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African Fintech Startups Received Most Investment Funding Of All Sectors In 2016

African Fintech Startups Received Most Investment Funding Of All Sectors In 2016

Significantly more African tech startups raised funding in 2016 than the previous year, but the overall total of recorded funds decreased, according to the Disrupt Africa African Tech Startups Funding Report 2016.

Of the nine sectors analysed in the report, the fintech sector received the most backing.

During 2016, 146 startups from across Africa raised more than $129 million. That’s a 16.8 percent increase over the previous year, Disrupt Africa said in a press release.

The African tech space is not immune to the economic pressures faced by other sectors, but it is proving resilient, said Tom Jackson, co-founder of Disrupt Africa.

Launched in November 2014, Disrupt Africa is a news website pertaining to the continent’s tech startup and investment ecosystem.

“The general theme of 2016 has been more rounds, but with fewer standout tickets than in 2015,” Jackson said. “The fact more startups raised funding in 2016 than ever before demonstrates the vitality of this sector, and we expect investor interest to grow and grow over the course of 2017.”

South Africa, Nigeria and Kenya remained the three most popular investment destinations on the continent, accounting for 80.3 percent of funds secured. Meanwhile, Egypt experienced over 100 percent growth in fundraising, making it the fourth ranked destination.

Fintech startups received the most backing in 2016 for a combined $31.4 million recorded, Disrupt Africa reported.

The economic downturn played a part in the increased interest in fintech ventures, Dipolelo Moime wrote in a report for Venture Capital For Africa.

Financial institutions have turned to technology to improve the effectiveness of their processes while reducing costs. New regulations have created demand for new and innovative ways to manage compliance and reduce risks.

Fintech in Africa is driven by continued expansion of digital connectivity, with more and more connected devices in the hands of businesses and consumers.

Global investment in fintech ventures has tripled over the last five years and is expected to double again to an estimated $6 billion by 2018, according to a report by Accenture and the Partnership Fund of New York City.

But the fintech space in Africa is different from developed economies, said Wim van der Beek, founding partner at Netherlands-based Goodwell Investments. For one thing, African fintech is not disrupting anything, van der Beek said in a Ventures Africa guest column:

Whereas in developed economies fintech is disrupting traditional banks and financial institutions, in most of Africa … there is nothing there for it to disrupt. In developed countries, the formal banking system is very widespread, with physical bank branches available in every city, town and village.

This is not the case in most of Africa, where it has not been financially viable for banks to offer last-mile services. South Africa’s highly developed financial services sector is the exception rather than the rule.

Fintech startups in Africa are building a whole new infrastructure rather than disrupting an existing one. Mobile wallets are functioning as bank accounts; there will never be a need for most Africans to adopt traditional banking services. And these mobile wallets are then creating access to other financial services, such as insurance and loans.

The Disrupt Africa African Tech Startups Funding Report includes data on startup acquisitions in 2016, as well as survey results relating to preferences and trends in the entrepreneur and investor communities in Africa.