Transferable Licenses Tipped To Solve Market Friction Hindering African Startups

By  |  June 26, 2023

In the realm of African startup development, transferring operating licenses between countries can play a pivotal role in igniting a new wave of billion-dollar enterprises across the continent, reckons Dare Okoudjou, founder and CEO of MFS Africa, a prominent fintech firm with a notably vast footprint.

Achieving a thriving fintech sector in Africa necessitates concerted efforts from governments to foster market integration, Okoudjou noted while speaking to African Business at the Inclusive FinTech Forum in Kigali, the Rwandan capital. By prioritizing this crucial aspect, the continent can unlock substantial opportunities for growth and innovation within its financial technology landscape, he added, explaining that the formidable challenge confronting the African fintech sector is the scale of markets.

Okoudjou delivered this opinion leaning on his experience from more than a decade of leading leads MFS Africa, considered the largest digital payments hub in Africa. MFS Africa boasts an infrastructure that connects over 170 million mobile wallets and over 20 million bank accounts across 27 countries in Africa, enabling cross-border, cross-network digital payments. 

The CEO asserts that barring Nigeria, Egypt, and South Africa, the economies of individual African nations lack the necessary size to support the emergence of fintech unicorns or other sizeable enterprises. This observation underscores the need for pan-African collaboration and market integration to overcome such limitations and foster an environment conducive to the growth of substantial fintech players.

Fintech companies account for six of Africa’s seven unicorn startups so far but unfavourable market dynamics continue to hinder their growth and the emergence of newer identically-successful ventures.

“There’s simply not space to have a billion-dollar revenue fintech company in Rwanda,” Okoudjou says. “It’s just not possible. So, it has to be possible for these businesses to be multi-market.

“That means more complexity – complexity from a regulatory point of view, but also complexity in terms of consumer understanding and the local context.”

To alleviate the intricate challenges impeding cross-border growth and stimulate an environment conducive to such expansion, passporting emerges as a potential solution, the CEO opined.

Embracing this concept would enable companies holding licenses in one jurisdiction to operate seamlessly in other countries, obviating the need for additional licenses or regulatory approval. Drawing inspiration from the European Union’s successful implementation of passporting, such an approach could harmonize regulatory frameworks, promoting enhanced efficiency and fostering cross-border entrepreneurship within the African fintech landscape.

“If you get your Payment Services Provider (PSP) license here in Rwanda, and then want to go to the DRC, you have to repeat the whole thing again,” Okoudjou tells African Business. “When you put that together with the size of the markets, it makes everything very constrained.

“Passporting would be a huge relief for companies that need an operating license because you can just stick to one jurisdiction [for licensing]. It would also free up capital – and time – for startups and help Africa have more of a chance to see bigger and better companies on the continent.”

Okoudjou also argued that implementing passporting measures is more straightforward than commonly perceived, emphasizing the potential for swift and seamless execution through decisive action by politicians. He believes that the key lies in initiating the process, as he notes, “I think everybody’s waiting for someone to start.”

“Rwanda decided [in 2013] that if you’re coming from an African country, your visa is free. They didn’t need to go and consult all the other African countries and asked how they felt about this. They just did it,” Okoudjou notes.

“Rwanda could decide that they trust companies coming from South Africa or Kenya and that they can just apply for passporting,” he says. “There is obviously a trust factor, but it’s not actually that difficult.”

A single country taking unilateral action in this direction could serve as a catalyst, paving the way for broader market integration across the African fintech landscape, the MFS Africa boss added. By demonstrating the feasibility and benefits of such a move, it could inspire other nations to follow suit, fostering a collective momentum towards harmonized regulatory frameworks and enhanced cross-border opportunities.

“There is a real force in demography that is playing in Africa’s favour,” he says. “But if we want to fully use it, we need this market to come together.

“We need to give entrepreneurs across the continent access to a bigger market. We keep talking about this potential market of 1.2bn people. But it is not a reality until we actually make it.”

According to Okoudjou, the principles of wider economic integration extend beyond the fintech sector and are crucial for unlocking Africa’s full potential across various industries. He envisions that if such policies are pursued, Africa could experience transformative growth similar to that witnessed in Asia over the coming decades.

“In 30 to 50 years, we could be looking at something similar to what we’re seeing in India – probably closer to India than China, but why not China also?,” Okoudjou added.

Featured Image Credits: Billionaires Africa

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