact and return on investment. The narrative of founders misusing investors funds has been persistent, but as the market matures most startups are keen on sustainable growth. The fast-paced approach to startup growth has been termed as their greatest flaw. Pressure from investors has been blamed for the collapse of some of the promising innovations like Sendy, Copia, and iProcure. Typically, VCs put money in startups with high growth, but push for short-term returns. Despite the challenges, experts believe that venture debt will play a greater role in the growth of African startups in the coming years. As the market matures, increased competition among lenders and more diverse solutions will see larger deal sizes. For founders, understanding alternative fundraising to equity financing will be essential for optimising their capital structure and accelerating growth. Adonijah Ndege Senior Reporter, TechCabal Thank you for reading this far. Feel free to email adonijah[at]bigcabal.com, with your thoughts about this edition of NextWave. Or just click reply to share your thoughts and feedback. We’d love to hear from you Psst! Down here! Thanks for reading today’s Next Wave. Please share. Or subscribe if someone shared it to you here for free to get fresh perspectives on the progress of digital innovation in Africa every Sunday. As always feel free to email a reply or response to this essay. I enjoy reading those emails a lot. TC Daily newsletter is out daily (Mon –
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👨🏿🚀TechCabal Daily – New regulations for Nigeria and SA
In partnership with Lire en Français اقرأ هذا باللغة العربية Good morning Welcome to the new and improved TC Daily. Quite a few things have changed; can you spot them? Share a screenshot with me at timi@bigcabal.com, and tell me what you think about the new TC Daily. New tax laws are coming to Nigeria South Africa to charge flat rate for all e-commerce tax ATCIS pleads with NCC not to oblige telcos’ tariff hike request The World Wide Web3 Events Regulation New Nigerian tax laws will regulate crypto industry, says FIRS Image source: Pymnts Nigeria’s tax regulator, the Federal Inland Revenue Service (FIRS), will introduce new tax laws in September to regulate the crypto industry. In June, Nigeria started taxing users a 7.5% value-added tax (VAT) on all cryptocurrency transactions. The success with this likely prompted another go at implementing a broader tax system for crypto players. But the big question here is: how is Nigeria supposed to tax an industry it has tried to suppress for so long? In 2022, the crypto industry processed $20 billion worth of remittance inflows to Nigeria. These high volumes—susceptible to illegal trades as the government has noted—forced its hand to take some drastic measures. That same year, the government implicitly banned all crypto activities in Nigeria and prosecuted Binance, one of the popular trading apps in Nigeria this year. In May 2024, it said it was coming for other peer-to-peer (P2P) exchanges that still traded the naira. But this new regulation oversight suggests a growing reception toward crypto—or a fulfilment of its promise in May to tightly regulate the crypto industry. The country’s Securities and Exchange Commission (SEC) has been active too in this regard: it increased the cost of running a crypto company in Nigeria and issued a directive for crypto companies and founders to operate physically in the country. Dr. Zacch Adedeji, FIRS executive chairman, noted that it is better to regulate crypto in a way that is not “injurious” to Nigeria’s economy, rather than gaslight its undeniable plausibility to millions of Nigerians who use and trade it in hordes daily. Read Moniepoint’s 2024 Informal Economy Report Did you know that 57.7% of the business owners in Nigeria’s informal economy are under 34 years old? Click here to find out more about the demographics of Nigeria’s informal economy. E-commerce South Africa to charge flat rate for all e-commerce imports Caught in the act E-commerce titans like Temu and Shein, known for their lightning-fast deliveries and budget-friendly finds, are about to feel the heat in South Africa. SARS, the country’s tax collector, is cracking down on these online shopping behemoths. For years, these fashion-forward firms have been pulling a fast one. Previously, South Africa charged a 45% import duty and value-added tax (VAT) on clothing imports above R500 ($28) and 20% on smaller imports. By splitting up big orders into tiny packages below R500 ($28), they managed to slip through a tax loophole, paying a fraction of what they should. This way, they paid only 20% import duty and 0% VAT. But the party’s over. Starting September 1st, every piece of imported clothing, no matter how small, will be slapped with a 20% VAT. It’s like adding a price tag to every thread and stitch. This move will be crucial to local businesses who have contended that Shein and Temu’s lower tax burden has contributed significantly to their market dominance. With Amazon’s recent entry into the South African market, the competition is heating up, and a more equitable tax environment could help local players compete more effectively. Collect payments anytime anywhere with Fincra Are you dealing with the complexities of collecting payments from your customers? Fincra’s payment gateway makes it easy to accept payments via cards, bank transfers, virtual accounts and mobile money. What’s more? You get to save money on fees when you use Fincra. Get started now. Telcos ATCIS pleads with NCC not to oblige telcos’ tariff hike request Image source: Proshare CEOs of leading telcos operating in Nigeria say they are rethinking their current level of investment in Nigeria, owing to the high cost of doing business in the country. If this sounds new to you, here’s the rundown of the situation: Telcos reported losses between 2023 and 2024 due to forex issues impacting their bottom line. The rising price of diesel and currency devaluation are contributing to telcos paying more money to operators to maintain cell towers. As a result, Nigerian telcos have been pleading with the Nigerian Communications Commission (NCC), asking for permission to increase voice and data tariff prices. If telcos hike tariff rates by the 40% they are asking for, the 1.4 GB data plan on MTN that costs ₦1,000 ($0.63) will increase to ₦1,400 ($0.88). Prices of goods in Nigeria have increased this year due to inflation. And telcos want to raise their prices in response to this market reality. If this happens, it is Nigerians that will bear the brunt, adding to the financial burden many already face. However, some organisations are stepping in to plead on behalf of Nigerians. The Association of Telephones, Cable TV, and Internet Subscribers (ATCIS) opposed the hike, calling the plea made by telcos a “subtle blackmail”. ATCIS has also asked the NCC not to approve the tariff hike. Ultimately, the NCC has the final say on this. But Nigerians may have to start budgeting a bit higher for monthly data subscriptions if telcos have their way. Paystack Virtual Terminal is now live in more countries Paystack Virtual Terminalhelps businesses accept secure, in-person payments with real-time WhatsApp confirmations and ZERO hardware costs. Enjoy multiple in-person payment channels, easy end-of-day reconciliation, and more. Learn more on the Paystack blog → CRYPTO TRACKER The World Wide Web3 Source: Coin Name Current Value Day Month Bitcoin $58,573 – 1.57% – 12.11% Ether $2,636 + 1.22% – 22.94% Notcoin $0.011 + 6.29% – 31.23% Solana $143.02 + 1.29% – 15.99% * Data as of 06:05 AM WAT, August 19, 2024.
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