One of the major objectives for the creation of AfCFTA is the breaking down of national boundaries and other barriers that hinder cross-border trade, to allow for seamless trade and promotion of economic activities among African countries.

However, despite the very bright prospects of a new era of socio-economic prosperity on the continent, what may pose as an obstacle to the realization of the objectives of AfCFTA is the lack of visibility of African businesses, especially small and medium enterprises (SMEs), in the global business arena.

This lack of visibility, caused by the absence of a legal entity identifier (LEI), is the reason they cannot access the much-needed credit that should enable their growth.

Businesses in Africa face borderless trade financing challenges not only because of size, but because they are mostly unknown outside their domains.

While these businesses are not directly excluded from trade finance, they are often given unfavourable loan repayment terms which result in indirect exclusion.

To participate effectively in international business, therefore, African businesses, including SMEs and startups, must see Legal Entity Identifier as an imperative.

Legal Entity Identifier

Whether a business is registered on the African continent or in offshore locations as in some cases Mauritius.

The LEI is a major requirement due to mandates for trade reporting obligations such as the Financial Markets Act, 2018.

The use of LEI is required by African entities when they are trading and reporting and if conducting activities within the United States, European Union or the United Kingdom.

The global initiative gives business entities worldwide backing to succeed, especially with its roll out for African SMEs.

The LEI provides globally recognized business identities to SMEs. In innovative partnership local banks act as the first Validation Agent in Africa, using the bank’s usual onboarding process for business clients, including “know your client” (KYC) and “anti-money laundering” (AML) checks, to verify the identities and ownership information on businesses.

This helps SMEs access more favourable trade terms in international transactions and improve their access to finance.

The prospect of having African businesses best positioned for the global business arena explains the excitement that greeted the appointment of two African professional including Nigeria’s Dr. Folarin Alayande, a Nigerian international development economist, technology investor and financial services executive, as a non-executive director of the Global Legal Entity Identifier Foundation (GLEIF).

These appointments point to the significant and interest to drive the adoption of Legal Entity Identifier across Africa in alignment with GLEIF’s strategic priority of enabling digital trust for enterprises worldwide, and ultimately bringing more African businesses to the fore.

In 2023, Sub Saharan Africa witnessed significant growth despite the decline in funding over the last two quarters, which reflects global economic realities.

Although, Fintech startups and innovation hubs have thrived, particularly in countries like Nigeria, South Africa, Kenya, Egypt and Ghana, addressing diverse financial needs from payments to SME services.

Block chain and cryptocurrencies also gained traction; regulators worked on fostering innovation, while ensuring consumer protection. The use of AI and data analytics increased for credit scoring and risk management.

The Fintech sector played a crucial role in advancing financial inclusion, improving cross-border payments and addressing the financial needs of small businesses as well as individuals.

However, it wasn’t all rosy as concerns about e-fraud overshadowed some of the fine moments thereby highlighting the need for ongoing vigilance and regulatory adaptation in this rapidly evolving landscape.

This pressure persists, as industry watchers are concerned and worried about the rising global cost of funds and the declining shortage of investment across the continent.

Several startups in 2023, like PayDay, Bundle, Pivo, 54gene, Dash, Vibra, to mention but a few, either closed shop, or are on the verge of doing so, blaming the situation on financial and non-financial challenges, as well as lack of funding.

The year showed greater need to deepen corporate governance structures across Fintechs, and the overall financial service sector, especially for those seeking to explore international markets or seek funding rounds.

This is where LEI comes in to assist. As a globally recognized form of business identity, it would give African entities greater credibility when they apply for finance, engage in international trade and establish new supplier relationships for manufacturing processes.

The African Fintech landscape witnessed 26 publicly announced acquisitions over the last two years, according to Tekedia – a whopping 270 per cent growth from between 2019 and 2021. Industry players should therefore expect more of such moves from 2024. This figure is from publicly known acquisitions and shows significant growth of the African landscape.

It is expected that 2024 would bring in more consolidation of efforts among Fintechs and also between larger corporates and Fintechs, to explore synergies.

Mergers and acquisitions still serve as a strategic tool to allow startups to overcome the current funding landscape, while also delivering returns for existing stakeholders.

“Based on the current funding landscape, it is only fine to predict that more acquisitions would be considered by existing startups and the traditional banks and corporates seeking to leverage the strength and agility of the startups to consolidate on their offerings in the market”, according to Adeshina Adewumi, a renowned finance expert, Chief Executive Officer/Founder of Trade Lenda.

In conclusion, Africa needs improved investments to drive borderless economic activities with off-the-continent opportunity of creating an impact, particularly at a time AfCFTA is expected to boost borderless economic trade significantly, making Africa a single market of 1.3 billion people, and a cumulative GDP of over $3 trillion.

This unexpected turn of events raises questions about the challenges faced by the startup and the broader sector of Nigerian fintech and Africa as a whole.

Founded in July 2021 by Nkiru Amadi-Emina and Ijeoma Akwiwu, Pivo targeted small logistics and haulage businesses in Nigeria’s supply chain sector. Despite initially making strides in the industry, the startup is now facing closure, prompting speculation about the reasons behind this decision.

Pivo’s market approach was centered on addressing the liquidity problem in Africa’s supply chain, a sector estimated to be worth $41 billion last year. The fintech offered two key verticals: Pivo Capital, a lending product, and Pivo Business, a business banking product. Through these offerings, Pivo claimed to have disbursed over $3 million in loans and processed more than $4 million in transactions a year after its launch.

The startup’s journey included a $100,000 pre-seed round and a $2 million seed round in November 2022, with plans to expand into East Africa and introduce new payment-focused products. However, despite its promising start and substantial funding, Pivo has yet to provide specific details about the closure, leaving the tech community in anticipation of further insights.

The startup’s unique strategy involved providing credit to businesses in the supply chain sector and validating transactions with prospective buyers before disbursing funds. This approach purportedly contributed to a commendable 98% repayment rate, showcasing the potential success of their business model.

Despite these achievements, Pivo’s closure aligns with a concerning trend in the African startup ecosystem, with over a dozen startups shutting down this year. Economic downturn and an increasing funding gap have created a challenging environment for startups across the continent. The closure of Pivo adds to this, prompting reflections on the sustainability of fintech ventures and the need for adaptability in a dynamic economic sector.

The closure of Pivo urges industry stakeholders to continually reassess strategies and resilience in the face of uncertainty.

Challenges Faced by Nigerian Fintech Startups

The Nigerian Fintech industry, despite its impressive growth and potential, faces several challenges that hinder its full development. These challenges can be broadly categorised into:

Regulatory Issues

Rapidly evolving regulatory system: The Central Bank of Nigeria (CBN) is constantly introducing new regulations to keep up with the speedy development of the Fintech industry. This can be challenging for fintechs to comply with, especially for smaller startups.

Lack of clarity in some regulations: Some regulations issued by the CBN are not clear or specific enough, leaving room for interpretation and uncertainty for fintechs.

Difficulty obtaining licenses: The process of obtaining a license to operate as a fintech in Nigeria can be lengthy, complex, and expensive.

Infrastructure

Limited access to reliable and affordable internet: A significant portion of the Nigerian population does not have access to reliable or affordable internet, which limits their ability to access fintech services.

Unstable power supply: The frequent power outages experienced in Nigeria can disrupt fintech operations and lead to data loss.

Poor financial literacy: Many Nigerians lack the financial literacy needed to understand and effectively use FinTech products and services.

Investment Funds

Limited access to investment capital: There is a lack of readily available investment capital for FinTechs in Nigeria, especially for early-stage startups.

High-interest rates: The high-interest rates in Nigeria make it difficult for FinTechs to borrow money and finance their growth.

Limited access to foreign exchange: The scarcity of foreign exchange in Nigeria can make it difficult for FinTechs to expand their operations internationally.

Data Security

High rate of cybercrime: Nigeria has a high rate of cybercrime, which poses a significant risk to fintechs and their customers.

Lack of awareness of data privacy: Many Nigerians are not aware of their data privacy rights and how to protect their data from misuse.

Weak data protection laws and infrastructure: Nigeria’s data protection laws and infrastructure are not strong enough to adequately protect the personal data of fintech users.

Consumer Management

Low trust in FinTechs: Many Nigerians are still sceptical of fintechs and prefer to use traditional banks for their financial needs.

Lack of awareness of fintech products and services: Many Nigerians are unaware of the wide range of fintech products and services available to them.

Poor customer service: Some FinTechs in Nigeria have been criticised for their poor customer service, which can further erode trust in the industry.

Additional Challenges

Chargebacks: Chargebacks can be costly for fintechs and can erode trust among customers.

Fraud: Fraudulent activities can damage the reputation of fintechs and deter potential customers.

Barrier to entry: The high cost of starting and operating a fintech business in Nigeria can create a barrier to entry for new entrants.

The Nigerian fintech market is valued at over $2.5 billion, experiencing a projected annual growth rate of 20%. With more than 250 fintech companies operating in Nigeria, collectively raising over $2 billion in funding, the sector has seen a substantial increase in investment activity in recent years. Various types of fintech companies contribute to this landscape, including mobile money providers, digital lenders, robo-advisors, InsurTech firms, and payment gateways.

To address challenges and foster industry growth, recommendations include potential policy changes such as providing tax breaks, establishing clear regulations, and creating a regulatory sandbox. Investor support is key, encouraging investment in early-stage companies, mentorship for entrepreneurs, and active participation in industry events.

Fintech companies must prioritise building trust through secure and reliable offerings, data protection, and excellent customer support. Additionally, they are inevitable in promoting financial inclusion by developing accessible products for underserved populations. Lastly, collaboration among government entities, regulators, fintech companies, investors, and development organisations is essential to overcome shared challenges and drive the growth of the Nigerian fintech industry.

Addressing these challenges will be essential for the Nigerian fintech industry to continue its impressive growth and reach its full potential. The government, regulators, fintech companies, and other stakeholders need to work together to create a conducive environment for the industry to thrive.

Founded a little over a year ago by Nkiru Amadi-Emina and Ijeoma Akwiwu, the first all-female founded team the famed accelerator has backed in Nigeria — and the second in Africa after the defunct Ghanaian startup Tress.

With the fund, Pivo will upgrade existing products, build new ones, hire talent and expand outside of Lagos, where it first launched, to other African countries, with main focus on East Africa.

Investors in the seed round were Mercy Corps, Precursor Ventures, Vested World, FoundersX, and Y Combinator. 

Pivo, having raised $2.55 million since launch, provides financial services like credit, payments and expense management, to SME vendors within large manufacturing supply chains. 

The company’s working capital loans gives users the opportunity to deliver service to customers without having to “break the bank”. Pivo provides financing based on users’ existing customer contract and transaction data, without any collateral.

Businesses use Pivo to setup a corporate account, access credit for business loans and manage their finances all in one simple application. No set up fees, minimum balance maintenance or ridiculous requirements.

In 2017, Amadi-Emina launched an on-demand delivery platform targeted at e-commerce brands in North and Central Africa, which subsequently got acquired by Kobo360, one of Africa’s most prominent e-logistics players.

It was during her time at Kobo360 — first as an enterprise account manager and up until she left as head of port operations — that she witnessed the glaring liquidity problems that existed at both ends of the logistics supply chain. 

Truckers need cash advances from logistics companies such as Kobo360, Lori Systems and MVX to move cargo; meanwhile, these companies also require manufacturers to pay on time for distributing cargo to truckers.

The company leverages manufacturing supply chain relationships and deploys financial services to the SMEs within them, mostly truckers in this instance. The credit play of its platform, Pivo Capital, serves as an early payment alternative for truckers and allows logistics companies to deal with any upfront costs — such as diesel and driver’s allowance — typically incurred during operations. 

Pivo Business, its payments reconciliation arm, helps these small businesses to facilitate payments via peer-to-peer transfers and track payments with debit cards with spend controls. 

The startup’s financial arm, Pivo Capital has disbursed over $3 million to SMEs and currently records a 98% repayment rate while transaction volume on Pivo Business grew over 400% between April and September this year. It has registered a total volume of $4.7 million from July to date.

The company is also working on Pivo+, a package of value-added services that will turn Pivo into a full-fledged financial services platform.