As Africa prepares for some of the worst effects of climate change, could innovations that merge fintech and climate solutions help the continent accelerate to its sustainable development goals?
Time is no one’s friend in the fight against climate change, especially not Africa. As the continent continues to warm faster than the rest of the world, Africa’s poverty reduction rate remains the slowest globally, magnifying economic vulnerabilities for millions of Africans in the coming years.
According to the Sustainable Development Goals Center for Africa, progress in poverty reduction has been contingent on resolving a long list that includes social protection, agriculture, energy, water, sanitation, education, and financial inclusion goals.
Can investment in technological innovations address these challenges? Tech optimists believe so – but it’s tough for funders and governments to figure out what is worth investing in and what technologies will sustain meaningful change.
A tech solution that goes beyond a Band-Aid
As Africa looks toward introducing technology solutions that go beyond just the ‘Band-Aid’ effect, and has long-lasting development impacts, it will be important to evaluate how innovations integrate social needs specific to African communities. A few notable solutions have incorporated financial inclusion within green frameworks, presenting the opportunity to solve some of Africa’s sustainable development challenges in tandem with each other.
Clean energy innovations have the potential to be scaled up with growing involvement from impact investing and donor funding. Advancements in energy infrastructure will not only aid in poverty reduction but will further incorporate internet-based development solutions such as digital financial services and digital identities. Inclusion in energy infrastructure is particularly needed in remote areas, where electricity and internet expansion are often ignored by the private sector.
Funding for climate fintech
With more Africans using mobile phones than ever, remote households that are off the grid struggle to find sustainable ways to power their devices. In Kenya, individuals spend an estimated 20 per cent of their incomes on kerosene and charging their mobile phones. Nairobi-headquartered M-KOPA is seeking to break the rural electricity barrier by providing solar home systems that consumers can purchase with mobile money service micropayments. Affordable solar technology compensates for energy grid deficiencies, allowing remote households to produce energy independently. M-KOPA’s model integrates digital financial services with its solar products, making its customers’ micropayments (roughly $0.35 in daily instalments after an initial deposit of $22) available through the mobile money service M-Pesa. In March of this year, M-KOPA announced that it raised $75 million, with corporate and privately-backed investors Broadscale and Generation Investment Management leading the growth equity round.
A similar approach that merges financial services and renewable energy has been adopted by InfiBranches, a Nigerian fintech company. InfiBranches’s two main products, OmniBranches and Green Energy Plug, focus on the distribution and financial components of clean energy development. OmniBranches addresses the challenge of reaching scale by building a network of agents within rural areas, while Green Energy Plug manages a financial services platform that processes payments between consumers and providers in the Nigerian renewable energy sector. As of last year, InfiBranches has secured $2 million in funding from All On, a Shell-backed impact investment firm.
Social and sustainable solutions
The integration of fintech with renewables paints a picture of how energy expansion can be complemented by other development needs. Agent networks introducing affordable energy alternatives in rural areas can be put to use just as effectively towards registering users for digital services. And widening access to digital financial services hosts a scope of possibilities for poverty reduction.
Individuals living in remote areas can gain mobile access to formal credit, digital wallets, and financial packages that could propel growth in businesses and households. Mobile money services like M-Pesa are already rapidly integrating women into local economies, allowing them to access loans that would have been unavailable to them through traditional banks. Digitally registered identities can also revolutionise how rural, poor, displaced, and female populations are accounted for, ensuring that excluded groups are able to receive and benefit from their government systems.
While most large-scale sustainability initiatives tend to focus on technocratic solutions like carbon removal, investments in services such as solar home systems demonstrate how climate philanthropy can be better targeted toward underserved communities. More and more, corporations and philanthropic organisations are realising the need for socially-centred approaches in their climate funding. ‘Innovation in business is not only technological,’ said Andy Brown, Shell’s Upstream Director, ‘It’s also about how we engage our communities.’
ClimateWorks, one the most influential climate philanthropy foundations, has also expanded its approach to encompass more socially-inclusive solutions. ClimateWorks recently partnered with the Joyful Women Organization, a women’s grassroots initiative in Kenya exploring the intersectionality of climate, gender, health, and resilient development. As a result of the campaigning and policy influence of Joyful Women, Kenya has now included super pollutant emissions reductions in the nation’s sustainability goals for the first time.
‘There are many organisations mobilised in the region to drive climate action but more support is needed’, said Charlie McElwee, vice president of programs at ClimateWorks, ‘Philanthropic investments made today can lock in emissions reductions for generations to come, while also helping Africa accelerate its sustainable development efforts.’
Towards a just transition
Balancing emissions reduction with development needs will be a continued challenge for philanthropies. When it comes to the energy transition, long-held dependencies on coal mining and other aspects of the fossil fuel industry can send shocks through local economies in Africa.
‘There’s been a very big focus on emissions reduction and very little consideration given to just aspects’, said Saliem Fakir, Executive Director at The African Climate Foundation, ‘Climate philanthropies need to understand that energy transitions can disrupt vast dependencies entangled in local communities. If you don’t take a pragmatic and balanced view, the cure can end up being worse than the poison.’
While philanthropies may not have the resources to cushion all the effects of the transition, Fakir urges them to work in collaboration with the local and national governments, as well as with the private sector, to ensure funds are used strategically to revitalise economies.
The alignment of green innovation with fintech holds potential to accelerate development initiatives. As other investments in Africa’s green transition command attention, the continent must assess how they fit into existing infrastructure and specific development needs. When greater foresight is incorporated into tech solutions, accessibility is widened and development is fostered that is sustainable not just environmentally, but generationally.
Christina Luke is an independent researcher focusing on emerging technologies and climate change policy. She currently works for sustainability consultancies based in Johannesburg and Washington, D.C.
Alliance magazine’s climate change reporting is supported by Fondation de France.