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One of the significant obstacles preventing African businesses, particularly small and medium enterprises (SMEs), from reaching their full potential is the pervasive issue of business identity fraud. This problem has become increasingly prevalent in recent years, especially with the growing use of technology in business operations worldwide, particularly in more advanced economies.
Business identity fraud manifests in various forms, including the impersonation of business owners, officials, or employees to fraudulently obtain payments or loans. This often leaves victims grappling with either the loss of legitimate payments or the responsibility to repay loans they never applied for in the first place. Such fraudulent activities often involve hacking into emails or an organization’s systems to gain access to sensitive information, facilitating the commission of these crimes.
This challenge is further compounded by the limited and underdeveloped use of technology in African businesses. This deficiency results in inadequate security measures to detect and prevent fraudulent activities, making these businesses vulnerable targets for criminal attacks.
Business identity fraud is not unique to Africa; it is a global issue. While there is a lack of comprehensive data on the global cost of business identity fraud, the United States alone reported an estimated loss of approximately $43 billion in 2022. This figure represents a slight decrease from the $52 billion recorded in the previous year. This substantial loss occurred in a society presumed to have sophisticated technology and measures to counteract business identity fraud.
African businesses face a dual challenge. They not only lack digital identities in a globally digitized business environment but also remain invisible in a world where only legally and digitally recognized entities thrive. Moreover, they confront increasingly sophisticated and tech-savvy criminals.
However, a glimmer of hope is emerging for African organizations and SMEs, thanks to the anticipated role of the Global Legal Entity Identifier Foundation (GLEIF) in the continent’s economy in the years ahead. Established by Finance Ministers and Central Bank Governors from the world’s 20 leading economies, GLEIF manages a network of partners tasked with providing open, reliable, and trusted data for the legal identification of businesses worldwide.
One of GLEIF’s primary tools for financial inclusion is the Legal Entity Identifier (LEI), which generates a legal, digital, and unique identity for businesses and organizations. LEI enables business owners to access the true identities of their counterparts globally, empowering them with essential information not only about the individuals they engage with but also about the ownership structures of the organizations they plan to collaborate with across various industries and sectors.
This transparency fosters trust among business partners, regardless of their locations, and mitigates concerns related to business identity fraud. Since its inception, GLEIF has employed LEI to promote financial inclusion in developing economies across the world.
GLEIF’s growing interest in Africa’s economy signifies a promising development for organizations and SME operators on the continent. This interest aligns with the growing involvement of major global economies in Africa’s economy, driven in part by the establishment of the African Continental Free Trade Area (AfCTA), which is expected to become the world’s largest market when fully operational.
As a technology-driven organization, GLEIF aims to promote financial inclusion in Africa by stimulating the growth of the Information and Communication Technology (ICT), Financial Technology (FinTech), and Regulatory Technology (RegTech) sectors, as well as the SME sector.
Notably, two non-executive directors recently appointed to GLEIF’s board are Africans with extensive knowledge and experience in the FinTech industry. Dr. Folarin Alayande, a Nigerian, serves as the Vice President for Public Sector, Eastern Europe, Middle East, and Africa at MasterCard. Angela Kyermaten-Jimoh, a Ghanaian, holds the role of Lead in Strategic Partnerships and Multinational Corporations at Microsoft.
The presence of these two Africans in GLEIF’s highest decision-making body is expected to translate into policies and initiatives that foster increased participation of African businesses in the global community of technology-driven economies. A critical aspect of this participation is the adoption of digital identity technology, which will act as a shield against business identity fraud, a long-standing challenge for African businesses.
By embracing digital identification technology fully, African SMEs can safeguard themselves against the threats posed by business identity fraudsters. This will position them for easier access to credit facilities and, more importantly, provide them with financial security, protecting their assets, systems, and processes. With this newfound security, African SMEs can become powerful drivers of economic growth and prosperity across the continent.
Small businesses, both in Africa and globally, are renowned for being significant employers. African SMEs, once equipped with digital identities offering protection against business identity fraud, will have the capability to thrive and create jobs on a substantial scale, thereby making a substantial contribution to poverty alleviation throughout the continent.
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