In advanced and developing economies alike, small businesses play a crucial role in job creation and economic activity. In Africa, for instance, they employ 80% of the continent’s workforce. 

Recently, I was in Kigali, Rwanda, speaking on a panel discussion about how regulators can develop pathways for start-ups to grow and contribute to economic growth. At first glance, regulators, given their conventional focus on ensuring price and financial stability, may seem unlikely catalysts of innovation. But increasingly, regulators are no longer just rule makers and enforcers, instead playing a more dynamic role as change-makers and facilitators of economic growth.

All of which benefits not just stability and job creation, but financial inclusion. And while enlightened policy has played a key role in financially including 850 million people across the AFI network in the last 15 years, so has market-driven (particularly start-up driven) innovation. Innovation is just as, if not more, likely to emerge from start-ups, than from anywhere else.

Increasingly, I see regulators evolving their approaches, and engaging with fintech ecosystems to develop and scale up novel digital initiatives. In Africa, AFI members such as Nigeria, Egypt, Eswatini, and Rwanda have introduced test-and-learn approaches, and worked to co-create solutions with industry through National FinTech Strategies.

Many AFI members have created regulatory sandboxes, fintech and innovation offices, and innovation hubs, as part of their financial inclusion strategy. More and more, regulators play a lifeline or bridge role, connecting start-ups to potential funding opportunities, and making it easier for young ventures to navigate early growth challenges.

While no one-size-fits-all regulatory approach to aid start-ups exists, some common factors underpin effective efforts:

• Regulation must be risk-proportionate and principles-based, avoiding unnecessary rigidity while ensuring that market integrity is maintained.
• Regulation must reflect a country’s context and priorities, as well as the maturity of its fintech industry and start-up ecosystem.
• The regulatory environment should encourage investment in innovation, and start-ups should be engaged (as early as possible) in the policy development process.
• Legal frameworks should balance agility with necessary safeguards, hence the utility of regulatory sandboxes as a way to safely test novel solutions.

Culturally, regulators and entrepreneurs may appear to inhabit different worlds, but by assuming a more holistic stance — one that blends stewardship, connectivity, proactive innovation, policy-driven change, and resource mobilization — regulators can help start-ups to truly thrive.

This trend may even become stronger in future, as young people today, many of them living in the developing world, will be the regulators of tomorrow. Because of their exposure to rapid and massive technological advancements, they are growing up differently. As we seek to anticipate what will be required in the future to preserve safe and sound financial systems, and to help financial inclusion, regulators and start-ups working hand in hand will be a key component.