As more and more African citizens enter the formal financial system, and an emerging middle class recognizes the value of insurance, the continent's financial services markets should be set for rapid growth in the next 10 years time, further fueled by disruptive business models like mobile banking.
Key opportunities also exist in regulatory-driven banking consolidation, a growing middle-class, a large unbanked population, an active insurance market and a dynamic fintech sector.
Despite these positive factors, investors should be aware of possible challenges to acquiring and operating financial services businesses. While by no means insurmountable, these challenges need to be factored into any growth strategy, such as financial reporting issues, immature capital markets, a dearth of large-sized targets, insider lending, mortgage markets that lag behind demand, and inconsistent and insufficiently robust insurance regulations.
By examining global financial institutions' penetration levels and strategies, and local African banks' and insurers' tactics, we have identified a five-pillar approach for financial institutions to tapping latent opportunities in the region - although these are only likely to bring rewards in the longer term, calling for a 10-year investment horizon:
At present, much of the potential in Africa remains untapped and the race is on for providers to explore better and innovative ways to get customers on board - so long as they can navigate challenging regulatory and political environments.
Download our full report to learn more about the current African market and how to build a financial services investment strategy in the continent.