Gatekeeping digital lending in Africa

Agbaje Ayomide
3 min readJun 8, 2023

With a fast-growing digital finance consumer market in Africa, digital lending offers alternative funding options to Africans with flexibility and speed. This sector has also attracted large sums of investment to become a key growth driver in revolutionizing the continent’s overall consumer credit market. According to surveys by the Commonwealth Chamber of Commerce, 40% of Africans prefer online financial platforms, contextualizing the 102% increase in online alternative financing from $104 million in 2017 to $563.8 million in 2022.

By deploying credit-worthiness models based on borrowers’ data, digital lending startups have become attractive to small businesses and individuals looking for quick loans. These startups have grown with strong investors’ backing.

There is not enough legislation on the regulatory framework for companies offering digital lending services in most African countries. Kenya and Nigeria are two of the most prominent African markets for digital lending, where most loan apps belong to unregistered and unlicensed tech companies making users susceptible to privacy abuse.

However, efforts to crack down on the illegal operations of unlicensed digital lenders have not brought the desired outcomes. But Nigeria’s regulator had fully or conditionally authorized the operations of 106 digital lenders as of January 2023. Also, the Central Bank of Kenya (CBK) has approved only 22 in its country, while nearly 300 startups await the apex bank’s approval.

Babatunde Akin-Moses, co-founder and CEO of Sycamore, a peer-to-peer lending platform, says while the regulation of Africa’s digital lending sector is experiencing a state of awakening, the sector is currently receiving attention. “Thanks to a wave of alleged consumer complaint claims in the form of abusive follow-up messages to borrowers who default on loans. This is a big part of what has led to the recently increased oversight by regulators, but there is also the slow pace and high cost of regulatory compliance.”

He however believes there are several products and services that the digital lending market needs that the licensed entities are not able to deliver based on regulatory constraints. “When you have such unmet demand in a big market, some will likely step in to plug this gap in ways that may blur the lines between being fully regulated or otherwise,” Babatunde told TechCabal via email.

Meanwhile, the app marketplaces like Google PlayStore and Apple AppStore wield significant powers with their market share to impose regulatory standards on African digital lenders and remove unlicensed apps. For instance, Google PlayStore is the biggest platform for discovering digital services in Africa. And since January 31, 2023, Google has strengthened its screening process to mandate digital lenders to obtain approval from local regulators.

While it is necessary to tackle the illegal operations of digital credit providers, an attempt to create excessively stringent laws will not only stifle the market but also limit the funding to small businesses and individual consumers in a tough economic environment. Regulators and digital lenders must work together to accelerate the transformation of Africa’s financial lending markets towards equitable and fair digital lending.