Kenya and South Africa are leading the peer-to-peer (P2P) business lending market in Africa, however the fact 90 per cent of online alternative finance originated from platforms headquartered outside of Africa evidences the potential for homegrown platforms.
This is according to the recently published ‘Africa and Middle East Alternative Finance Benchmarking Report‘ produced by the Cambridge Centre for Alternative Finance at the University of Cambridge’s Judge Business School.
The report found the third-largest financing model in Africa was peer-to-peer business lending, which totalled US$16 million in volume over a two-year period between 2014 and 2015. This model experienced rapid growth.
Kenya and South Africa raised US$16.7 million and US$15 million respectively from online channels in 2015. These figures corroborate findings in the recent released Finnovating for Africa report, which tracked 65 lending and financing startups across Africa and found South Africa and Kenya to be among the market leaders in the space.
Michael Roberts, chief executive officer (CEO) of South African fintech startup Khonology, said the South African market differs markedly from the rest of Africa.
“In 2015, the vast majority of the South African market activity – US$13.8 million – came from P2P consumer and business lending, with the remaining US$1.2 million spread across microfinance, donation-based and reward-based crowdfunding,” he said.
“The rapid growth and emergence of online P2P lending models in South Africa suggests that this model will likely dominate the national market there, and could potentially propel South Africa’s position as the emerging market leader for both online consumer and business P2P lending in Africa.”
In Africa, there is no stand-out market leader, unlike the Middle East (Israel), Asia Pacific (China), Europe (UK) or the Americas (USA). Instead, the market is relatively evenly distributed across 10 core countries.
Within Africa, South Africa had the largest number of online alternative finance platforms – according to both reports – while Egypt, Morocco, Ghana, Nigeria, Senegal, Uganda and Zimbabwe are all also active.
Roberts says the report does also recognise the infancy of the industry. “Regulation and policy for alternative finance are at the very earliest of stages of development for many financial regulators globally, and this is the case in Africa,” he said.
Nevertheless, there have been several positive steps towards developing a specific regulatory response to this emergent industry that provides additional and vital channels of financing for individuals, startups and SMEs.
Daniel Rajkumar is managing director of the UK-based P2P lending Software as a Service (SaaS) company White Label Crowdfunding (WLCF). He says his company has for two years running had delegates from South Africa attend its FinTech North conference, evidencing the interest from entrepreneurs to set up and operate a P2P lending platforms in South Africa.
“As a technology provider to platforms in Australia, USA, UK, Singapore and the Caribbean, WLCF is familiar with operating in both regulated and unregulated environments. Fortunately, there is a lot of synergy with the regulatory frameworks that have been developed for P2P lending. The pioneers are invited to shape the regulatory framework in their country, through consultation with their local regulators,” he said.
Rajkumar says those who invest early have the opportunity to shape the industry and face lower barriers to entry.
“We are excited to be consulting with various interested parties and we are confident that we will have launched our first client platform in South Africa by the end of the year,” he said.