FINTECH-DRIVEN CAPITAL MOBILITY AND FOREIGN PORTFOLIO INVESTMENT DYNAMICS IN KENYA: EVIDENCE FROM THE M-PESA ERA

Abstract

Kenya’s foreign portfolio investment (FPI) inflows remain volatile despite the country’s pioneering digital financial infrastructure. This study investigates the impact of fintech adoption, interest rate differentials, and stock market returns on FPI inflows during the M-Pesa era (2009–2024). The objective is to determine whether the rise of fintech has significantly influenced international investor behavior in Kenya’s capital markets. Using an ex post facto research design, the study employs quarterly data sourced from the World Bank, KNBS, Safaricom reports, and financial databases. A multiple linear regression model was applied, complemented by diagnostic tests to ensure robustness. Findings reveal that fintech adoption has a strong and statistically significant positive effect on FPI inflows, affirming its role as a key catalyst in attracting foreign capital. In contrast, interest rate differentials were found to be statistically insignificant, while stock market returns showed a marginal positive influence. The findings align with the Technology Acceptance Model (TAM), which emphasizes the role of perceived usefulness in adoption behavior, and partially support the International Capital Flow Theory. The study concludes that Kenya’s fintech ecosystem, particularly mobile money platforms like M-Pesa, has transformed its financial environment and improved its attractiveness to global investors. It recommends that policymakers enhance regulatory clarity, support innovation hubs, and expand digital infrastructure to sustain this momentum.