AFIS 2024: Capital Markets – FSPs and Fintech Can Connect the Dots Between Investors and Issuers

By Aigbovbioise Aig-Imoukhuede*

Access to capital markets will be the catalyst of Africa’s future economic and industrial growth, if we can build a continental culture that understands the value of investment. However, to ensure this democratisation of wealth creation, two important stakeholders will have to do more to build investment culture: financial service providers (FSPs) and fintech innovators.

Nations across the continent have been intensifying their efforts to develop liquid capital markets, especially as they can act as a funding platform for numerous public sector projects, from infrastructure development to growing small and medium enterprises (SMEs).

However, as it stands, Africa’s equity markets are limited, with low liquidity and fewer listed securities than our global counterparts. Government issuances often dominate bond markets, meaning private issuances are often less prominent or displaced. Yet it is not merely the markets themselves that are limited, as a major hindrance to developing them is an overall knowledge deficit among general public investors with investable income.

For example, the number of active investors in the Nigerian equities market still remains at under 100 000. The number of unit holders in collective investment schemes is under 800 000. For a country that has 218 million people, this is only a tiny percentage of the population.

The reason for this is not about asset quality or the availability of asset classes – there are incredible product selections across the continent. Rather, there is limited knowledge among the population about how to invest, where to invest, and what to invest in.

Traditional banks are still popular, and their services often easier to understand. So why would someone without financial knowledge invest in equities, or a fintech organisation, when they can simply save at a traditional financial institution? Unfortunately, there is a widely held misunderstanding of investment culture, and not enough participation.

Underdeveloped digital and network infrastructure is still a concern across the continent, especially affecting rural communities, meaning the digital divide has not yet been bridged and many simply don’t have access to this digital economy and investment tools. However, it does seem the fintech sector is helping to close some of these gaps, especially as the next generation of tech-savvy young people become working, income-earning adults.

The Fintech Digital Eruption is going to be integral to developing African economies and bolstering financial inclusion, featuring innovative new services designed to be accessible while unlocking new opportunities for investment, payment, and trade.
Just a few decades ago, payment options were generally limited to using a traditional bank for transfers of funds. However, many fintech success stories across Africa are about how these innovative start-ups started to develop new payment solutions for the public.

The reason the fintech sector has been flourishing is due to many early pioneers who noted that Africa’s payment sector is underdeveloped, and are now linking financial institutions, such as banks, with other businesses and mobile money providers.

However, many fintech innovators are still trying to develop products that can tap into Africa’s informal sector, where cash remains king – and some of the greatest disruptors here are those that have created new mobile money services. Mobile money is considered one of the greatest African financial inclusion success stories, with such services alleged to be contributing to an increase in gross domestic product (GDP).

According to The State of the Industry Report on Mobile Money 2024: “In East and West Africa where mobile money adoption is highest, GDP increased even more – by 5.9% and 4.1%, respectively, by the end of 2022”.

Simply put, when we examine the investment platforms that are growing among African investors, we have noted that they have a key focus on capital preservation (low risk investments), or simply products that offer great rates of return – rather than products and services that increase the capital’s value significantly over time.

For issuers trying to raise capital, there are fintech products, like our own Coronation Wealth, available to help break down high net worth investment opportunities to allow individuals to invest even if they can’t reach the five-million-naira limit. Products that promote broader access to diverse investment strategies are essential.

While the fintech sector is providing the tools, it will be up to FSPs to drive capital markets, both for investors and issuers, from the ground up. By developing bespoke products, the financial services sector can cater to the very specific needs of a given market, helping facilitate micro-investment, P2P lending, low-cost-payments, and zero-fee banking. FSPs can also provide technical expertise to help determine feasibility and scalability of investment products and markets.

Meanwhile, for those already working with the public sector, such as Coronation, we can also work on developing policies and regulations to enable (and regulate) new capital market products or infrastructure. For issuers, however, there are further ways in which financial organisations can mobilise funds, deploying them towards issuers looking to raise capital by investing in the appropriate instruments – that have been approved based on our investment guide and ethical standards.

But from a ground level, what is vital is helping to build greater financial literacy. The Coronation Investment Academy offers a course that has just reached 100 000 users, teaching the foundational concepts: for example, the difference between savings and investment, how to improve our savings capabilities, when is the time to invest, etc. Similarly, we need to give potential investors the opportunity to dip into capital markets. Gamification of the investment space is helping people – especially young people – to better understand and assess the real risk (or opportunity) of a given investment. Virtual trading games (where you don’t risk losing real money) are teaching the fundamentals and giving people the confidence to invest for real. The Coronation Wealth app allows this through our fantasy league, while also giving real monetary rewards to the most successful among our “players”.

Ultimately it is our role within the financial services sector to develop innovative new platforms to assist in building capital, help to raise capital, and also to encourage our clientele to use digital platforms on their investment journey. This way, they will not fall behind as the rest of the globe trends towards a greater culture of investment.

*Aigbovbioise Aig-Imoukhuede is Managing Director of Coronation Asset Management