Latest / The Emerging Markets Podcast with Fexingo: Developing Economies, Growth, and Investment / How African Mobile Money Is Beating Banking Giants
Transcript
- Lucas: So we talk a lot about the big EM stories — China slowdown, India's digital infrastructure, Vietnam's supply chain buildup. But there's a quieter revolution happening in sub-Saharan Africa that's actually reshaping how millions of people interact with money. I'm talking about mobile money — specifically, M-Pesa, run by Safaricom in Kenya. Luna: M-Pesa's been around for almost twenty years now. Is this really still a growth story? Lucas: It is, because they're not just doing person to person transfers anymore. Over the last three years, M-Pesa has rolled out a full-stack financial platform — savings accounts, micro-loans, even government bond purchases through your phone. The numbers are staggering. The Central Bank of Kenya reported that mobile money transactions hit about 50 billion dollars in 2025. That's roughly the size of Kenya's entire annual government budget. Luna: Fifty billion — that's huge for a population of 55 million. How much of that is person to person versus the newer products? Lucas: Good question. person to person is still the bulk — about 60 percent — but the fastest-growing segment is person to business and business to person. Think paying school fees, buying groceries, receiving salary payments. And then there's Fuliza, which is their overdraft product. It's basically instant credit tied to your transaction history. They've disbursed over a billion dollars in loans through it. Luna: That's the part that really challenges the traditional banks. M-Pesa has data on everyone's spending patterns, so they can underwrite credit risk much more efficiently than a bank branch ever could. Lucas: Exactly. And it's not just Kenya. The model has spread to Tanzania, Ghana, even India. But Kenya remains the laboratory. Now, why does this matter for an emerging markets podcast? Because it's a genuine counter-narrative to the dominant EM story right now — which is that Chinese equities are getting hammered. Look at the data this week: the China large-cap ETF, FXI, is down 1.8 percent on the week. KWEB, the internet ETF, is down 3.4 percent. Alibaba, Baidu, NIO — all negative. Meanwhile, Africa's mobile money ecosystem is quietly growing at 20 percent a year without much fanfare. Luna: And without a state-backed super app. Alipay and WeChat Pay in China benefited from massive government support and a unified digital identity system. M-Pesa grew organically, with a lot less infrastructure. That's the real leapfrog story. Lucas: Right. And the implications go beyond payments. Financial inclusion in Kenya has gone from about 30 percent of adults having a bank account in 2010 to over 80 percent having access to mobile money today. That's a structural shift in how capital moves. It affects everything from small business formation to remittance flows. And it's happening in economies that most global investors completely ignore. Luna: But there's a catch, right? I've read that mobile money in Africa hasn't really translated into widespread credit access for SMEs. The loans are mostly small, short-term consumer credit. Not the kind of capital that builds factories or buys machinery. Lucas: That's a fair critique. Most M-Pesa loans are under a hundred dollars, with repayment periods of a week or two. They're for smoothing consumption — buying food, fixing a phone, paying for transport — not for investment. The Central Bank of Kenya has flagged that as a risk: if the economy struggles and people can't repay, you could see a consumer debt spiral. But there are early signs that the data models are getting sophisticated enough to start offering larger, longer-term loans. Safaricom recently partnered with a local bank to offer asset financing for small retailers — basically, loans to buy inventory or a refrigerator. It's early, but it's moving. Luna: So it's not yet the full banking replacement. But it's a massive disintermediation of the fee income that traditional banks used to earn from remittances and bill payments. That's a real threat to commercial banks in those markets. Lucas: Absolutely. And that's why you're seeing bank stocks in Kenya underperform relative to the broader market. The NSE 20 index is flat this year, but the banking sector is down about 5 percent. The market is pricing in margin compression from mobile money competition. Meanwhile, Safaricom's stock is up 12 percent year-to-date. Luna: What does this mean for an investor looking at emerging markets? Is there a way to bet on this trend? Lucas: The direct way is via Safaricom shares, but that's a Nairobi Stock Exchange listing — not that accessible for most global investors. There are a few Africa-focused ETFs, but they're broad and illiquid. The more interesting angle is indirect: if mobile money lifts GDP growth in these economies, you get a rising tide for consumer goods, infrastructure, and even sovereign bonds. Some of the frontier market debt funds are starting to overweight Kenya and Tanzania precisely because they see the digital payments infrastructure as a long-term growth driver. Luna: And you could argue that the success of mobile money in Africa is a template for other emerging markets that lack banking infrastructure — like parts of South Asia and Latin America. India had Aadhaar, but places like Bangladesh and Nigeria are trying to replicate the M-Pesa model. Lucas: Exactly. Nigeria's trying with Paga, Bangladesh with bKash. None have reached M-Pesa's scale yet, but the pattern is the same: start with person to person, then layer on savings and credit. The key ingredient is a dominant mobile network operator with a huge agent network — physical people in shops who can cash-in and cash-out for users. That's the moat. Luna: If walking through the economy with us has made something click, you can support the show at buy me a coffee dot com slash fexingo. That's with a lowercase 'f'. It genuinely keeps these episodes free and ad-free — a couple of dollars a month makes a real difference. Lucas: Yeah, it's a small thing that helps us keep digging into stories like this one. So back to the regulatory piece — one bottleneck that could slow down mobile money's expansion is the growing scrutiny from central banks. Kenya's central bank has started imposing stricter capital requirements on mobile money operators, treating them more like banks. That could raise costs for Safaricom and slow innovation. Luna: But you also need regulation to prevent fraud and protect consumers. It's a balancing act. If Safaricom has to hold reserves like a bank, that reduces its return on equity. But it also makes the system more stable. Lucas: Right. The Central Bank of Kenya is actually a global leader in this — they've created a tiered licensing system: light-touch for basic transfers, heavier for credit products. That's smart. It allows innovation while managing systemic risk. The question is whether other countries will follow that model or stomp on innovation with heavy rules too early. Luna: So what's the one thing you'd want listeners to take away from this episode? Lucas: That the biggest EM story this decade may not be in China or India — it might be the quiet financial inclusion revolution happening on a continent most portfolios ignore. And it's not charity; it's a real economic transformation driven by profit-seeking companies, with measurable impacts on GDP and personal wealth. If you're looking for EM exposure that's not correlated to the China trade, mobile money ecosystems are worth watching. Luna: That's a solid take. I know I'll be keeping a closer eye on those Central Bank of Kenya reports. Lucas: Same here. Next episode we'll look at how Poland is positioning itself as Europe's new manufacturing hub — but for now, that's it from us.