Orange Botswana CEO, Nene Maïga
Mobile money transactions are seeing rapid growth across Africa, notably in Botswana, where the value increased by 29% between March 2022 and March 2023.
Despite this, there remains a significant gap in capital market participation, particularly from the informal sector, which drives much of the continent’s economic activity.
Backstory:
Mobile money services have become increasingly widespread and convenient, they are still primarily used for daily transactions and savings, not investments.
The rise of mobile money in Africa has transformed access to financial services. The number of mobile money accounts recorded over five years from March 2019 to March 2023 in Botswana shows an increase of 46%.
What story do the numbers tell?
Africa's informal economy, which consists of small businesses and independent workers, remains largely disconnected from capital and investment markets.
At present, capital market participation across Africa remains low. Collen Tapfumaneyi, CEO of Escrow Group estimates that less than 5% of the population is involved in stock markets. Tapfumaney, who disclosed this during the African Securities Exchanges Association (ASEA) Conference 2024 said the figure drops to just 1% in some countries.
Fund managers argue this is because capital markets have yet to fully integrate these informal sector funds.
So who dominates the market and how?
Despite the rapid growth of mobile money services, capital markets on the continent still predominantly rely on institutional investors and formal savings mechanisms like pension funds. Institutional investors who mostly represent pension funds in Botswana use a buy-and-hold strategy. Retail investors represent a small fraction of Botswana’s market.
Experts argue that unlocking capital from this sector could provide much-needed liquidity and democratise access to investment opportunities, driving broader economic growth across the continent.
What are the prospects:
Bridging this gap could help unlock new sources of capital and improve financial inclusion, fostering greater liquidity in African markets. Financial experts like Tapologo Motshubi of Allan Gray Botswana and Escrow's Tapfumaneyi have emphasised the need to find ways to channel these funds into capital markets, a process known as the “democratisation” of financial markets.
Historically, capital markets were dominated by the wealthy, though it can be argued that they had to start small to reach their current position.
Kenya example:
However, there is growing recognition of mobile money’s potential to bridge this divide. Key initiatives, such as Kenya’s Ziidi Money Market Fund launched by Safaricom and other local fund managers, are showing how mobile money can be used to facilitate access to investment products.
Capital Business, a Kenyan media house reports that "Safaricom’s Ziidi Money Market Fund (MMF) has achieved Sh2.85 billion in assets under management just a month after its launch, with over 450,000 users onboarded".
Context:
The growth of mobile money adoption in countries like Botswana further supports the case for integrating mobile payment platforms with formal financial markets.
The shift towards mobile money integration with capital markets represents a key step towards enhancing financial inclusion and market liquidity, addressing challenges such as low retail participation rate in capital markets, which is prevalent in Botswana.
A closer look:
Several innovative initiatives are emerging to bridge the gap between mobile money users and capital markets.
Technological Solutions:
Mobile network operators, like Safaricom in Kenya, are creating platforms that allow users to access investment products via mobile networks. This makes participation in capital markets more accessible, especially for unbanked populations.
Interoperability:
Mobile money platforms are becoming more interoperable with traditional bank accounts. In Botswana, the Botswana Communication Regulatory Authority (BOCRA) has highlighted the convenience and acceptance of mobile money services, including cross-border transactions.
Mobile Money Adoption in Botswana:
In Botswana, mobile money adoption has surged, with the number of subscriptions reaching 1.68 million by March 2023. Mobile money transactions in the country grew by 29% year-over-year, demonstrating the potential for mobile networks to play a central role in the financial ecosystem.
What Experts Are Saying:
Financial leaders across Africa are advocating for greater inclusion through digital platforms.
Abena Amoah, Managing Director of the Ghana Stock Exchange:
She emphasised the need for every individual to have access to investment tools in the palm of their hand, supporting the idea that interconnectivity across borders, such as through the African Continental Free Trade Area (AfCFTA), could further facilitate these goals.
“More short issuances, whether by government or by corporate issuing commercial paper, is certainly available to millions and millions of Kenyans,” Amoah said when commenting about Safaricom.
Mobile money could help a cash-strapped government access funds from its users. According to BOCRA, mobile money services have processed over P25 billion.
Tapfumaneyi of Escrow Group:
He stressed the need to fully leverage mobile and online technology to ensure that it reaches the maximum number of people, particularly those in the informal economy.
“We still need to ensure that we fully utilise that,” he said sharing how Escrow has created platforms that are accessible through both mobile network operators and banking platforms.
This allows them to reach their target audience—both the banked population and those who use mobile networks regularly—without needing to visit the capital markets in person. Now, people can access the capital markets as part of their daily activities, like using mobile money or banking services.
What Lies Ahead:
The democratisation of capital markets via mobile money platforms holds significant promise for Africa’s financial landscape. It could foster a more inclusive financial system, enabling millions of people who are currently excluded from formal financial services to invest in stock markets and other capital opportunities.
Additionally, countries like Botswana, with a rising mobile money user base, have the potential to replicate successful models like Safaricom’s in Kenya. This could help integrate informal sector funds into the formal financial system, improving liquidity and providing new avenues for economic growth.
However, the extent to which this integration occurs will depend on how mobile operators and financial institutions address technical, regulatory, and market challenges. How receptive consumers are to this will also be important. Recently, telecom companies have been introducing short-term loan services, taking advantage of the pool of funds.
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