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Airtel Africa’s new investor sees scope for mobile-money expansion

By David Whitehouse
Posted on Tuesday, 30 March 2021 15:05

The logo of telecommunications company Airtel is pictured on a street in Abuja, Nigeria July 9, 2019. REUTERS/Afolabi Sotunde

Airtel Africa has the potential to extend the range its mobile-money financial services, says Yemi Lalude, managing partner for Africa at the TPG private investment firm.

Airtel Africa has the chance to follow the path of M-Pesa in Kenya and go beyond “basic mobile money 1.0” to embrace value-added services, says Lalude in London. Business loans, insurance and savings would be a way for Airtel Africa to reach “mobile money 2.0”, he adds.

TPG said in March it will invest $200m in Airtel Mobile Commerce, a subsidiary of Airtel Africa. The transaction, which values Airtel Africa’s mobile money business at $2.65b, is due to close in the second quarter.

Mobile money is “the best way to achieve financial inclusion at scale,” Lalude says. The potential for new financial services, he says, exists in all of the 14 countries where Airtel Africa operates. “The needs are the same.”

The investment is being made by TPG’s Rise Fund. Based in San Francisco, the fund invests globally and has about $5bn under management. Among its African investments, the fund has a stake in digital payments provider Cellulant, for which it paid $47.5m in 2018.

According to Tajudeen Ibrahim, an analyst at Chapel Hill Denham in Lagos, the outlook for Airtel’s mobile money unit is “robust”. The potential for growth, according to Ibrahim’s note, is underlined by the fact that Airtel Africa’s mobile money penetration rates lag behind those of rivals Safaricom and Vodacom Tanzania, where mobile money contributes 36% and 29% respectively to total revenue.

Ibrahim predicts that the Airtel unit will contribute 21% to Airtel Africa’s total revenue by 2025, versus 10% in the third quarter of 2020.

Nigeria license

Chapel Hill Denham has a “buy” rating on Airtel Africa. The company holds first or second place in 11 out of its 14 African markets, while it is in third place in Nigeria.

Airtel mobile money has 212 million potential customers in east and francophone Africa, rising to 275 million when Nigeria is included, according to the research.

The granting of a payment service bank (PSB) licence by the central bank in Nigeria would be a “major catalyst” for Airtel’s mobile money, Chapel Hill Denham says. PSB licenses are already held by Nigerian telcos 9Telecom and Globacom, while Airtel and MTN have made applications.

  • Nigeria’s central bank issued its guidelines for PSBs back in October 2018. It’s “impossible to predict” when Airtel might get a license, Lalude says.
  • Given Airtel’s record in increasing financial inclusion in India, the home of its parent company Bharti Airtel, as well as Africa, “it’s just a question of time” before the license is gained, he says.

TPG won’t wait for ever for investors to recognise the potential of Airtel Africa’s mobile money.  As part of the investment, Airtel will explore a listing of its mobile money business within four years. If that timetable is not met, TPG has the option to sell its shares back to Airtel Africa at “fair market value”, as determined by a merchant bank.

TPG would get its money back as the minimum price would be the amount it is now investing. An IPO is the “expectation” of the investment, though it’s impossible to say when it will happen, Lalude says. “We need to exit. We can’t just sit there.”

Bottom line

Nigerian PSB licenses for Airtel and MTN would give financial inclusion prospects a major lift.

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