Fintech Emerges as Kenya’s Most Prevalent Tech Startup Sub-Sector

Fintech Emerges as Kenya’s Most Prevalent Tech Startup Sub-Sector

by 3 January 2023

In Kenya, fintech has emerged as the country’s most prevalent tech startup sub-sector, accounting for 30.2% of all young tech companies in the nation and employing most of the ecosystem’s staff, a new report by Disrupt Africa, a local media and information platform focused on the continent’s tech startup ecosystem, says.

According to the Kenyan Startup Ecosystem Report 2022, a report released earlier this month that looks at the country’s startup ecosystem and its evolution over the past year, at least 308 tech startups operated in Kenya, as of November 2022.

Among these, 93 companies were fintech startups, a figure that makes fintech the country’s top startup segment by company count, and which puts the sector well above the next biggest industries, namely agritech and healthtech, which accounted for 10.1% of Kenyan startups each.


Kenyan tech startups by sub-sector by number of companies, Source: The Kenyan Startup Ecosystem Report 2022, Disrupt Africa, Dec 2022

Kenyan tech startups by sub-sector by number of companies, Source: The Kenyan Startup Ecosystem Report 2022, Disrupt Africa, Dec 2022

Within the Kenyan fintech sector, the payments and remittances sub-sector was founded to be the most developed, accounting for 25.8% (24 ventures) of all Kenyan fintech companies. The category is followed by lending and financing with 21 startups (22.6%), business administration with 17, and insurtech with 13.

Other segments represented include wealthtech, personal finance, blockchain and security.

Kenyan fintech startups by category, Source: The Kenyan Startup Ecosystem Report 2022, Disrupt Africa, Dec 2022

Kenyan fintech startups by category, Source: The Kenyan Startup Ecosystem Report 2022, Disrupt Africa, Dec 2022

Fintech is not only the most developed tech sector in Kenya, it’s also the biggest employer across the whole startup ecosystem, the report says. The sector accounts for 27% of all Kenyan startup employment with 3,100 jobs out of the country’s total of 11,462.

According to the report, Watu Credit is currently the biggest fintech employer in the country, employing 1,201 people. Watu Credit is a micro-finance company offering unsecured lending, primarily via mobile services. The company says it has provided over 430,000 loans across seven countries, including Kenya, Nigeria and Tanzania.

After Watu Credit, the next biggest fintech employers in Kenya are Aza Finance (218 employees), an international money transfer company, and PesaPal (216 employees), a payment solutions provider.

Kenyan tech startups employment by sub-sector, Source: The Kenyan Startup Ecosystem Report 2022, Disrupt Africa, Dec 2022

Kenyan tech startups employment by sub-sector, Source: The Kenyan Startup Ecosystem Report 2022, Disrupt Africa, Dec 2022

A look at Kenyan fintech startups’ year of founding reveals signs that the industry is maturing. The majority of Kenyan fintech startups was founded between 2015 and 2020, the report notes, with 2020 recording the highest number of startup launches (17). That rate started dropping in 2021, with just six venture being founded that year and a mere four startups in 2022.

Signs of maturation can also be observed through funding activities. A report by Fintech Global, a provider of fintech information services, shows that, despite the global fintech downturn, startups in Kenya continued to attract international investors this year.

In H1 2022, fintech investment in Kenya reached a new annual record, totaling US$124 million. The sum represents a five-fold increase from 2021 levels and a more than three-fold increase from the Kenyan fintech investment’s previous peak of US$75 million raised in 2018.

During the period, M-KOPA, an asset financing platform, closed the largest deal, raising a notable US$75 million in its latest venture round led by Generation Investment Management. The company, which reached two million customers earlier this year, said it planned to use the funding to expand into additional countries, adding to its hubs in Kenya, Uganda, Nigeria and Ghana.

The momentum continued in H2 2022 with notable deals being secured like Pezesha’s US$11 million pre-Series A equity-debt round.

Pezesha is an embedded finance fintech startup that allows both traditional and non-traditional finance institutions to offer working capital to micro, small and medium-sized enterprises (MSMEs). The company said it wanted to use the proceeds to expand into Nigeria, Rwanda and Francophone Africa.

Besides Kenya’s thriving fintech industry, the Disrupt Africa report also highlights the country’s emerging blockchain sector, a space that’s risen on the back of soaring adoption of cryptocurrencies.

Several innovative blockchain startups have been launched over the past few years, leveraging the technology in use cases like digital identity, agriculture and food security management, standardization of health services and humanitarian aid, the report says.

Examples include UTU Trust, a blockchain project seeking to build a “decentralized trust infrastructure” for Web3, and Vibranium ID, a digital identity startup.

According to Chainalysis’ 2022 Global Crypto Adoption Index, Kenya recorded the 19th fastest cryptocurrency adoption over the past year, ranking among the world’s top ten highest in peer-to-peer (P2P) exchange trade volume and decentralized finance (DeFi) transaction activity.

 

Featured image credit: edited from Freepik here and here

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