The International Monetary Fund has indicated that there is significant potential for fintechs in enabling offline payments in Nigeria and the rest of sub-Saharan Africa.
This was revealed by the mission chief and assistant director of the International Monetary Fund’s Africa department, Luca Ricci, at the webinar on the findings of the IMF’s latest departmental paper on digital payment innovations across sub-Saharan Africa.
The latest departmental report titled ‘Digital Payment Innovations in Sub-Saharan Africa’ found that many sub-Saharan African countries exhibit structural challenges, particularly with respect to mobile and internet penetration, but also in terms of unreliable electricity supply, large IT skill gaps, low financial and digital literacy, and slow and costly payment systems (notably for cross-border transactions).
Also, it was observed that most countries exhibited high informality, low financial inclusion, and shallow financial systems with weak traditional banking penetration.
Speaking during the webinar, Ricci, who led the report, said the next wave of financial inclusion and growth in Nigeria and sub-Saharan Africa hinges on the private sector’s ability to serve millions of citizens who remain disconnected from the digital economy due to infrastructure gaps.
He said, “It’s important to highlight that Africa, because of the limited digital infrastructure aspects, should leverage in the short term, in particular, exploiting offline capabilities, and that’s something that other countries have also been exploring. If there are remote areas where connectivity is very limited, then standard solutions may have a hard time being effective, no matter how perfect you design them.”
Seeking action from the private sector, Ricci frames the development of offline solutions as a scalable business opportunity and a direct challenge to private sector innovators, saying, “Often, innovators do not want to spend too much time and energy on a solution that works only in one particular little remote region, but if they know that it will be paid attention to and there is a demand for it, that solution for a particular small region could then escalate to many other countries and many other regions, and then it becomes a very worthwhile investment to do.”
Ricci described a potential system where a user’s balance is stored on a secure digital device they carry, allowing for transactions without a network connection, a method he noted is “often safer than just bringing around cash.”
During the meeting, the subject of the e-naira and its lacklustre outing came up, with Ricci saying, “I’m not sure I want to be explicitly commenting on e-naira, but I think a central bank that is planning to issue a central bank digital currency, let’s say they’ve done the homework that they figure there is a market failure or there is another rationale, and they feel that that’s the top priority for them, that’s great, so they will have to first start exploring with pilots and see how pilots work within the country.”
The report also strongly advised against the adoption of crypto assets as legal tender, saying that instead, countries should implement a strong legal and regulatory framework to manage risks related to financial stability, integrity, and consumer protection. The report called for a distinction between fully backed stablecoins and more volatile crypto assets in regulations.
It also underscored that a digital finance agenda cannot substitute for sound macroeconomic policies and good governance. Confidence in the local currency and economy is a necessary foundation for digital finance to thrive, said the report.
