In the past few years, a number of Latin American financial technology companies have established a presence in Africa to capitalize on its expanding digital payments sector.
The most recent to join is Minka, a Colombian fintech supported by Tiger Global. Minka develops payment networks that enable individuals to transfer funds between participating banks and other financial institutions.
East African Launch and Expansion Plans
On Tuesday, Minka initiated its operations in East Africa, setting up shop in Kenya, Tanzania, Uganda, and Ethiopia. The company has plans to further expand into Mozambique, Zambia, and Malawi in Southern Africa.
Minka’s entry into East Africa aligns with the broader trend of Latin American fintech companies expanding their operations into Africa.
In 2022, EBANX launched its services in 11 African countries. Two years prior, Uruguay-based dLocal commenced operations in West Africa and Kenya.
The expansion is a logical step as both regions share similar challenges, with over 350 million African adults lacking access to financial institutions and relying solely on cash transactions.
Addressing Financial Inclusion Challenges
“We are tackling these issues across the LatAm region and now aim to bring these advantages to the people of East Africa,” the company stated in a communication to TechCabal.
Minka perceives “genuine synergies between the work we are doing in Latin America and the challenges faced in East Africa,” as stated by the company’s growth lead Alexander Perko to TechCabal.
High levels of financial exclusion characterize these similarities, with Latin America and sub-Saharan Africa accounting for eight of the bottom ten ranked markets for overall financial inclusion. A significant reliance on cash transactions coupled with large informal sectors also contributes to these similarities.
Streamlining Money Transfers
Minka’s business model is quite straightforward; it utilizes proprietary financial protocols to expedite money transfers between banks and other financial institutions.
This is achieved by establishing a common language for different payment systems to communicate, eliminating the need for intricate reconciliations.
“There exist approximately 2,000 distinct payment networks globally, with a mere 3% being interoperable,” Perko clarified.
Fintech companies like Minka, EBANX, and dLocal provide a platform for Africans who desire to purchase global products but are unable to, given that some global merchants do not accept their preferred payment methods, such as mobile money or cash.
These fintechs offer a solution by enabling global merchants to accept local African payments.
Financial Inclusion Gaps in Latin America
Similar to Africa, Latin America also faces financial inclusion gaps: 58% of individuals in the region have access to credit cards, but fewer (3 in 10) have access to other financial products such as loans or investments.
According to a report by the World Economic Forum, this disparity widens for low-income (59% with bank accounts) and rural areas (40% with bank accounts).
With over 1,500 registered fintech startups and a supportive regulatory environment and collaboration, Latin America has already made significant progress in digital payments.
These companies assert that they can leverage their experience to assist Africa in achieving similar advancements. They also possess established relationships with global merchants, which can be utilized to enter new African markets.