Plenary Address by Ravi Menon: Tech for Good: Harnessing FinTech for Social Impact | 3i Africa Summit 2024

Africa on the Cusp of a FinTech Revolution

Ravi Menon, Singapore's Ambassador for Climate Action and Senior Adviser, National Climate Change Secretariat (NCCS)

Opening Address at 3i Africa Summit, Accra, Ghana

13 May 2024

Your Excellency the President of Ghana, your Excellency the Prime Minister of Grenada, Ministers, Central Bank Governors, distinguished guests, ladies and gentlemen, good afternoon. All protocols observed.

l am delighted to be here at Accra for the 3i Africa Summit 2024. It is fitting that we are holding this Summit in Ghana, the first country in Africa where the entire population is able to access and receive payments through their mobile phones.

The Promise
Africa is at the cusp of a FinTech revolution that will transform the lives of hundreds of millions of people.

• It was Africa which pioneered the use of mobile money with the hugely successful M-PESA.
• According to the World Bank, Africa leads the world with the largest number of mobile money accounts. A mobile money account allows anyone with a cell phone to transfer, store, and request money directly from their device, without a traditional bank account. This is a powerful demonstration of financial inclusion.
• The key enablers for leveraging digital technology are in place. Four out of five persons in Africa use a mobile phone and nearly one out of two has access to the Internet.
• Governments in Africa are prioritising digitalisation and financial inclusion through regulatory sandboxes and innovation offices.
• According to a BCG report, Africa is likely to be the fastest growing FinTech market in the world between 2023 and 2030. FinTech revenues are expected to rise by 13 times, compared to the global average of 6 times.

The Challenge
The potential is huge and the enablers are in place. But it is not a given that Africa’s FinTech revolution is predestined.

Africa has considerable challenges to overcome on its FinTech journey.

• First, more than 40% of people in Sub-Saharan Africa do not possess a legal proof of identity or a digital ID. Women and ethnic minorities bear the brunt of this digital exclusion.
• Second, cross-border payment transactions within Africa are still quite expensive, as they are routed through overseas banks and involve currency swapping.
• Third, much of the population remains unbanked or underbanked. Only 35% of the population in Sub-Saharan Africa has access to banking services.

But Africa is not sitting still. Efforts are underway to tackle each of these challenges:

• Digital identities as a key enabler for online transactions;
• Payments connectivity for seamless cross-border payments;
• Tokenisation and artificial intelligence to enhance financial inclusion.

Let me elaborate.

Digital Identities
Digital IDs are a crucial public good to enable financial inclusion. Efforts are underway at the country, regional, and pan-African levels.

Several countries in Africa are implementing digital IDs.

• Ghana has begun to issue digital IDs to all newborns.
• Nigeria has launched the Digital Identity Ecosystem to integrate the National Identification Number with digital services.
• Benin is offering 300 government services based on authentication of citizen identities through digital IDs.

At the regional level, the Common Market for Eastern and Southern Africa (COMESA), the East African Community (EAC), and the Southern African Development Community (SADC) have been working on regional digital IDs.

Building on these initiatives, the African Union has plans for an interoperable pan-African digital ID. This will be a stepping stone to building the Single Digital Market in Africa - a bold vision of a unified digital ecosystem that provides individuals and businesses across the continent with seamless access to digital services.

• It will allow individuals to verify their legal identity both offline and online, and gain access to public and private services more easily.
• It will protect digital privacy as people and businesses will be able to verify their credentials without disclosing personal data.
• It will accelerate the integration of Africa with the global digital economy and FinTech ecosystem.

Payments Connectivity
Next, payments connectivity.

The Pan African Payment and Settlement System (PAPSS) is an interesting innovation.

• It was introduced by the African Export-Import Bank and Africa's Continental Free Trade Area (AfCFTA) in January 2022.
• One of its key features is to facilitate instant cross-border payments that are directly convertible in local currencies. In other words, it eliminates the need for intermediary currency conversions to the dollar, euro or pound.

Another notable initiative in electronic payments is Onafriq.

• This is a pan-African payments system that seamlessly connects 500 million mobile wallets across 40 countries in Africa.
• Users are able to make payments, receive money and make financial transactions seamlessly through their mobile phones.
• Onafriq’s integrated chain of mobile network operators, money transfer operators, and banks has simplified payments and transactions across the continent.

These are interesting innovations in Pan African payments connectivity. The key task ahead is to integrate these innovations with existing national payment rails for seamless multi-lateral payment connectivity across Africa.

Here, the role of Central Banks is critical. They must ensure effective governance and interoperability while leveraging off existing innovations like mobile money and PAPSS.

Tokenised Assets and Digital Money 
Third, tokenised assets and digital money to drive financial inclusion.

Distributed ledgers and tokenisation are being used to create a more efficient global financial architecture for seamless financial transactions across the world.

Digital assets ride on the technological innovation of tokenisation, namely the use of software programmes to represent the ownership rights over any item of value as a digital token.

• It allows high value financial and real economy assets to be fractionalised and exchanged over interoperable platforms, like the Internet, on a peer-to-peer basis without intermediaries.
• It also enables the simultaneous exchange of two assets in real time.

Tokenisation is relevant to Africa.

• It offers a means to convert illiquid physical assets like land, minerals, and agricultural produce into digital tokens to enable fractional ownership of these resources.
• It can also help expand financing SMEs with funds raised from investors who get tokenised assets.
• These assets can in turn be traded on emerging digital asset exchanges.

There are interesting and inspiring examples of tokenisation in Africa which have enhanced financial inclusion. Let me cite a couple.

• In Kenya, Africa Digital Assets, a real estate developer, is tokenising a shopping mall in Nairobi, giving smaller investors access to this asset through fractional ownership.
• In South Africa, Standard Bank Group, an infrastructure development firm, intends to finance a renewable energy project through tokenisation.

Digital money enables the payment, clearing, and settlement of digital or tokenised assets simultaneously on the same platform. The three viable forms of digital money in terms of stability of value and security of redemption are central bank digital currencies or CBDCs, tokenised bank liabilities, and well-regulated stablecoins.

CBDC-based transactions can be used on simple feature phones, thereby helping to accelerate financial inclusion for the unbanked and underbanked.

• Governments can use CBDCs to distribute welfare payments directly to beneficiaries without en-route leakages.
• CBDCs can also enable cheaper and faster settlement of cross-border payments.

Not surprisingly, in Africa, most of the traction in digital money has been in the CBDC space.

• Nigeria was the second country in the world to roll out a CBDC called ‘eNaira’ in October 2021.
• The South African Reserve Bank has piloted a wholesale CBDC for interbank transfers between financial institutions. South Africa is also part of a cross-border CBDC pilot project including the central banks of Australia, Malaysia and Singapore.

The Bank of Ghana is currently testing a general purpose or retail CBDC.

Artificial Intelligence

Finally, artificial intelligence. AI is fast emerging as a game-changer and disruptor in global FinTech. Major jurisdictions across the world are establishing principles and guidelines for the responsible and safe use of AI.

In Africa, AI can help FinTech players who are already harnessing AI in many ways. Let me give a few examples.

• Zande Africa, a fintech company in South Africa, is using AI algorithms to analyse the transaction history and business performance of small businesses and assess their creditworthiness for microloans.
• M-KOPA, which operates across Kenya, Nigeria and Uganda, is using AI to process over 500 payments per minute.
• Nokwary in Ghana uses speech recognition AI to help persons who cannot see or read to use banking apps and financial services through spoken commands.
• MipangoIn in Tanzania helps users manage their personal finances through AI enabled financial advice.
  

Foundational Digital Public Infrastructure 
Many of the key components for a FinTech ecosystem are falling into place in Africa. How can Africa build on these to systematically accelerate the FinTech transformation and integrate with the global fintech ecosystem?

The time is ripe for Africa to create a next-generation Foundational Digital Public Infrastructure (DPI) architecture, consent-based and pan-African.

This architecture should rest upon three pillars:

• Trusted Identity Infrastructure;
• Interoperable Payment Systems
• Verified Individual and Business Data Exchanges.

This pan-African DPI could leverage a range of next-generation components, like Tokenised Assets, Digital Money, Universal Trusted Credentials, Interoperable Distributed Ledgers, and Artificial Intelligence.

There are three enablers for successful rollout:

• one, a unifying policy framework across Africa, within which countries can develop their customised policies while maintaining interoperability;
• two, a transition plan to upgrade existing DPI implementation programmes to incorporate the new direction;
• three, adequate capital from public and private sources to fund the implementation of DPI over the next 5 years.

This is an ambitious undertaking. It will require high-level guidance and a robust governance structure.

A good way to start would be to bring together a group of key pilot sponsors, under the chairmanship of participating Heads of State along with C-Suite representation from public and private sector stakeholders).

Conclusion
Let me conclude.

More than anywhere else in the world, FinTech can demonstrate its true purpose and potential in Africa, by focusing on financial inclusion. There is great scope for collaboration between traditional financial institutions and private fintech companies to bridge financial and digital divides.

Platforms like the 3i Africa Summit create the opportunity to realise Africa’s FinTech potential. I wish you fruitful discussions - discussions that lead to meaningful improvements in the lives of the people of this continent.