One of the strangest ironies experts have about Nigeria is that she is the China of Africa. Such unfounded comparisons by economists and financial analysts without a thorough examination of the security situation in Nigeria and the unhealthy economic policies need to be explicitly debunked. A country’s economy thrives in favorable policies and security situations intended to promote and protect startups as they are without doubt the neural support of every economy. They are more in number and contribute by hiring the citizens. But while China engages in policies that foster the creation and growth of startups, the Nigerian government makes policies that not only stifle startups but also make a bland of indigenous companies. Nigeria has excellent human talents that have the capacity to build a strong economy, but such talents are nothing with strong policies.
Fintech growth in the last two decades has been phenomenal such that many people in developing economies have been lifted out of poverty. It relates mainly to small start-up companies, which develop innovative technological solutions in such areas as online and mobile payments, big data, alternative finance, and financial management.
Fintech is particularly essential in third-world countries as it serves to support underbanked areas. These are regions that are considered unsafe or too expensive for traditional banks due to security, electrical supply among others.
Nigerian Fintech Policies
Nigeria has the largest economy in Africa with over 250 million people. More than half of the population are teeming with youths with an average age of 25. With an increasing phone penetration, high level of education and entrepreneurial spirit, regulations towards a cashless policy, and a high number of the underbanked population prepared a perfect scenery for fintech growth and development.
With these factors at the disposal of Nigeria, she is only the second-largest fintech market in Africa, trailing behind Kenya, a country with about 20% of the Nigerian population. Between 2014 and 2019, Nigeria’s fintech scene raised more than $600 million in funding, attracting 25 percent ($122 million) of the $491.6 million raised by African tech startups in 2019 alone—second only to Kenya, which attracted $149 million.
Recent Policies made by Nigeria may even slow down the current growth rate and may play into the benefit of the neighboring countries.
Recent Fintech Policies
The Central Bank of Nigeria (CBN) has the vested primary responsibility for making policies for the fintech sector in the country. They issue and have the authority to withdraw licenses to traditional banks and other fintech players.
Indigenous startups face major challenges in the policies of Nigeria. As of 2017, the CBN had no regulation at all for trading cryptocurrencies but it stated that people who engaged in crypto transactions did so at their own detriment. But speaking to Cosmas who would prefer his name to be withheld, he told us that policies were not favorable and lack of a firm policy and implementation made room for trading crypto in the black market and corruption. He said that he was required to make about five different layers of registration with exorbitant costs.
In November last year, the CBN banned crypto trading in Nigeria. A Nigerian crypto trader who spoke in anonymity confided that people now trade crypto in the black market. He says: “Black market crypto traders in Nigeria do not have to pay taxes which is to the detriment of the government.” Some other traders now prefer to register their crypto business in Nigeria’s neighboring countries like Ghana while trading from there. This even further shifts the revenue generation to Ghana.
Another recent policy made by the CBN which came under effect in November was the diaspora remittance exchange policy. With the new law, recipients of all foreign exchange transactions in Nigeria flowing through World Remit, Transferwise, MoneyGram etc are only in dollars.
The law stipulates that “IMTOs must ensure that all funds in favor of beneficiaries /recipients are deposited into the Agent Banks’ (Deposit Money Banks [“DMBs”]) correspondent account.”
This leaves a big question for underbanked populations that have no direct access to traditional banks in Nigeria and depending on international remittance. This regulation also creates extra layers of responsibilities making it difficult to access funds in the country.
How Neighboring Countries Can Benefit from Nigeria’s Unfavorable Policy
The cryptocurrency was highly instrumental during Nigeria’s EndSARS protest. Nigerians raised millions of Naira in a few days. Other human rights activists have also received massive support from international communities through crypto crowdfunding. With the ban, desperate Nigerian crypto traders have the option to either trade in the black market or register their trade-in countries bordering Nigeria.
While the Nigerian government cited security interest in the ban of the crypto, there could have been other favorable policies that would have been made and implemented to adopt and regulate crypto trading and increase revenue generation for the country. Until such positive regulatory policies are made, the fintech sector in Nigeria will continue to lag behind and neighboring countries would make profits from such incapabilities.
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