Financial technology, or ‘FinTech’, has done much to advance financial inclusion for millions of unbanked Africans in sectors as insurance, savings and remittance payments. But the investment sector has been untapped for the most part. This is now changing as new platforms start to offer micro-investment services where everyone can participate, both at the macro level for African stock exchanges as well as at the micro level where investments can be made into SMEs and promising startups.
The fact that the majority of stock is owned by the wealthy is as true for Uganda or for Botswana as it is for the United States, where the top 1% of Americans own twice the amount of stock as the bottom 90%. Thus the concept that people of lower income levels can (and should) own stock is relevant for countries around the world and at different levels of development. Due to recent technological innovations and mobile platforms, micro-investment is possible for the very first time.
EasyEquities (South Africa)
EasyEquities is the most affordable way to invest in the stock market in South Africa. The EasyEquities platform enables investors to take part in Fractional Share Rights (FSRs), in which they can share ownership without having to own the share directly. FSRs mean that investors can trade 1/1,000th of a share, with no account costs or minimum brokerage payments. This unique service aims to provide equal opportunity to all investors, meaning an investor with a portfolio of R 2,500 (USD $186) receives the same diversification benefits as one with a R 250,000 (USD $18,672) portfolio, and every investor has the “benefit of automatic, perfectly allocated dividend reinvestment.”
There are currently 23 stock exchanges in Africa, and the World Bank reports that the continent “offers some of the highest returns in the world.” Though there should be more stock exchanges on the continent, commercial viability can only result from capable legal, regulatory and monetary systems. Political and macroeconomic stability, a positive investment climate, and accountable institutions are also key elements to a successful stock exchange.
ALTX Africa Launches Exchange in Uganda targeting small investors
ALTX Africa is an exchange holding company in Mauritius that aims to build stock exchanges across Africa. The company launched a new financial exchange in Uganda in July 2016 that will allow investors to trade in small lots, expanding access to financial markets and advancing financial inclusion. The lowest security offered from this new exchange is 10,000 Shillings, or USD $3. The minimum amount investable on the Uganda Securities Exchange, (USE) is 50,000 Shillings, or USD $14,8370. Thus the new ALTX Africa exchange in Uganda has opened up investment capabilities to more of the Ugandan population.
This exchange is the first of its kind on the continent, and though it is too early to determine whether this approach is successful, ALTX Africa has certainly made a positive step forward in including indigenous investors who can trade small lots into the stock market.
LelapaFund is a unique crowd-investing opportunity “connecting global investors with African growth ventures”. The platform enables investors in the African diaspora to invest in promising startups and small businesses in Africa, as one of the greatest challenges facing African startups is access to finance. Crowd-investing diminishes risk because the investment is shared among the co-investors.
Before crowd-investing, equity-based crowdfunding, it was not possible for private individuals to invest in a startup. Companies in the United States who have been successful in this effort, notably Wefunder, lobbied to change regulatory laws so that crowdfunding would be legalized. Compared to the American context, African countries do not face the same level of regulations and restraints, which has enabled African mobile technology to ‘leapfrog’ ahead in many ways. Thus there is massive potential for African startups to leverage crowd-investing platforms and the growth of micro-investing capacities.
The concept of micro-investment is new and thus largely untapped in its potential for ordinary Africans. But on a continent where technological advancements are rapid and innovative ideas spring to life, micro-investment will likely gain an increasing presence in the continent’s tech hot spots.
Growing capacity to make micro-investments
As African consumer power grows so too will the capacity to make micro-investments. There will be increasing choice in this realm, for those with personal disposable income could choose to invest in a local startup through a mobile crowd-investing platform, or invest in a large domestic or multinational corporation through fractional share rights. Such opportunities bring profit not only to the company being invested in, but also to all of those participating in the crowd-investment platform.
African startups need not only to be funded by venture capitalists and angel investors, but also by the millions of Africans who have the capacity to make micro-investment as the opportunity becomes available to them. Such a prospect could make a very large dent in the estimated $180 billion financing gap for African startups, using capital that is sourced from large segments of the population in addition to funding from the wealthy.
Rara Reines is a student researcher at the University of Georgia and a Business Editorial Fellow at Ayiba Magazine. She is involved with local financial inclusion initiatives and her research focuses on African agency in national development planning.