What I've Learned about Lending & Stablecoins in Africa
I’ve been working on the final installment of my three-part series on fintech, a journey to develop a perspective on VC-investable fintech opportunities. This informs a broader effort to understand the fundamental assumptions driving VC investing in Africa. The ultimate goal is to articulate what opportunities to support the affordable and ubiquitous delivery of critical goods and services in financial services, agriculture, education, energy, and health, lie beyond what VC can fund.
Anyway, my initial draft was much too long because it included a section describing what I’ve learned about structural challenges to digital lending and stablecoin-powered, cross-border payment opportunities. The purpose of this piece is to share that learning, which informs the core argument of the final piece, while keeping the word count manageable. So, with no further ado…
From Infrastructure Gaps to Infrastructure-Building Opportunities
A recurring theme in my exploring, learning, and thinking about African tech is infrastructure—the layers of physical assets, technology, policy, and norms—that enable systems to work (or not).
As such, it’s worth considering what systemic infrastructure gaps prevent a digitally-enabled financial system from functioning well, and what bridging these gaps enables. Walking through what constrains opportunities in lending and stablecoin-powered, cross-border payments, will help set the stage for my thoughts about fintech.
Benefits and Structural Challenges of Lending
Toffene Kama, Principal Investor at Mercy Corps Ventures, has a fascinating theory about how to leverage Africa’s high velocity of money to boost productivity as an alternative to lending. I’ll explore that in the next piece. For now, I’ll highlight a core part of his argument—credit won’t necessarily lead to growth and productivity if it’s masking a structural deficit that locks businesses into a fight to survive. Conveniently, trade-boosting credit and asset-based financing are the lending opportunities I’ve identified to enable productivity for companies and consumers. But I’ve also learned a bit more about the benefits of, and difficulties with, productive lending, which are worth sharing. (Note: Many of the challenges are explored within a Nigerian context, but the issues are still worth considering in a more general sense.)
Evidence of the Impact of Productive Lending
Admittedly, doubling down on productive lending as a VC-fundable opportunity makes me nervous. It feels like the echo of an initial premise of microfinance, that offering small loans represents a pathway out of poverty. Unfortunately, overindebtedness caused significant harm to Indian borrowers that has been mirrored by the experiences of many Kenyan borrowers. However, this study from Harvard researchers offers a perspective on the utility of digital loans that both confronts my limited knowledge of microfinance and supports some of my assumptions about productive lending. The study was conducted with a single, large digital lender in Kenya (which I suspect is Tala). As such, it’s problematic to generalize the results. Nonetheless, the trajectory of the findings is encouraging.
First, the majority of the loans (73%), were taken to support business activity, as compared to 7% of microfinance loans. Secondly, more than half of Kenyans (55%) depend on digital lenders for business loans, ahead of friends and family (62%). Thirdly, the research also suggests that the overall “financial well-being” of borrowers in the study improved. Those taking digital loans earned 20.8% more in monthly income and demonstrated a 23.5% greater rate of employment after accessing digital credit. Notably, the overall impact was greater with bigger loans that were used to support business activities instead of consumption. Finally, the default rate was only 5% despite granting loans with an 180% APR. This was largely attributed to a strategically designed, customer-friendly consequence layer. We’ll explore the opportunities that a systems-wide layer could enable in the next section. At the moment, it’s worth noting that the high repayment rate was a result of three features: 1) allowing new loan applications only after previous loans were completely repaid; 2) using borrowers’ track records to determine the amounts and rates of future loans; 3) protecting customers with clear, transparent loan terms; and 4) avoiding coercive recovery practices. As a result, the lender retained a high rate of repayment even after it stopped reporting to credit bureaus. Of course, there’s research and reporting to temper any unearned optimism about lending. Nonetheless, this study offers evidence to support the utility of productive business lending.
The Consequence Layer Unlock
I didn’t have the opportunity to discuss open banking on The Trajectory Africa, partially because I couldn’t find an accessible founder to talk to, but also because I wasn’t sure what to ask. I knew open banking was important, but didn’t fully grasp why or how it worked. During one of many knowledge gap-filling conversations for this series, Samora Kariuki offered a clarifying insight about open banking’s value proposition and whether it could be captured by a startup:
I think at the core, this idea of exchanging information has its own hazards if you do it as a standalone business. Who’s willing to pay for this service (the API call)? Is it the customer? Is it the bank? If I buy your data, how much would I pay? How much am I going to make from this, and therefore how much would I pay? The second thing is that there are emerging benefits. But I don’t know of any company that has succeeded because open banking was in place. It just makes it easier to operate as opposed to creating structural change in your operating conditions. So, what is the value?
I think open banking should fall under broad data exchange protocols at a national level. That’s what Nigeria is doing with its open banking frameworks, right? And Nigeria is building an open banking utility…it’s part of the open banking frameworks.
What Tunde Kelani, then Co-founder of Hadada, experienced facing competition from mybankStatement in the early days of open banking in Nigeria underscores this tension:
We were among the early teams exploring account connectivity and financial data use cases in Nigeria around the same period that several other fintechs began working in that space. We eventually concluded that the market infrastructure and regulatory environment were not yet mature enough for the model we were pursuing at the time.
The problem was banks were not ready to open up their APIs or their records for us. Like many early financial data products globally, some initial solutions in the market relied on workaround methods before standardized API connectivity became available. In our case, that approach did not feel durable enough for the long term. That kind of workaround was operationally fragile because changes to user interfaces or bank systems could interrupt reliability and consistency.
Eventually, manual aggregation lacked the long-term stability that only standardized, bank-led API integrations can provide. Another model in the market was consent-based statement analysis, where customers could provide account statements for financial insight and underwriting purposes. A number of players experimented with adjacent approaches while the ecosystem was still evolving. There was commercial interest in the model, and some early demand from lenders and fintechs. We later saw incumbent infrastructure players introduce more standardized account-information services, which changed the market dynamic significantly.
As more formalized rails emerged, customers and partners naturally gravitated toward solutions perceived as more standardized and institutionally supported. That shifted market attention toward institution-backed infrastructure. At that point, we concluded that our timing and approach were not the right fit for the stage of the market, so we moved on and exited the market.
Regulation would have solved all of that because at that time there was no license that we needed to get. There was no sandbox. There was nothing. We were inspired by global developments in financial data portability and wanted to see how similar use cases could work in Nigeria. There was no proper way to make decisions; it was the best way to assess creditworthiness. Some players scaled faster than others, but the broader issue was that the ecosystem itself was still immature.
Once institution-led infrastructure began to emerge alongside clearer regulatory direction, the market changed quickly. Incumbent infrastructure providers were naturally better positioned to coordinate industry-wide adoption once the ecosystem started formalizing mybankStatement. myBankStatement had structural advantages as a long-established shared industry infrastructure provider, so it was well placed to support market-wide implementation.
We’ll return to the question of whether or not some jobs are for governments, not startups, to do. But for now, let’s stick to exploring the utility of open banking, and apply it to lending. As Maro Elias explains in his piece, Credit 3.0: The Next Fintech Market Frontier, impending open banking regulation in Nigeria could unlock the consequence layer, the final component of what he describes as Credit 3.0. The Credit 3.0 model is composed of four layers: 1) underwriting, which determines whether the borrower has the ability to repay; 2) digital mandate, which makes it possible to withdraw from borrowers’ accounts to secure repayment; 3) digital disbursement, or the ability to deploy loaned funds; and 4) the aforementioned consequence layer, which documents the path through the previous three layers, assesses the quality of the borrower, and routes data to the underwriting component to inform subsequent decisions. But, why focus on the consequence layer?
As Maro points out, lending should be very lucrative if the profits of Nigeria’s leading banks are any indication. In 2024, Access Bank, FirstBank, GTBank, UBA, and Zenith Bank collectively earned approximately $6 billion in interest income. The problem is what the overly-used adage suggests: it’s easy to lend money, but hard to get it back. Part of the reason is that the consequence layer in Nigeria and many other African countries is underdeveloped. And where there are elements of enabling infrastructure like credit bureaus, the available data is limited and not openly accessible.
This gap affects adoption in a couple of ways, as Maro explains. First, potentially creditworthy individuals and enterprises can’t access low-interest loans from financial institutions with low risk tolerances, because there isn’t sufficient data to accurately assess borrowers’ ability to pay. Secondly, a single source of truth would force loan providers to compete on their value propositions to customers rather than their approach to underwriting. Without it, borrowers have to navigate a fragmented landscape of retail and enterprise solutions. This probably helps to explain why credit penetration is only 14% in Nigeria. Unfortunately, the emergence of Credit 3.0 has been hampered by the delayed introduction of open banking regulation, which was expected toward the end of 2025.
In the meantime, Flutterwave has acquired Mono, an open banking startup that “uses APIs that allow users to consent to sharing their bank information, enabling financial institutions to analyze income, spending patterns, and repayment capacity”. This acquisition probably demonstrates what Maro meant when he wrote that Flutterwave and Paystack would likely build the first layer of Credit 3.0 (underwriting). In his words: “While we’re waiting for the CBN, players are already taking positions – Paystack and Flutterwave have built layer 2 and 3 and will likely take a shot at building layer 1 out when the APIs are live, I expect Mono and Lendsqr to thread a similar path – the former because they will do anything to stay alive, the latter because their founder is one of the first Apostles of Open Banking.”
Notably, Flutterwave CEO Gbenga Ogboola, in a piece explaining the rationale for the deal, highlights the need to protect infrastructure that’s essential to Africa’s financial services system. Gbenga writes:
And I want to be clear about the why behind bringing Mono into the Flutterwave ecosystem. We didn’t acquire Mono to limit or control competition. We acquired it to protect and strengthen the rails for Africa’s next fintech era.
Critical rails such as open banking and stablecoins now demand deep capital, operational resilience, and regulatory depth to survive and scale. Mono is the backbone that millions of businesses rely on. By backing it, we give the entire ecosystem, from fintechs to banks to SMEs to individuals, the stability they need to depend on home-grown solutions for the long haul.
It’s not clear if this transaction contradicts the assumption that an open banking opportunity is most effectively shepherded by the public sector through regulation. Still, although Ogboola denies the acquisition represents a defensive position, acquiring Nigeria’s leading open banking player ahead of enabling regulation does suggest that the internalization of critical verification and lending infrastructure will bolster Flutterwave’s moat while neutralizing a competitive threat that might have been empowered by enabling regulation (whenever it arrived). In a difficult funding environment, the uncertainty around the arrival of regulatory clarity might have been less appealing than a ready pathway to scale.
“Lazy States” and Core Reserves
Beyond the technical deficit exemplified by an inadequate consequence layer, and the policy deficit represented by slow-moving open banking regulation, Nigeria also suffers from the impact of systemic political decisions that inform downstream policy. In his outstanding piece Why Lending to Nigeria’s Real Economy Is So Hard, Samora Kariuki explains exactly that. Nigeria wrestles with “lazy state” syndrome because its leaders can fund the state (and themselves) much more efficiently through oil & gas profits than by making infrastructural investments that would liberate the real economy. The result of these decisions is macroeconomic instability and a commodity dependence that constrains Nigeria’s ability to export much beyond oil and gas. This in turn causes dollar shortages and weakens the naira, which creates a hostile environment for growth. This contributes to low industrial capacity because there’s little incentive to invest beyond oil, and companies that try to make and sell things without enabling infrastructure, struggle with productivity and profitability. The result is chronic import dependence, which the Central Bank of Nigeria addresses through a restrictive monetary policy designed to keep the naira stable and limit its flight toward dollars.
One key tool of this policy is the CBN’s cash reserve ratio (CRR). While in many economies, banks need to save 2-5% of their deposits in a central bank, the ratio can be up to 50% in Nigeria. But banks still have to pay interest to all their customers, while half of their deposits are at the CBN, earning nothing. Consequently, banks have to charge very high interest rates (up to 30%) on loans, which is unaffordable for most businesses. The unfortunate outcome is that businesses that power the “real economy” bear the cost of keeping the naira stable, even though their success is the antidote to an economy dominated by oil (noting that diversification is underway).
Unifying Data
In another piece, #78 - How to Win in the Next Iteration of SME Payments, Samora
argues that unifying fragmented payment data will unlock downstream services like credit. Here’s the logic: SMEs use four or five different payment systems—Flutterwave, Moniepoint, Paystack, POSs, bank accounts, cash, etc. and manage them simultaneously. But each payment provider sees only a fragment of the total cash flows. Let’s say a bank looks at an SME, and thinks the business makes 100,000 naira. If you combine all the sources of information, the business is actually making 1 million naira. Consolidating data provides insight into how payments flow, what the SME actually does with its money, and what it needs to do. So, yes, value-added services sit downstream of unified data. Once fragmented data is removed as a barrier to visibility, a bank can see an SME’s cash flow patterns and offer appropriate services.
Unlocking Onchain Liquidity
One of the consequences of an absent consequence layer, as we learned earlier from Maro, is that potentially credit-worthy borrowers can’t connect with capital from low-interest lenders. In an insightful conversation on The Stablecoin Podcast, Maya Caddle, who works on Business Development & Partnerships at the Solana Foundation, mentions how a lender might extend its lending pool. She notes that Tala, the purported subject of the Harvard research, has taken a step towards doing so by moving its loan book onchain. Doing so expands the amount of capital it can access, presumably from sources along the risk tolerance spectrum. This clearly broadens the scope of who can be a lender, and potentially helps make loans cheaper and more accessible.
Cheng Cheng, former Senior Director of Product, Global Markets at Tala, is the Co-founder of Jia, which offers blockchain-based financing to businesses. In an episode of The Flip’s show crypto@cale, called Bringing DeFi Lending to the Real World, she explains how and why this expansion happens.
It’s actually really hard as a lender if you don’t have a really strong portfolio or track record and the cost of capital can go up really high to respond. Many institutions are unwilling even to lend at smaller ticket sizes because the underwriting for them is really hard. They will not lend below a five million dollar facility. The cost of capital typically goes up to somewhere [between] 15% to 25% even for some established digital lenders in the space. …Digital lenders like Tala only go to institutions for bigger ticket sizes, but for companies like Jia, leveraging the liquidity pool, anyone in the world could potentially contribute or invest in smaller ticket sizes. That can open up a lot of potential in terms of where we source liquidity.
Clearly, some things have changed at Tala since this episode was recorded in 2023. Anyway, with a toe dipped in the world of blockchain-powered applications, let’s turn to another example of using blockchains to boost the efficiency and reduce the cost of financial services.
Stablecoins vs. Instant Payment Systems for Cross-border Payments
Apparently, stablecoins aren’t the only solution to the cross-border payment problem. Interconnected instant payment systems (IPSs) could also play a role. But there are meaningful challenges with stablecoins and IPSs, even if they’re potentially complementary.
In my previous piece, What I’ve Learned about Fintech, I explored a core element of what makes stablecoins compelling: they make settlement, the third and final part of a payment process, instant. The other two parts, messaging (instructions to inform the execution of a financial transaction) and reconciliation (ensuring that internal and external payment records match), already happen in real time. Instant settlement via stablecoins shifts prefunding to stablecoin issuers, which liberates previously trapped working capital. It also greatly increases the speed and reduces the costs of these payments.
However, stablecoins also introduce systemic risk to African financial systems such as dollarization, and related challenges such as loss of control over monetary policy and local currency devaluation. But let’s take a step back and revisit the fundamental problems stablecoins can help solve. (Resolving trade imbalances definitely seems out of scope.) Then, we’ll reckon with the challenges they might cause. The first set of problems relates to the impact stablecoins have on African financial systems, while the second exposes the risks posed to global financial systems. Let’s start with Africa.
A critical function of a digitally-powered financial system is to process payments easily, enabling trade. Why is this so important in African contexts? According to
Oui Capital’s report, Africa’s Cross-Border Payments Landscape, intra-African trade is significantly lower than it is in other regions (acknowledging any underestimation attributed to what is predominantly less visible, “informal” trade). Intra-African trade accounts for less than 20% of total trade (vs. 69% in Europe and 59% in Asia) in good part because cross-border payments are fragmented, expensive, and slow.
Another systemic challenge for African cross-border trade is trade imbalances—in aggregate, the continent imports more than it exports, which means it sends more dollars to buy goods and services from other countries than it collects from the goods and services it sells. This results in chronic dollar shortages. Yoseph Ayele, Founder & Managing Partner at LAVA, puts numbers to this problem: Africa has a $400B net USD outflow. This means that more dollars exit—mostly through imports ($719B), international companies sending their profits home ($275B), debt service ($89.4B), and illicit financial flows ($238B)—than enter via exports ($682B) remittances (~$100B), foreign direct investment ($97B), and development aid ($42B)*. (*These numbers are from 2024.)
Further, according to Oui Capital, part of the $100B trade finance gap in Africa is attributable to high-friction, cross-border payments. The cost of these payments keeps transactions informal and cash-based, and locks out SMEs. In Nigeria, for example, 90% of USD flows in an informal, parallel market through foreign exchange bureaus, hawala networks, and informal traders. To stem the flight of USD, Nigeria’s largest banks prohibited USD debit card transactions between 2022 and 2025. Restrictions have eased, but transactions are still held to $20/day, $500/month, and $1,000/quarter.
Despite these difficulties, the report also suggests that the cross-border payments market in Africa is huge. In 2025, it was worth $329B, and with a 12% annual growth rate, it’s estimated to reach $1T by 2035. However, looking at the remittance portion of the market suggests the opportunity could be bigger than this estimate. In 2023, Africa attracted $90.2B in remittances, 35-75% of which was delivered through informal channels. This suggests that the actual volume was more than $329B in 2025, even though it costs more to move money across borders in Africa (7.4-8.3%), than it does in most other places (global average of ~6.4%.)
A couple of factors exacerbate this problem. First, the lack of trade and trust in (some) local currency pairs results in insufficient liquidity. As a result, payments involving African currencies are cleared via USD and Euros through the SWIFT/correspondent banking system. Additionally, only 55% of African countries allow for electronic KYC, which slows things down further. Taken together, the range of inefficiencies results in $5B in lost value annually.
First Circle Capital’s white paper, Stablecoins, Stablecoins, Stablecoins, explains how they reduce friction in cross-border payments, using blockchain to bypass the traditional banking system. Essentially, stablecoins are minted, or created, by issuers such as Paxos and Circle. For each minted stablecoin, a customer has prepaid, and the issuer holds the equivalent in dollars (often in the form of short-term US treasuries). Stablecoins enter financial systems as smart contracts issued on blockchains such as Ethereum and Solana, allowing users to exchange value through their wallets or intermediary platforms like exchanges and payment apps. They improve upon the SWIFT system because they defragment messaging, reconciliation and settlement. Because stablecoins represent USD, they can be used to exchange currencies, which eliminates the need to prefund accounts with local currency. This means that transactions can be completed instantly. Notably, forex patterns pre-date stablecoins. But stablecoins digitize (and potentially accelerate) existing behavior, while increasing the speed and reducing the cost of transactions. As Yoseph notes in his piece for LAVA, USD/naira trades can now happen on exchanges like Binance based on the USDT rate, instead of through more traditional channels. According to Chainalysis, “Nigeria transacted $59B in crypto in 2024, equivalent to 31% of the country’s $188B nominal GDP.”
Unfortunately, making it easier, faster and cheaper to exchange African currencies for USD, has a dark side. It reinforces the dollarization of African trade and endangers the monetary sovereignty of African countries. The vast majority of stablecoins is USD-denominated (99% of 250B stablecoin market) and issuers back their stablecoins with US treasuries. Normally, central banks can track foreign exchange flows through banking systems. But according to another of Yoseph’s LAVA pieces, stablecoins hamper monetary policy by making it difficult to see and monitor outflows, and guide them via capital controls. “95% of African trade (subject to 8.5% fees) clears outside the continent through global banking institutions, which costs $400B annually.” Further, when payments for regional trade are facilitated in USD, it costs SMEs 8-20% for smaller transactions and 4-5% for larger ones. Easing (and thereby accelerating) the flight of local currencies into USD can reduce demand for them and lower their value. This creates a vicious cycle in which people and institutions abandon devaluing currencies, contributing to their continued devaluation. Ultimately, as the First Circle paper explains, increasing USD liquidity while reducing local currency liquidity, just pushes the liquidity challenge down the value chain.
Naturally, the solution to problems caused by stablecoins is…more stablecoins? But, in this case, African central banks could issue local currency stablecoins backed by their treasuries. LAVA indicates that they could enable direct settlement and reduce costs to $0.0016 per transaction on L2s (which are built on top of blockchains to boost their abilities), or twenty times lower than the smallest fee. But it’s not just that households and businesses would get significantly cheaper payments. Stablecoin issuers such as Circle, Paxos, and Tether earn interest called reserve yield from the cash, US treasuries, and government money market funds they hold against the stablecoins they’ve minted. This phenomenon, called private seigniorage, is typically reserved for financial institutions that can legally create and hold currency. As such, African financial institutions such as central banks can issue stablecoins pegged to local currency treasuries. In her article, Africa can lead with its own local-currency stablecoins, Gwera Kiwana argues that if these banks held 5-10% of global float, they’d generate billions of dollars of interest from stablecoin reserves. (Note, private seigniorage is defined as “the amount of money which deposit-taking banks make by issuing money”.
Let’s turn now to the set of stablecoin problems associated with global systemic risk.
Again, Agnes Aisleitner Kisuule of First Circle Capital wrote a very informative white paper I referred to earlier, which explains them in detail. What I’ll highlight here are a few key points about the “bank-ish” nature of stablecoin (issuers), how stablecoins lack the key characteristics required to underpin the global monetary system, and why this leads to systemic risk.
Stablecoin issuers operate like narrow banks. A narrow bank is a financial institution that invests customer deposits exclusively in safe, highly liquid, short-term assets. Similarly, stablecoin issuers hold cash, treasuries, etc. against the value of their stablecoins. Issuers also earn interest on these reserves (private seigniorage). The problem is that earnings from central bank seigniorage go to the state while issuers eventually deliver some portion to shareholders, without being subject to the same regulatory restrictions as banks. (Note: This is about the difference between how banks and issuers are regulated in general, not about how reserve yield distributions are regulated.)
Stablecoins lack the core attributes needed to serve as infrastructure for the monetary system. Essentially, stablecoins lack three important characteristics: singleness, elasticity, and integrity.
Singleness. According to the Bank of International Settlements (BIS), singleness refers to when institutions trust that money retains its value and can be redeemed at that value. This ensures that a single unit of currency is consistently worth a single unit of that currency—a dollar is always worth a dollar. However, as Agnes points out, the value of a stablecoin can vary in accordance with the level of trust in its issuer. For example, USDC temporarily dropped to $0.87 when its treasuries were caught up in the Silicon Valley Bank debacle.
Elasticity. The (BIS) defines elasticity as “money being provided flexibly to meet the need for large-value payments in the economy.” One demonstration of elasticity is the ability of central banks to use their reserves to provide liquidity against high-quality collateral, which ensures that transactions are settled in real time. Additionally, banks don’t have to fully back the money they issue with reserves. Another example is the ability of banks to create new money through lending, i.e., each loan creates a new deposit at the bank. More specifically, banks can extend overdrafts and lines of credit, meaning payments aren’t constrained by existing deposit balances. This is what allows them to meet demand for funds when needed. Stablecoins can enable money to move faster and more easily, but they don’t create new money; issuers can only mint as many stablecoins as have been pre-paid, and for which they have reserves.
Integrity. Integrity indicates that monetary systems should not process fraudulent and criminal transactions because it erodes the trust that ensures these systems’ durability. In the world of stablecoins, integrity is compromised at the micro level by issuers who operate without licenses and with limited visibility into their financials. At a macro level, integrity is impaired by the reduced visibility into financial flows that dollar-pegged stablecoins process, which makes it harder to identify and guard against illicit activity.
Stablecoins contribute to yield risk. As mentioned previously, stablecoin reserves typically consist of short term assets such as treasuries or repurchase agreements that are continually reinvested in, once they reach maturity. (Note: A repo is “a short-term agreement to sell securities and repurchase them later at a slightly higher price.”) If yields or repo liquidity decreases, these liquid reserves become less liquid. That could happen at the same time that stablecoin redemptions might be increasing, leading to more redemptions. Notably, the BIS warns that a $3.5B increase in the total value of all stablecoins in circulation can depress treasury yields .025-.05%, “with effects up to three times larger in absolute terms during redemption episodes.”
As a relevant aside, the author of the paper that Agnes cites is the Bank for International Settlements (BIS), or a bank for central banks (owned by 63 central banks). This is worth mentioning not because the BIS’s arguments aren’t robust (to the extent I can credibly assess that as a non-finance person). They do, however, seem similar in tone to those made by the Bankers’ Committee of Nigeria against “telco-led” mobile money fifteen years ago, which Samora Kariuki details in his fantastic piece, The Cobra Effect: The Self-Infliced Disruption of Nigerian Banking. The Bankers’ Committee is an advisory body established to promote stability, integrity, and development in the banking sector. Chaired by the Central Bank of Nigeria (CBN), it convenes the CBN, the Nigeria Deposit Insurance Corporation (NDIC), and all commercial bank CEOs to discuss policy, enforce ethics, and drive economic growth.
In response to the emergence of telco-led mobile money in Kenya, the Committee fought to retain control in Nigeria. For example, they rang the systemic risk alarm over how well AML protocols would be deployed. They also expressed concern about how their ability to earn interest on cash flowing through digital wallets would be disrupted. In his piece, Samora revealed how disingenuous the Committee’s arguments were, but I won’t argue the same here. I do think it’s fair to point out that the BIS and the Bankers’ Committee represent forms of centralized banking power that espouse visions that reinforce their own centrality. If nothing else, this type of tension should be expected. Innovators and their technology tend to run ahead (of the risk tolerance) of regulators and the regulation they create to guide said technology.
Defining the Stablecoin Opportunity
Theoretically, banks, telcos, and startups can all exploit the stablecoin opportunity. But they have different advantages and points of entry. As Gwera’s article from earlier explains, telcos captured the mobile money opportunity (in many places that aren’t Nigeria). But banks are well-positioned to adopt stablecoins. Banks have assets such as licenses and regulatory relationships that would make their deployment easier. And although African banks work with correspondent banks (within the SWIFT system), this is expensive and slow. Stablecoins could represent an upgrade of sorts. More specifically, “issuing local-currency stablecoins would allow them to modernize their services, offer digitally native products, and integrate with emerging crypto payment rails—all while maintaining their position as trusted financial institutions rather than ceding ground to fintech startups or foreign platforms.”
Meanwhile, the aforementioned telcos have the infrastructure and influence on consumer behavior to accelerate the adoption of stablecoins. As Gwera points out, they’re largely responsible for the comfort users have developed with exchanging value from digital forms to cash through mobile phones. For example, they’re now accustomed to the agent-facilitated, on/off ramps that move money between digital value and cash. Additionally, telcos prefund mobile money transactions by depositing cash in bank trust accounts that are accessible to mobile money agents and serve as “digital float.”
These aren’t the only ways stablecoins can create value for telcos. In my previous piece, What I’ve Learned about Fintech in Africa, I wrote about Onafriq’s efforts to connect mobile money networks across brands and countries. As Samora suggests in his piece, Stablecoins and Cross-Border Payments, MTN could use stablecoins to link its networks in the ~20 countries where it operates, not unlike what Onafriq is doing. Or as Gwera wrote, Safaricom could issue Kenya shilling-pegged stablecoins backed by government bonds. Real time settlement would replace periodic ledger reconciliation, and the company could earn yield on its reserves.
Despite the advantages that banks and telcos possess, there’s clearly room for startups to play, as Gwera notes. At the very least, few of the major payments players like PayPal, Stripe, and Visa are substantially integrated into African markets. Meanwhile, local companies like Onafriq, Flutterwave, and Paystack have done a lot of the interoperability, regulatory, and customer development work. But as stablecoin adoption continues to increase, the fees earned from exiting and entering fiat will reduce, which will in turn drive more adoption and competition. As Afridigest’s report, The Future of Payments in Africa: Hybrid, Borderless, and Inclusive, suggests, infrastructure is consolidating while products remain fragmented. But increased competition could lead to the consolidation of products and companies.
Flutterwave’s recently announced partnership with Turnkey indicates what a way forward might be. My first piece about digital commerce cited Flutterwave CEO Gbenga Agboola’s belief that “there are three major pillars that can help Africa to leapfrog”—payments, commerce and logistics—as an inspiration for starting my African tech exploration with those sectors. In his post about the deal, Gbenga links the case for payments to the one for enabling trade.
To truly connect Africa to the global economy, we must remove the friction that slows businesses down, like settlement delays that prevent suppliers from releasing goods on time.
Across the continent, importers need reliable rails that allow them to send money and have it delivered in real time so suppliers can confirm payment instantly and release goods without delay. Stablecoins make this possible. They enable African businesses to pay global suppliers faster, receive next-day value, accept stablecoin payments, and earn foreign-currency revenue with far less friction. Remittances are also being turbocharged, unlocking faster and more dependable inflows into African economies.
This is how we are building the rails African businesses need to move money faster, unlock seamless trade, and grow without borders.
This is exactly the connection Jasiel Martin-Odoom made in my previous piece on fintech; there’s more to cross-border payments than just payments. They’re often the first stage in a series of trade-related transactions. For example, if an importer in Africa pays a supplier in China, there will also be a need to make, ship, and sell the products on which the transaction is based. This creates an opportunity for a third party to finance the production of goods, as well as offer and finance warehousing, shipping, and clearing services, many of which are higher-margin, recurring revenue services. Flutterwave is tapping into the cash flows associated with trade-enabling, value added services.
Instant Payment Systems: More Rails for Cheap, Fast, Cross-Border Payments?
Now that we’ve got the stablecoin story (mostly) straight, let’s take a look at instant payment systems (IPSs). Clearly, IPSs represent a pathway towards fast, cheap payments at a national level. But interconnected IPSs could also support intra-continental, cross-border payments. Regional IPSs are expanding, according to the AfricaNenda Foundation’s focus note, Unlocking Pan-African Trade: The Transformative Power of Regional Instant Payment Systems. Over the last five years, they’ve processed $1.2T across 31 systems—37% more transactions and 39% more value. Further, there are four regional IPSs that are operational. GIMACPAY serves the six countries of the central African zone (CEMAC), while PI-SPI serves the eight French-speaking countries of UEMOA. Southern Africa has TCIB, and the EAC, ECOWAS, and COMESA are all working on instant retail payment systems. Finally, PAPSS is a pan-African network initiated by the Afreximbank that commercial banks, fintechs, and payment service providers can connect to.
As the AfricaNenda note suggests, if these systems became interoperable, the savings on transactions could plug the $100B trade finance gap. But this isn’t a simple thing to accomplish. Standards for KYC (Know Your Customer), AML (Anti-Money Laundering)/CFT (Countering the Financing of Terrorism), would have to apply across the continent. Also, all major players in financial systems—banks, fintechs, mobile money operators, etc.—must be able to participate in order for the systems to operate at scale. Meanwhile, as mentioned before, only 55% of African countries enable electronic KYC.
Another big problem is that IPS networks could still be tethered to the SWIFT system, although the degree to which, and for how much longer this is true is debatable (as we’ll see shortly). This means that transactions could still involve correspondent banking networks outside of Africa with settlements being made in non-African currencies such as USD.
Finally, as Marietta Gachegu explained to me—what is commonly described as regulatory fragmentation is also fundamentally an expression of disparate national priorities expressed through policy. The harmonization of regulations (and the policies that drive them) would also need to represent an alignment of national, financial, and economic goals as well as a commitment to the type of broader pan-African that the AfCFTA represents.
Exploring the dialogue about PAPSS’ utility is one way to confront the dynamics surrounding implementation. In my previous piece on fintech, I wrote about how banks may be disincentivized from using stablecoins. Slow-moving capital can be temporarily lent out by banks, as they earn fees for moving it slowly. As such, some banks might be circumspect of stablecoin infrastructure that circumvents the SWIFT system. But for banks that are only partially included anyway, there might be incentives to adopt alternatives. In any case, PAPSS is operational and invites conflicting points of view about how well it can improve the speed, and reduce the cost, of cross-border payments to and from Africa.
For example, Sheena Raikundalia’s post about the cost of payments between Kenya and Uganda invites revealing observations about the real-world utility of PAPSS. First off, Obi Ejimofo, Head of Commercialisation at PAPSS, debunks my assumption about the system’s reliance on USD—apparently, the PAPSS Currency Marketplace already enables direct, local-currency exchanges between participants.
Similarly, Kayode Odeyemi pokes at the assumption that stablecoins and PAPSS represent opposing solutions, an idea I’ll come back to. He argues that they can coexist because they address different problems.
Some other comments highlight critical, infrastructural challenges with PAPSS. For example, Nikolai Barnwell points out how policy and regulation reflect national interests, for better or worse. He argues that PAPSS is a surface-level fix that doesn’t address the root cause that Marietta foreshadowed: divergent national monetary policies lead countries to distrust each other, guard their exchange rates tightly, and sustain parallel cross-border markets. He notes that official rates in many PAPSS countries can be 10–15% off the real market rate, and contends that inter-governmental initiatives like PAPSS are conceived far from the practical realities faced by ordinary people and businesses.
Similarly, Alexander Owino and Antony Ndegwa point out structural issues that could hamper settlement. Alexander argues that PAPSS overlooks a fundamental challenge: the absence of a mandated African central bank capable of net cross-border settlement. Antony adds that because African countries have trade imbalances with each other, direct local-currency exchange would generate exchange rate premiums, and managing FX risk across 52 countries’ monetary policies would likely push participants back toward a common reserve currency.
Finally, Yoseph from LAVA, highlights the weaknesses inherent to PAPSS as a closed loop system, which contradicts part of what Mr. Odeyemi explained about the role of USD in PAPSS-facilitated settlements. Essentially, the argument is that PAPSS is constrained because it’s a system managed through a central ledger that settles transactions through USD or Euros every 24 hours, instead of instantly and continuously on the blockchain. Yoseph also argues that closed systems are less likely to engender the full participation of all market actors (including the so-called “informal ones” in parallel markets). This hampers transparent price discovery, which is the outcome of a neutral environment where the rules apply to everyone and everyone is included. Finally, the programmable nature of stablecoins allows enabling conditions and features to be built in, which enhances customization and reduces risk.
Picking up the idea that stablecoins and PAPSS solve different problems—one can make an argument that national IPSs and stablecoins are complementary. National IPSs make in-country payments quick and fast, while stablecoins do the same for cross-border payments. As such, any competition would happen at the intra-continental or intercontinental level with connected IPSs, i.e. regional networks like PAPSS. Of course, policy alignment still seems like a credible barrier to interconnected IPS networks. Let’s take Nigeria again as an example. Marietta explained that Nigeria doesn’t lack an outbound payment license because of a coordination failure with other countries. It’s a policy choice designed to control the outflow of USD. Again, the decisions that governments and central banks make about capital controls reflect national policy decisions. But stablecoins may face similar head winds. Regulation hasn’t exactly been friendly to crypto, and it hasn’t yet caught up to stablecoins (in Africa). From a usability perspective, I’d imagine stablecoins are easier to integrate, but maybe there are stability and risk-related concerns to consider. I suppose the only way through, is through.
What’s Next
The structural challenges to delivering digital credit and building cross-border payment rails illustrate the tension between infrastructure gaps and infrastructure-building opportunities. Not all the missing pieces sit in the sandbox of private enterprise, but startups often have the talent, technology, and mindsets to see and create solutions where none seem possible. I’ll sit with that for a bit. Next stop? My final thoughts on fintech.
A very insightful article, thank you for this💡