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Financial Innovations In Developing Countries

How can financial innovations change Africa?

9Feb

When we think about financial innovations, the landscape that we generally tend to think about are the huge skyscrapers of Wall Street or the strangely named buildings in London.

However, we are seeing that some of the most exciting innovations within finance are coming from developing countries, especially in Africa, where a relatively young market has considerable space in which to operate and expand.

In terms of how and why this is the case, we have seen that agricultural returns on crops have been increasing as more technology is integrated within the supply chains and farming methods.

For example, Ivory Coast increased its production of green coffee by 47% between 2008 and 2010 alone, which meant increased profits and additional produce. In order to keep this level of expansion firstly infrastructure, and secondly credit lines need to be improved.

This gives two strong areas for financial innovations as many farmers within countries like Ivory Coast, will not have had access to banks and credit previously. Many are also in remote areas, meaning that swift transactions are going to be difficult and pose more difficulties than more developed countries.

This has seen an increase in the potential for mobile banking and payment methods. Apps like Paga, InVenture and Simple, have allowed people to send and receive money conveniently from their mobile devices, meaning that expansion is possible and finances are simple.

Despite how many perceive Africa, the truth is that it is a technological hotbed, with over 50% of the adult Kenyan population using M-Pesa to make payments amongst themselves. This is not something that could have happened without a significant technological adoption within the country.

As many countries lack the basic landline infrastructure that more developed countries benefit from, it means that the internet is accessed on mobile devices more that laptops and desktop computers. This creates a situation where financial institutions will not only use innovations to expand, but will need to look at using mobile simply to exist in this space.

So even though many developing countries provide considerable infrastructure problems and even political unrest, this actually increases the opportunity to innovate finance within these areas. The fact that mobile internet is so important in many countries means that it is more reliable, often to because the systems used to spread it are not built on legacy models, but instead can utilize fully operational systems.

Similarly with finance, we are likely to see that because there aren’t pre-existing systems in many of these places, there is the potential to innovate and put in better systems than what we are currently seeing in more developed areas. 

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