DIGITAL ECONOMY & TECHNOLOGY

Fostering Fintech and Wider Tech Youth Entrepreneurial Empowerment in Africa

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2 years ago

November 16, 2022

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By Richie Santosdiaz

The African continent is massive – spanning across a diverse range of territories in terms of their cultures, languages, histories and economic development. With the ladder, the continent, particularly its youth, as whole has the potential to grow and further develop its human talent. How can this foster and help Africa?

PROMOTE TECH AND ENTREPRENEURSHIP AT A YOUNG AGE THROUGH EDUCATION

First, promoting fintech, wider tech, and the concept of entrepreneurship at a young age in schools is important. It will help to show the current and future youth that careers in tech and the idea of starting one’s own business is a respected career path – as what many view professions such as doctors, lawyers and engineers – for instance. Evidence of this is already happening. For example, Mastercard’s signature science, technology, engineering and mathematics (STEM) programme, Girls4Tech™, recently reached its initial goal of educating one million girls. They have an ambition to reach five million girls by 2025.

It is not only just encouraging the future generation to get into tech but to give the youth access to an education and the digital tools such as edtech to learn. Online learning and other resources to transmit knowledge are needed. However, it remains a challenge when it is estimated that 800 million Africans do not have internet.

It is worth noting that, according to the African Development Bank, 22 percent of Africa’s working-age population are starting businesses, which is the world’s highest entrepreneurship rate in the world. In addition, Africa’s female entrepreneurship rate at 27 percent is also the highest in the world. By not only promoting tech, entrepreneurship and tech within that can further propel the current and future youth.

MAKE IT EASIER TO START A BUSINESS AND REDUCING POVERTY

Second, access to finance and all components to start a business. In addition, as Africa as a whole is an emerging region in terms of economically, there still remains work in reducing the rate of poverty across the continent. For example, in terms of youth employment, Uganda and East Africa, despite having talent in the area, has a youth unemployment rate of around 80 percent. In terms of poverty, Africa in 2015 had a poverty rate of 41 percent. With infrastructure, 31 percent of the global population does not have 3G coverage, while 15 percent have no electricity. In sub-Saharan Africa, some 600 million people (almost two-thirds of the region’s population) do not have regular electricity.

With starting a business, African countries are not often on the top of the list such as Singapore, the United Arab Emirates (UAE) or the United States. Many countries unfortunately do not rank high in ease of doing business such as that of the World Bank. Saying that, Rwanda (29^th– the second highest in Africa) and Mauritius (20^th – the highest in Africa), do rank well. Despite the challenges in Africa as a whole, there are various attempts to change this.

For example, in a press release earlier this year, the African Development Bank Group (Groupe de la banque Africane de Developpement) stated that the group has been at the forefront of driving Africa’s economic transformation, leveraging its diverse resources and unique know-how as an indigenous development finance institution. Its ten-year strategy has shown benefits for millions of Africans, such as a $7.6 billion replenishment by donors of the African Development Fund (ADF), signifying a 35 percent increase. The ADF’s objectives are to contribute to poverty reduction and economic and social development the 38 least developed African countries through providing concessional funding for projects and programmes, in addition to technical assistance for studies and capability development activities.

Another example of the success of the work the ADF has done has been resource mobilisation for women-owned businesses at the G7 summit. Back in August 2019, the President of the Bank Group, Akinwumi Adesina, launched a global campaign of the Affirmative Finance Action for Women in Africa (AFAWA) to mobilise $3 billion for female entrepreneurs in Africa.

USE DIGITALISATION AS THE FOREFRONT FOR CHANGE

Wider digital transformation is a key trend globally, even before COVID-19; in Africa this also applies. With the changes in daily live, both in a pre and pandemic world, aspects of life from payments to artificial intelligence (AI) have strong tech components. Fintech plays a significant role in a country’s digital transformation.

For example, at a recent webinar ‘Nordic-African Webcast 2020’ organised by the Norwegian-African Business Association, H.E. Dr Amani Abou-Zeid, Commissioner for Infrastructure and Energy, participated together with H.E. Ine Marie Eriksen Søreide, Minister of Foreign Affairs of Norway, Mr. Raymond Carlsen, CEO of Scatec Solarand and Mr. Samalia Zubairu, President and CEO of Africa Finance Corporation. The panel discussed opportunities for Nordic-Africa partnership and investments. The AU Commissioner highlighted that despite the pandemic, it provides an opportunity to address challenges in Africa, notably digitalisation, renewable energy and skills for the future.

In terms of closing gaps with digital solutions, for instance, much of Africa is unbanked, such as in Egypt where an estimated that 67 percent of Egypt’s population is still unbanked. This has allowed for African home-grown technology such as M-Pesa to help address challenges in the continent. M-Pesa is a mobile phone-based money transfer service, payments and micro-financing service, launched in 2007 by Vodafone Group plc and Safaricom, Kenya’s largest mobile network operator.

REVERSE BRAIN DRAIN

Third, reverse brain drain is important to address. It is important to note, not just in Africa as a whole but across the developing world, often the brightest highly-educated often would be lured to developed economies such as the United States, Canada and Western European countries like the United Kingdom and Germany as well as in Asia Pacific such as Singapore and Australia. This is clear with other developing countries such as India, the Philippines, Pakistan and Bangladesh, where millions of their citizens – both low and highly-skilled individuals – seek future opportunity abroad.

For example, Nigeria, Ethiopia, Egypt, Ghana and Somalia were the top countries in Africa where their citizens migrated to the United States. This is not just a problem with emerging economies like the African continent as a whole but even within developed economies like the United States, where in tech for instance the best and brightest will often migrate to tech clusters such as Silicon Valley and San Francisco in California or New York City.

The challenge tech as a whole and specifically entrepreneurship and innovation brings is that if the aspiring entrepreneur leaves their country, they are taking not only their talents but future benefits to the economy such as job creation, revenues in taxes – to name a few – as well as intangible benefits such as innovative know-how and IP of his/her solution to the benefit to tech clusters like Silicon Valley, London or Dubai.

To point out, it is not only encouraging the current populations in Africa to create innovation in their home countries but also to encourage the successful African diaspora either to return back and/or invest in their country of origin.

Converting Africa into significant highly-skilled economy and fintech and wider tech can play a huge component of that. Despite a long-road to doing that, there have been significant steps made. This will continue if human capital and talent are fostered and empowered to generate future African tech solutions.

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DIGITAL ECONOMY & TECHNOLOGY

The Digital Currency that could Upend how the Gulf Trades

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7 months ago

September 29, 2024

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By Shruthi Nair

Project mBridge – a China-led central bank digital currency initiative, which the UAE and Saudi Arabia are part of – could have “broad strategic implications” for regional trade, according to market analysts.

A CBDC is a digital form of a country’s fiat currency, which is backed by a government. It eliminates the need for intermediaries like banks, or even other currencies such as the US dollar, to facilitate real-time, peer-to-peer, cross-border payments.

“When we look at international trade, not much has changed over the decades. It is a primitive method in the digital age,” Arun Leslie John, chief market analyst at Century Financial, said.

China’s global digital yuan transactions amounted to 7 trillion yuan ($986 billion) in the first six months of this year. The UAE’s inaugural cross-border payment utilising the digital dirham amounted to AED50 million ($13.6 million).

Considering the UAE and China are major trading partners with the total volume of bilateral trade between the two countries reaching $95 billion last year, project mBridge would significantly reduce and replace the use of dollars in this case. However, analysts believe that it might be too early to conclude whether CBDCs could result in global de-dollarisation.

“Dollar is the choice of transaction for global trade. The US has the deepest capital, debt and equity market. Many countries around the world would want to diversify away from the dollar but they aren’t able to do so,” John said.

While Europe does not have deep debt markets, the Chinese government has capital controls over the yuan. So the only remaining choice is the dollar.

Countries such as Russia and Iran that are facing sanctions stand to be beneficiaries of CBDCs and initiatives like mBridge too. While the Russian central bank announced plans to launch its CBDC next year, the central bank of Iran said that its digital rial will be used for retail transactions, including purchasing goods and services.

“In the current international payment structure, countries can arbitrarily kick out one country from the system. This reduces strategic autonomy and political power of other countries involved,” John said.

To find out how CBDC’s work and its retail use cases, click to watch the video above

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DIGITAL ECONOMY & TECHNOLOGY

How Blockchain can Enhance Islamic Finance by Overcoming Barriers

Published

7 months ago

September 16, 2024

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By Aamer Yaqub

Blockchain technology is making waves in the financial sector with its promise of transparency and immutability. These features align closely with the principles of Shariah law, which governs Islamic finance, creating significant opportunities for blockchain to overcome barriers and unlock growth. The Islamic finance sector is projected to reach approximately $6.7 trillion in assets by 2027, as noted in LSEG’s Islamic Finance Development Report. In this evolving landscape, blockchain technology is emerging as a crucial tool for addressing the unique challenges faced by Islamic finance.

Islamic finance operates under Shariah law, which prohibits practices such as interest (Riba), excessive uncertainty (Gharar), and speculative transactions (Maysir). Blockchain technology’s core attributes—transparency and decentralization—are well-suited to address these constraints. Blockchain can effectively enhance compliance with Shariah principles by providing a tamper-proof ledger and facilitating decentralized transactions. Its ability to create a permanent, verifiable record of transactions aligns well with the Islamic finance requirement for clarity and accountability.

According to Moody’s, innovations like smart contracts are poised to improve Islamic finance transactions significantly. Smart contracts are self-executing contracts with terms written directly into code. They automatically enforce Shariah-compliant rules, reducing human error and enhancing transparency. These advancements support real-time settlements, which align with Islamic finance principles of fairness and clarity. By using blockchain to overcome barriers related to transparency and automation, financial processes can become more efficient and compliant with Shariah.

Enhancing Transparency and Efficiency

One of the most significant ways blockchain can overcome barriers in Islamic finance is through its ability to enhance transparency. The immutable nature of blockchain ensures that every transaction is recorded in a tamper-proof ledger, providing a clear and verifiable record of all financial activities. This transparency is crucial for maintaining compliance with Shariah principles, which demand a high level of clarity and accountability in financial transactions.

Blockchain technology facilitates smart contracts that automate the execution of Shariah-compliant financial agreements. This not only streamlines processes but also reduces the need for intermediaries, lowering transaction costs and increasing the speed and accuracy of financial transactions. By addressing long-standing challenges in Islamic finance, blockchain technology is helping to create a more efficient and reliable financial system.

Modernizing Charitable Giving

Blockchain technology also holds promise for modernizing Zakat, the obligatory charitable giving in Islam. Traditionally, the collection and distribution of Zakat have faced challenges related to efficiency and transparency. Blockchain can address these issues by providing a more transparent and efficient platform for managing charitable contributions.

With blockchain, Zakat collection and distribution can be streamlined, ensuring accurate tracking of funds and effective distribution to eligible recipients. This technology allows donors to see exactly how their contributions are used, enhancing trust and accountability. Additionally, blockchain can facilitate the creation of smart contracts to automate the distribution of Zakat, ensuring compliance with Shariah guidelines and reaching those in need more efficiently.

Addressing Challenges and Compatibility Issues

Despite its potential, the integration of blockchain into Islamic finance comes with its own set of challenges. The compatibility of digital assets, including cryptocurrencies and tokenized assets, with Shariah principles, is a topic of ongoing debate. Concerns about speculation and anonymity associated with these assets pose significant challenges, as they contrast with the Islamic finance emphasis on transparency, accountability, and ethical conduct.

Digital assets, particularly unbacked cryptocurrencies, have sparked discussions about their suitability for Islamic finance. The potential for speculation and the lack of intrinsic value associated with some digital assets diverge from Islamic finance principles that prioritize stability and ethical behavior. As a result, Shariah scholars and financial institutions are actively evaluating the compatibility of these assets with Islamic financial principles.

A promising alternative is Central Bank Digital Currencies (CBDCs), which align with Shariah principles by emphasizing transparency, fairness, and social welfare. CBDCs offer a way to digitize national currencies, providing a more efficient and accessible payment system while maintaining compliance with Islamic financial principles. This approach could address some of the concerns associated with speculative digital assets and provide a stable alternative for Islamic finance.

Islamic Finance Innovation in the UAE

The UAE serves as a notable example of how blockchain can be integrated into Islamic finance effectively. With a well-regulated Islamic finance sector, the UAE is at the forefront of digital assets innovation. The country’s regulatory framework for digital assets is overseen by key federal bodies, including the Securities and Commodities Authority (SCA) and the UAE Central Bank. While the SCA focuses on securities-related matters, the Central Bank regulates digital currencies and stored value.

The UAE also has three additional jurisdictions for digital assets regulation: the Dubai International Financial Center (DIFC), regulated by the Dubai Financial Services Authority (DFSA); the Abu Dhabi Global Market (ADGM), regulated by the Financial Services Regulatory Authority (FSRA); and the Virtual Assets Regulatory Authority (VARA). Each jurisdiction approaches digital assets regulation with a unique focus, contributing to the dynamic regulatory landscape in the UAE.

The UAE’s proactive stance on digital assets regulation and innovation underscores its commitment to leveraging blockchain technology to enhance its Islamic finance sector. The country’s regulatory framework continues to evolve, aligning with international trends and addressing emerging challenges.

Strategic Integration and Collaboration

For Islamic finance institutions to fully capitalize on blockchain technology, comprehensive adoption strategies are essential. These strategies should include technology integration, Shariah compliance, regulatory adherence, risk management, and customer education. Collaboration with Shariah scholars and experts will be vital to ensure that blockchain initiatives and digital asset offerings align with Islamic ethical and legal principles.

Many Islamic banks and financial institutions are exploring blockchain technology to streamline their operations. However, they face challenges related to regulatory compliance and interoperability with existing legacy systems. To overcome these obstacles, institutions are seeking solutions to integrate blockchain effectively while ensuring alignment with regulatory requirements and Shariah principles.

In conclusion, blockchain technology holds significant promise for overcoming barriers and unlocking growth in Islamic finance. By enhancing transparency, efficiency, and compliance with Shariah principles, blockchain can address the unique challenges of Islamic finance. As the technology continues to evolve, its integration into Islamic financial practices will likely become increasingly sophisticated, driving further innovation and growth in the sector. The potential of blockchain to transform Islamic finance underscores the need for ongoing collaboration, research, and strategic planning to fully realize its benefits.

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