International remittance is ostensibly one of the most compelling use cases for bitcoin and digital currencies.

Recorded remittances to Africa grew four-fold between 1990 and 2010 and have increased steadily since. The World Bank projects $39bn in remittances to sub-Saharan Africa this year.

Yet with the continent’s fast-growing middle class and tech-savvy youth population, the high cost of remitting to sub-Saharan Africa, particularly from within Africa, has brought the subject of financial inclusion under new light.

Africa has some serious market potential for bitcoin companies; remittance seems a logical way to enter. For all that goodwill and market opportunity, however, few bitcoin startups have emerged out of that region and many have had trouble gaining any significant foothold there.

Elizabeth Rossiello, chief executive of the Kenyan bitcoin remittance service BitPesa, told CoinDesk the opportunity is present because it’s hard to do business there.

“It’s not this low hanging fruit that’s meant to be snatched up,” she said, adding:

That bitcoin can service the “unbanked” and relieve them of the problems that come from being financially excluded is a beautiful ambition, but it’s unlikely that a new financial product could simply enter the market and solve the problems that other financial products before could not.

The poor have assets, they just can’t monetize them.

Rossiello said:

Rossiello moved to Nairobi from New York in 2009. She had worked as a ratings analyst in mobile money and microfinance, and as an adviser linking big banks with small banks and big products with small products. She finds the many emerging wallets and non-smartphone applications targeting the bottom of the pyramid a little bit misguided.

Small amounts of access to financial savings have differential effects on low-income people. There’s no long-term financial planning at that level, she said, and even if they lose only $0.10 a day in bitcoin, that’s significant. Those in the unbanked or underbanked demographic won’t look to hold their value in it.

“The people that are currently unbanked might be unbanked for certain reasons,” she said. “Maybe they’re nomads, maybe they’re under the employment age. They might not be bankable, they might not be financially active in the same way. That kind of population might be better suited for cash transfer products.”

It’s not enough to bring in a financial tool or mandate access to banks, like the Nigerian central bank has. Usage is a key component of development.

Rodger Voorhies is the director of the Financial Services for the Poor team at the Bill & Melinda Gates Foundation, the largest private grant-making NPO in the world. He pointed out that millions of people are excluded from financial services, yet they don't even have a way to save their money from one season to the next.

“We know from the empirical evidence that it’s not just having a bank account that’s magical, it’s actually using it if there’s an emergency to fall back on,” he said. “Oftentimes people had money to go to the clinic when they were sick but they didn’t have money for medicine.”

Rossiello contends that in the six years she’s lived in Nairobi, the idea of the unbanked and who they are has become elaborated, perhaps exaggerated. She said:

The “unbanked” are 2.5 billion people left out of the financial system. They tend to be disproportionately female, rural, less educated, and the vast majority of them live in emerging markets concentrated in Sub-Saharan African, South Asia and Indonesia.

Some 65% to 75% of people (excluding data from China) living on less than $2 a day don’t have access to a formal bank account. That figure rises to over 80% in Sub-Saharan Africa alone, according to the Gates Foundation.

Claudia McKay, a senior financial sector specialist at the Consultative Group to Assist the Poor (CGAP), the global microfinance center for the World Bank, said the percentage of financially excluded is falling.

In some cases, especially in East Africa, they are decreasing more quickly. For example, the Kenyan population that is financially included through formal providers increased to 67% from 41% between 2009 and 2013. This, she said, is owed largely to mobile financial services.

“Increasingly, financial services are being offered by non-banks – most notably, mobile network operators who offer digital financial services,” she said. “But there could also be insurance companies or microfinance organizations which are regulated and part of the formal sector even if they are not banks.”

Silicon Valley illuminati talk a big talk about how new technology can save the old, still developing world and relieve the “underbanked”. But rich-world technologies don’t easily transfer to dissimilar economies.

BitPesa’s approach has been to build a product that works immediately and has functional capabilities. It came to market in just under six months, launching officially in November 2013. Last month it closed a $1.1m funding round and extended its remittance service, allowing users in Kenya and Ghana to send fiat funds to popular mobile money wallets.

“Compare that to the San Francisco Bay Area where people are paid $350,000 yearly for ten years to take a couple years off and do amazing, beautiful projects,” Rossiello said. “This is not the place for that, but this is the place for products to get up and going quickly. You need a product that works first.”

That’s why she sees e-commerce and retail as the greatest areas of opportunity for bitcoin startups in Africa. Further, the competition is different: PayPal isn’t present in many African markets, and credit card penetration across the continent remains low.

And yet, the bitcoin companies that have emerged in Africa over the last two years are exchanges, bitcoin ATMs, wallet companies and remittance services. BitPesa is growing and continues to attract interest, but many of these startups have been defeated by the context Africa provides.

To build a business in Africa is to weave through a myriad of regulation. Expat entrepreneurs will recall many others like them that they’ve seen come and leave, unable to navigate it.

This is one of Africa’s most consequential failures – not creating an enabling regulatory environment for businesses.

Regulations are complex. Sometimes they lack clarity; sometimes they counteract others from different ministries. Often, Voorhies said, the most difficult things aren’t the regulations themselves, but the bureaucracy to implement them in a way that’s friendly to business.

He explained:

At times, provisions create further and perhaps unnecessary hurdles for the company; in others, it is permitted to operate with hardly any regulatory oversight, according to Stefan Staschen, an advisor on digital financial services regulation at CGAP.

“The main difference between countries is whether they permit non-banks to issue digital accounts on their own – typically under non-bank e-money issuer rules – or whether the accounts have to be issued by banks,” he explained. “Ideally both are possible to allow for competition between different models.”

The most important regulatory concerns relate to agents, CFT rules, e-money rules, consumer protection, and competition, Staschen said, adding that a growing number of countries in the region have published specific guidance on these issues.

Infrastructure is another paramount problem for entrepreneurs in Africa, but Voorhies implied that it’s closely related to the state of regulation – or it should be.

He said:

Years before arriving at the Gates Foundation, Voorhies opened and ran a bank in Lilognwe, Malawi – one of the poorest parts in one of the poorest countries in the world – that he said grew to be the biggest in the country in terms of customers. The infrastructure in Africa, he explained, isn’t designed for the climate or the way financial services work on the ground there.

He described the independence, responsibility and man-power it took and the need to build everything himself; to find a way to save water, to figure out how to generate power.

“Even down to running ATMs, the notes that were coming into the ATMs were so dirty we couldn’t reuse them so we had to send them to the central bank to get new ones,” he said.

And the infrastructure didn’t reach rural areas, he added, so he did some of the early work in moving from food aid to cash payments in Lilognwe.

“There was not even a radio signal, there was no infrastructure at all,” he continued. “You have these people that were completely broken off from the larger economy and I think that without financial services you create these economic deserts that exist.”

It’s easy to come away with bad news of why it’s hard to do business in Africa, but those paying the most attention to the situation agree that it’s improving slowly but surely in the right direction, even if it’s not as visible looking from outside in.

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The Gates Foundation is pushing strongly for the separation of intermediation – who can hold money on behalf of customers and reinvest it – and running payments systems. East Africa has been at the front of this.

“I think we’re seeing regulation change accelerate,” Voorhies said. “Places like Ghana that were more difficult just three or four years ago are now changing, East Africa is changing. Nigeria has made initial steps and there’s now a financial inclusion secretariat, and it is the largest country in Africa that is going to make changes.”

McKay said she sees a lot of emerging businesses addressing financial inclusion.

“The rise of mobile money has spawned more startups than ever before seeing new opportunities of reaching the mass market now that the space has moved beyond just banks,” she said.

A lot of Africa is witnessing booming economies, Rossiello said; high rises and office buildings going up everyday, reverse diaspora movements – the growing middle class is getting the benefits of low friction and easy infrastructure to build on, compared to other regions.

Last July, BitX, a bitcoin exchange headquartered in Singapore but whose development team is based in Cape Town, partnered with PayFast, a major South African payments gateway, to provide the bitcoin payment option to customers of more than 30,000 merchants. Later that summer, Johannesburg welcomed Africa’s first bitcoin ATM. In January, South African bitcoin exchange ICE3X partnered with a Nigerian payments processor to launch Nigeria’s first bitcoin exchange.

In some ways South Africa doesn't suffer from the same infrastructural problem, Voorhies said. It has incredible work force and technical skills and a well-developed banking system.

South Africa has proportional KYC, he added; business owners setting up aren’t inundated with loads of required documents to get onto the system. It has a risk-based approach to many of the regulations that allow access to different parts of the financial system without full regulation.

Rossiello said the South African market is very different from other markets in sub-Saharan Africa and across the continent. The regulation, infrastructure and talent coming out of its local development schools, she agreed, are better. There’s more money, and therefore startups can be at a greater ease of doing business.

She also said there’s a lot more talent there to develop a cryptocurrency market.

Rossiello explained:

South Africa’s affluent areas are a world apart from what much of the continent is used to; they might be satisfied with what they have while poorer parts feel disenfranchised. And lining up both sides in a coherent regulatory environment is clearly a challenge.

But for as long it remains so, perhaps the best move for developers and entrepreneurs and their ambitions of putting Africans on the financial grid might be to develop new technology, new businesses, new products and services in South Africa, and export them out to regions with a friendlier regulatory environment where they can cause more meaningful changes.

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