To support the Rwanda Payment System Strategy 2018-2024, the UN Capital Development Fund (UNCDF) provides technical assistance for innovative approaches to regulation. Thus, helping Fintech startups to navigate regulatory requirements and engage with regulators on compliance issues in partnership with the Rwanda National Bank (BNR) and the Fintech industry. Fintech startups will thrive and prosper in an atmosphere that encourages innovation in the financial sector.
During the last five years, Financial Technology (Fintech) startups in Rwanda have virtually tripled from 17 in 2014 to 44 in 2019 as stated by The UNCDF. More than seventy-five percent of Rwandan Fintech startups specialize in financial services, with remittances and payments being the most popular Fintech applications.
As of now, there is little information about Fintech startups operating in Rwanda, and a mapping exercise of ecosystem players has yet to be finished. The situation in Rwanda offers market participants a chance to define the Fintech ecosystem fit for the national context and establish a live Fintech database to track Fintech startup operations and growth in the country in the future.
When the Payments Department at BNR (National Bank of Rwanda) and UNCDF (UN Capital Development Fund) decided to perform a Fintech landscape analysis in May 2021, they created a central repository of data on Fintech startups operating in Rwanda.
This study of Rwanda’s Fintech ecosystem aims to create a consolidated database of information regarding the country’s Fintech companies’ current and future trends were discovered through a thorough examination of the Fintech ecosystem’s talent, demand, capital, policy, and regulatory landscape. The findings on each of the four qualities are highlighted in the study. To begin with, fintech firms rely primarily on their founders, who may lack the practical knowledge required for a successful startup. Senior associates could help startup founders blend their technical skills with broader practical experience.
Due to a shortage of investment, Fintech startups have been unable to satisfy unmet requirements for various financial goods and services. Financial services are underserved in this market because it is so focused on payment products. Fintech startups have difficulty reaching a significant number of potential clients because of the lack of financial literacy and trust in digital solutions. Startups focusing on B2B models also face complicated procurement processes, especially when working with large organizations.
Challenges Facing Rwandan Fintech Startups:
Fintech startups in Rwanda have limited funding options, like other African industries. Starting in the fintech sector is challenging without the support of many local investors who understand the industry and can evaluate business risks. Foreign investors might be particularly risky because of their lack of local market expertise and contextual awareness. Many startups are unable to hire top people due to a lack of seed and early-stage investment options. As a result, it may be more challenging to find certain skill sets in Rwanda.
Some policies and regulations make it more difficult for fintech startups to get started. Fintech startups, for example, they face significant data storage and hosting expenses as a result of data localization policies. Starting-ups’ operations costs are increased due to these fees, along with the annual USSD licensing and telecom integration fees. These limit their ability to market-test and pilot new ideas. Startups in the financial technology sector can likewise not access the National Identification database or the payment switch because of their modest size and perceived risks.
To meet know-your-customer (KYC) regulations and route money, startups rely on partner banks and telecommunications providers. Authorities have granted fintech users tier-based access to the national ID database, allowing them to be vetted more swiftly and efficiently. The Rwanda National Digital Payment System project is developing a layer for an open application programming interface for fintech startups that require secure access to the payment switch.
The landscaping process identified primary facilitators and bottlenecks in Rwanda’s fintech ecosystem. The paper’s findings have suggested potential areas of work for ecosystem facilitators to address some of the challenges raised. UNCDF Rwanda intends to use these findings in collaboration with other ecosystem facilitators to enable fintech startups to achieve product-market fit and scale potential.
The objective of this analysis of the Rwandan fintech landscape is to provide information in three key areas:
- Number, types, and stages of operation of fintech startups operating in Rwanda.
- Capacity, needs, and challenges of fintech startups to scale up their operations.
- Experiences of Fintech startups with the current regulatory framework.
Talent, demand, capital, and policy and regulation comprise the Ernst & Young framework’s definition of a Fintech ecosystem. The current situation in Rwanda has seen some improvement in all attributes, but problems persist.
A report validation workshop that included representatives from the government, non-governmental organizations, associations, Fintech, banks, and non-bank financial institutions recommended several interventions that ecosystem facilitators can carry out on each of the four attributes to address the current challenges.
- The policy climate is supportive, but comprehensive policy interventions together with regulatory sandboxes would improve it.
- Fintech firms require assistance in matching technical know-how with good business acumen.
- Fintech goods must answer the market’s needs, which necessitates product and market research.
- Funding is severely lacking.
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Ken is a Quantitative Trader with experience in investments, quantitative finance, financial modelling and algorithmic trading in Global Investable Markets (GIM). He enjoys using Bayesian Statistics, Time Series and Machine Learning in developing Robust consistent Alphas in Equities Market, FX, ETPs and Derivatives instruments. He enjoys deep dives in understanding High Frequency Trading infrastructures and improving how the African financial markets work. He holds a Bachelor's in Actuarial Science from Strathmore Institute of Mathematical Sciences : An Executive Program in Algorithmic Trading (EPAT) certificate in Algo Trading from QuantInsti : A current MSc student in Financial Engineering at World Quant University.