The potential for good around the development of fintech in Africa is undeniable, but it also comes with risks.

A recent report by the Intergovernmental FinTech Working Group (IFWG) highlighted the many potential benefits of fintech, such as improving financial inclusion, but also noted dangers.

“Improving overall social welfare may be one of fintech’s greatest promises; however, it can also pose risks to consumer protection and overall stability,” the report said.

This poses a dilemma for financial sector regulators in Africa: regulate to reduce risks, or stand back and allow innovation to run its course? In South Africa, the Financial Intelligence Centre, Financial Sector Conduct Authority, Reserve Bank and National Treasury are collaborating on regulation, and there are noises from other countries too.

But is regulating Africa’s burgeoning fintech space a good idea? Aarti Shah, director of Kenyan growth advisory firm Cobalt Partners, thinks not.

“Generally, traditional, prescriptive regulation works well in stable industries such as food processing. Where there is rapid change, coupled with the opportunity for huge financial gains, such as micro-finance using mobile phones, product development will outpace the “do this, do that” approach. Regulation will always be responding to the last financial crisis,” she said.

Shakila Kerre of FSD Africa, an initiative that aims to reduce poverty across Sub-Saharan Africa by building more efficient financial markets, agrees.

“More regulation now would stifle the growth of fintechs,” she said, saying she would rather see regulation gradually come in as the space grows.

Others, however, argue regulation can be a positive thing as it protects users of fintech services, as long as regulators ensure it is done properly and does not hinder the sector’s growth.

“Protecting consumers is always a good thing and in most cases, regulation protects consumers. However, in some cases it stifles innovation, which can in result limit impactful technology or financial services from reaching the masses,” said Tricia Martinez, CEO of South Africa-based fintech startup Wala.

Another South African fintech startup CEO, Yoco’s Katlego Maphai, agrees regulation should empower consumers with choice and protect them from irregularities.

“Its role should never be to protect incumbents or limit competition. When regulation is clear, open and follows global best practice, it can actually foster growth and participation,” he said.

Martha Mghendi-Fisher, founder of the African Women in Payments Network, believes a change in mindset is needed where people stop viewing regulations as inhibitors to innovation.

“If fintechs in Africa are to scale up to global level, they need to get used to being regulated and allocating budgets to this. Without that, they limit themselves to African markets only and not global,” she said.

Often the criticism of regulators is that they do not understand new sectors like fintech, and they are not adequately engaged with businesses developing such solutions. Those in the know say this is in fact not the case.

“Regulators are well engaged. I think it’s the key advantage that fintech has on the continent. Governments know that fintechs are able to solve the access gaps that incumbent institutions have struggled to close through their traditional operating models and high-cost structures,” Maphai said.

Mghendi-Fisher encouraged the organisation of more industry events and training that bring together fintechs and regulators to help both parties understand the industry better.

“Fintechs and African regulators should also be encouraged to set apart budgets to attend international events so they can also learn what works in other markets and what can be replicated,” she said.

So if more regulation does occur, where specifically can we expect it to have an impact? Mghendi-Fisher said data privacy and protection is an area that needs to be addressed, with more than half of African countries having no laws in this regard, according to London-based rights group Article 19. Of the 14 countries that do, nine have no regulators to enforce them.

“Most fintechs have zero measures to protect the privacy or the consumer data that they have been trusted with. Not only is this very crucial that consumers get protection they deserve, but this forces fintechs to have processes and policies in place to ensure privacy and protection,” she said.

“There is a lot of fraud, for example, with M-Pesa and many mobile money operators because customer information is all over. Again, if African fintechs are to place themselves on the same level with global players, this has to happen.”

She also called for the harmonisation of regulations.

“Africa as a market itself is very large. But the barriers met due to different and complex rules in each country make doing business across the continent very difficult and expensive. There is a need for pan-African harmonised regulations. It creates an ecosystem that allows and encourages innovation across the continent,” said Mghendi-Fisher.

Financial education is also key, with Shah saying it should be mandatory.

“Whether the financial institution or fintech company does this in-house, partners with a training company or uses online tools, it must be part of the business model. Countries like Kenya already have a challenge of heavily indebted low income borrowers, so we cannot ignore the importance of sensitisation,” she said.

Mghendi-Fisher also said education was desperately needed for consumers.

“With all the lending ups with ridiculous rates, many people end up in a vicious cycle of debt. Borrowing to pay debts and drowning further into poverty. Fintechs should be forced to educate and make their terms and conditions very very clear for their consumers,” she said.

Tom Jackson is co-founder of Disrupt Africa, a news and research company focused on the African tech startup ecosystem.