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Fintech space in Tanzania - Best Investment Destination

Fintech space in Tanzania – Best Investment Destination

A big part of the Tanzanian economy, fintech has attracted investors globally, and locally, propelling development, even playing a big part in employment in the country. This article will navigate investing in the pool of opportunities that is fintech space in Tanzania.

The Tanzania fintech space

Tanzania needed financial solutions that would bridge the financial inclusion gap as a result of 67% of the population being unbanked yet needing financial services. Fintech came into the picture, more so that, while the pandemic in 2020 was leading up to a financial crisis, fintech startups thrived as consumers were forced to switch to online channels and digital financial services. 

Fintech in Tanzania has evolved from just offering airtime purchase, money transfer, and cash deposit and withdrawal to a wide range of services, including remittances, digital savings, digital lending, and microinsurance, by leveraging data and financial technologies. 

Why invest in Tanzania fintech?

Tanzania’s large pool of unbanked (67%), youthful population, and strong economic growth make it a fertile ground for fintech, especially in the areas of personal finance and Islamic finance. This has been the major drive for Tanzania’s fintech success. 

Another reason why you should invest in Tanzania fintech is that it’s on a fast-paced innovation route with many solutions coming through. From mobile money to. Fintech accounted for only around 6% of retail banking revenues in 2019. Tanzania’s fintech space is contributing significantly to the realization of the country’s economic and development goals while accelerating toward a cashless economy. 

With a growing pool of Tanzania-based investment actors, the market is also becoming increasingly attractive to funders from other African countries and international investors. Fintech investment in Tanzania grew to approximately $20 million in 2019; this was only a small fraction of the $36 billion invested in fintech globally.

The wide use of mobile money demonstrates growing consumer trust in digital financial services, although this has been the result of considerable effort on the part of MNOs and their agents to provide face-to-face product demonstrations and SMS alerts to explain how to use services. As a consequence, in the coming years, we expect that access to financial services should at least triple. The potential of Fintech in Tanzania is vast and rewarding with significant potential for further growth.

  • Current international investors in Tanzania fintech

What to know about investing in a Fintech startup in Tanzania.

Before investing in the fintech space in Tanzania, you should have an idea of what space has to offer. 

  • Sectors covered in Tanzania’s fintech space.

Fintech in Tanzania has evolved from just offering airtime purchase, money transfer, and cash deposit and withdrawal to a wide range of services, including remittances, digital savings, digital lending, and microinsurance, by leveraging data and financial technologies. 

Fintech providers in Tanzania focus on six market sectors, mainly business-to-consumer (B2C) solutions (91%). These sectors are; 

  • Lending/financing
  • Payment /remittance

However, some are branching out into other sectors including;

  • Savings
  • Insurance
  • Investment
  • Personal finance

Irrespective, Mobile money is still the core of Tanzania Finetech.

  • Potential, Returns, and Growth

Tanzania records 19.5 million active users of mobile money payment platforms who together undertook 80.7 million transactions worth $1.43 billion in value in 2018. Fintech accounted for only around 6% of retail banking revenues in 2019 and Fintech investment grew to approximately $20 million. 

Interoperability of systems across banking, telecommunications, and the internet has led to growth as well. This increases the amount of data available and lowers transaction costs – including through increasing competition, making a cashless economy possible, and transforming many business models to become more profitable. Now, person-to-person (P2P) transactions are available between the four major MNOs.

As consumers seek convenient means to earn better returns locally and gain access to investment options, fintech should help to democratize their options by offering flexible products with attractive interest rates. Significant opportunities also exist for fintech to enable solutions within education and health to address societal challenges such as student financing, digital learning, and affordable health insurance.

For example, Mipango, an artificial intelligence app focused on the informal mass market, aims to help Tanzanians manage their finances while deepening financial literacy. The popularity of financial apps in Tanzania for consumers is on the rise. Many banks and MNOs, with their mobile wallets, have launched, apart from having physical branches or agents, their mobile app in the past few years. Startups such as SPENN, Nala Money Manager, and Tala, offer users an opportunity to apply for credit and receive an instant decision, regardless of their financial history.

  • Challenges

The Fintech investment space has its fair share of challenges, from regulatory to fundraising and competitive issues. Here are a few challenges that come with investing in Fintech in Tanzania.

  • Limited availability of affordable talent with the specialized business and information technology (IT) skills needed by fintech to sustain. 
  • Lack of patient capital with a long-term investment strategy. Some founders indicated that what they need is patient, or long-term, capital defined by the investor’s willingness to forgo immediate returns and exercise some level of flexibility with the expectation of more substantial returns in the future. 
  • There is a missing middle when it comes to financing start-ups in the early stages of development. 
  • There is limited direct engagement between fintech start-ups and relevant regulators to ensure that the needs of startups are adequately considered as regulation around innovation evolves. 

Policy and Regulatory framework

The Bank of Tanzania (BoT) is the regulator of the financial sector which includes Fintech. Depending on what the company covers, it may also be regulated by the TCRA under the Electronic and Postal Communications Act 2010 (EPOCA). Other regulatory bodies include Capital Market and Security Authority, Social Security Regulatory Authority, and Tanzania Insurance Regulatory Authority.

The regulatory landscape in Tanzania has been an issue in the past, with investors shying away from businesses located in jurisdictions with either unfavorable or unclear regulations. This is not to say the regulatory landscape does not give room for the return of investments. In fact, having a multiplicity of regulators in Tanzania has not hindered the high demand for fintech solutions and delivery of services. A good example of pragmatism is the BoT decision to allow electronic money transfer platforms to operate even before a proper legal framework was in place in 2008.

The Tanzanian government is taking steps to accommodate fintech companies operating in the country. Part of government efforts is the harmonization of all mobile-money platforms through the National Switch Interoperability Agreement by the Tanzania Communication Regulatory Authority (TCRA), allowing customers from different mobile wallets to transfer money from one mobile wallet to another. 

The legal and regulatory frameworks governing innovation keep evolving to keep up with the increasing pace of fintech in Tanzania and accommodate investments.

  • What are the good fintech companies to invest in Tanzania?

This would depend on some factors.

One is the company’s stage of development. There is the early stage of development; launched operations after 2016, the pre-start-up stage; still in the testing phase and have not yet officially launched operations and the growth stage; launched operations before 2016, have gained significant traction in the market and are moving into the expansion phase of their operations, including launching in other markets in the region. 

Another factor will be a comprehensive database of the company activities/returns including investor and funding types, investment activities, etc. 

  • What fintech sectors in Tanzania bring the biggest returns on investment?

Mobile money. Over 75% of Tanzania’s population have mobile phones and more than 60% of them have a mobile money account. This has even resulted in more traditional banks collaborating with fintech solutions to adopt this innovation. Most Fintech businesses in Tanzania have to do with mobile money. Which includes mobile banking, mobile lending, and savings, mobile payment, etc. 

However, Tanzania’s fintech sector is growing and maturing, with more startups active in the space than ever before, and offering more solutions. 

How to invest in the Tanzania Fintech space

If you’re considering investing in the Tanzania fintech space but you’re not sure what the right move is, Here’s how to navigate investing in the fintech space in Tanzania.

  • Research 

Carrying out research to know which mine to invest in is the right move to make. Look up the various fintech sectors, check out their statistics, key figures, the impact of economic, social, and technology factors. Research to know risk factors, data, talent, policies, funding, and revenue generation. This knowledge will help inform you and set the track for what to invest in. 

Despite the pandemic, in 2020, the fintech industry saw a lot of growth as people had to rely heavily on fintech services, especially for payment methods. And in 2021, the pace hasn’t slowed. So, looking to invest would be a good thing. But statistics change and different fintech sectors/startups take the leaderboard. Websites like Shikinalaw and Crunchbase help with certain information. It is important not to invest blindly or based on hearsay. 

The next step to take in investing in fintech in Tanzania is to consult the Shikana Law group. Stationed in Tanzania, the Shikana group is a trusted guide for business and investment opportunities. They provide advisory services, strategies to help you navigate and regulate the fintech space challenges, give practical solutions, and risk management, while upholding your reputation and financial wellbeing, to protect your investment.

Shikana group offers all these by leveraging experience and knowledge on the international markets. Financial technology isn’t the only sector they cover extensively. They create customized strategies that meet up your needs and eventually result in smooth returns. The best offer has got to be legal aid and representation. Basically, they offer Research plus guided Legal Actions to ensure the protection of their client’s interest. Though stationed in Tanzania, East Africa, their reach is not limited as they can be contacted anywhere in the world through their well-detailed website.

In conclusion…

Fintech continues to attract more investment and interest in new disruptive business models and from how we consume financial services to how we invest, Tanzanian fintech investment space is expected to grow significantly in the next few years.

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