The Central Bank of Nigeria’s headquarters in Abuja
Financial technology looked set to take off in Nigeria.
Earlier this year, the country’s central bank and the Nigeria Inter-Bank Settlement System opened a regulatory sandbox to enable budding fintech companies to develop new products freely and securely, becoming one of the first African countries to do so.
Even before that launch, Nigeria was frequently touted as the continent’s next big fintech hub, set to compete with South Africa and Kenya.
Bitcoin exchange NairaEx, online lender KiaKia and invoicing platform Payant are just three of the firms that have made a name for themselves in short order.
“Fintech is revolutionizing Nigeria’s financial services industry,” PwC wrote in a report last year, citing its population’s great youth – half will be under 25 by the end of the decade – and mobile usage – 82% of web traffic takes place on mobile phones – as driving the increasing influence of new technology on banking practices.
Now regulators look to be adopting a different attitude to the sector.
Shareholder funds
In a draft policy document, Nigeria’s central bank has proposed new licensing rules for fintech firms. It is considering imposing minimum shareholder funds for such start-ups, on the grounds that this new sector “accentuates the known risks within the financial system”, all the while gaining increasing traction among traditional financial service providers and their customers.
Depending on the type of services provided, entrepreneurs could need anywhere between $140,000 and $14 million to have the right to launch a fintech business.
For the basic licence, available to those with $140,000, firms would be allowed to do little more than agent recruitment and management, the circular stated.
A ‘super licence’ would allow them to do all manner of financial work, from transaction clearing to deploying payment terminals and setting up online transaction platforms.
There are good reasons to force firms to hold a certain amount of capital: allowing inexperienced fintech businesses to start servicing large numbers of customers without the funds necessary to buttress those activities is, indeed, a recipe for disaster.
But the central bank’s projected bar appears far too high. It would likely discourage many bright young tech entrepreneurs from launching start-ups in this sector, as most would never be able to corral such sums.
Excellent ideas with little financial backing can result in far more worthwhile fintech businesses than the reverse. In fact, they often do.
This regulation is still under review. The central bank can still choose to water it down. If it were implemented in its present form, it could have a dramatic impact on the market for new ideas in Nigerian finance.
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