A novel bilateral agreement between Ghana and Rwanda is being touted as a potential blueprint to dismantle one of the most significant barriers to fintech expansion across Africa: prohibitive licensing costs.
In February, at Kigali’s Inclusive Fintech Forum, the central banks of Ghana and Rwanda jointly launched a fintech passporting framework. The premise is elegantly simple: a fintech company licensed in either nation would gain expedited access to operate in the other, bypassing the often-duplicative and costly licensing procedures that plague cross-border expansion in Africa. Regulators in both Accra and Kigali paint this as a decisive move towards a seamless, pan-African financial services market.
The urgency is clear. Across the continent, fintech firms face a bewildering array of regulatory hurdles, each with its own price tag. While Nigeria, a key fintech hub, presents licensing costs estimated around $250,000, in Uganda, those figures can soar to a staggering $2.7 million, according to industry reports. These hefty sums, often compounded by lengthy and opaque application processes, stifle innovation and restrict market access, particularly for smaller, agile startups that are crucial to driving financial inclusion.
The Ghana-Rwanda agreement aims to circumvent this “licensing labyrinth.” By streamlining approvals, the central banks hope to foster competition, encourage cross-border investment, and ultimately deliver more affordable and accessible financial services to consumers across the two nations, and potentially beyond.
“Creating an effective cross-border payment infrastructure requires a regulatory environment that is both forward-looking and pragmatic,” stated John Rwangombwa, Governor of the National Bank of Rwanda, at the launch. His counterpart, Dr. Johnson Asiama, Governor of the Bank of Ghana, echoed this sentiment, emphasizing the alignment with the African Continental Free Trade Area (AfCFTA)’s broader vision of a unified African market.
Yet, a dose of realism is warranted. Africa’s history of regional integration is marked by ambitious pronouncements often outpacing practical implementation. Memoranda of Understanding (MoUs) have become a familiar feature of African diplomacy, frequently celebrated at signing ceremonies but subsequently relegated to dusty shelves, lacking the robust enforcement and sustained political will required for tangible impact.
Drawing Parallels, and Divergences, with Europe
African regulators often look to the European Union’s passporting regime, enabled by directives such as PSD2, as an aspirational model. Within the EU, a financial institution licensed in one member state can operate across the entire bloc, fostering a dynamic and competitive market. However, the comparison is far from straightforward.
The EU operates within a supranational legal framework, underpinned by institutions like the European Central Bank, ensuring a level of regulatory harmonization and enforcement that is currently absent in Africa. The continent comprises 54 independent nations, each with its own sovereign regulatory agenda, economic priorities, and institutional capacity. Ghana and Rwanda’s agreement, while commendable, is inherently limited by its bilateral nature. Scaling this model to a truly pan-African level requires overcoming significant hurdles of regulatory divergence and national sovereignty.
One of the first fintech firms to enter Rwanda amid the fintech passport discussions is Ghana-based Nsano Ltd. The pan-African digital payments company recently established its East Africa regional office in Kigali after securing key payment licenses from the National Bank of Rwanda. Nsano was granted both the Payment Aggregation and Payment Remittances Service Licenses (Category II and III). It is however uncertain if Nsano’s licensing process for its expansion was influenced by the fintech passport agreement. The true test of the agreement will be whether future fintech firms can bypass the traditional licensing bottlenecks and establish operations more seamlessly.
The Spectre of Regulatory Arbitrage and Enforcement Gaps
For fintech firms eager to expand, the allure of passporting is undeniable. However, regulators in jurisdictions with robust financial oversight are acutely aware of the risks of “regulatory arbitrage.” This concern arises from the potential for companies to strategically establish their base in nations with perceived lighter-touch regulation, effectively using them as a springboard to access stricter markets, potentially circumventing more rigorous consumer protection and financial stability safeguards.
Even within the relatively harmonized EU, instances of regulatory arbitrage have been observed, highlighting the inherent challenges. For the Ghana-Rwanda passport to be successful, and for any broader adoption across Africa, robust mechanisms for cross-border supervisory cooperation and information sharing are essential. Without these, the initiative risks creating unintended loopholes and vulnerabilities within the financial system.
Moreover, the track record of regional regulatory harmonization in Africa offers a warning note. Past efforts within regional economic communities like ECOWAS and the East African Community have often progressed slowly, hampered by diverging national interests and implementation challenges. The Ghana-Rwanda agreement must demonstrate a capacity to move beyond these historical patterns and translate policy ambition into practical, measurable outcomes.
A Promising Yet Unproven Model
The Ghana-Rwanda fintech passport represents an undeniably bold and potentially significant first step towards tackling Africa’s prohibitive licensing costs. It offers a tangible example of intra-African cooperation and a potential pathway to unlock the continent’s rapidly growing fintech sector. However, the real measure of its success will be in execution.