One of East Africa’s largest economies, Kenya is poised to become a global leader in fintech innovation. Structural reforms have driven incredible economic growth and social development, and between 2015 and 2019, Kenya was one of Sub-Saharan Africa’s fastest-growing economies at an average annual growth rate of 5.7%.1 The Kenyan economy grew at a sluggish 0.6% in 2020 amidst the COVID-19 pandemic,2 but the International Monetary Fund (IMF) predicts a 2021 surge of 7.6%,3 its most rapid growth in a decade. Still, poverty and inequality persist,4 and the health crisis has reversed development progress and plunged 2 million more Kenyans into poverty.5
As Kenya recovers from the pandemic, digitalization will be key in driving financial inclusion, achieving sustainable development goals and pursuing Vision 2030 initiatives. Launched in 2008, the vision aims for Kenya to reach middle-income status by 2030. Innovations in fintech have already paved the way: companies like Safaricom and Equitel have promoted financial inclusion throughout Kenya, and 83% of the population now has access to some type of financial service.6 Safaricom’s M-Pesa mobile banking service gained a million new subscribers in 2020, bringing the total to 25 million users,7 and new entrants to the digital banking scene are sure to come. Kenya has 93 fintechs in operation, 16.1% of Africa’s total, and fintech funding has soared 209% over the past two years.8 The mobile payments sector is particularly strong, with mobile transactions at 87% of the GDP, a rate second only to China’s.9 As the Kenyan fintech ecosystem matures, regtech, insurtech and blockchain will be areas to watch.10
Kenya’s 2021 digital agenda focuses on strengthening the national payments system, a possible central bank digital currency (CBDC) and the expansion of its regulatory sandbox. The central bank is also expected to release a digital finance policy. As Kenya continues to digitalize, regulators must look to strengthen the national cybersecurity framework. In the central bank’s Banking Sector Innovation Survey 2020, banking institutions identified cybersecurity as one of the top three challenges faced in product innovation, and over a third of banking institutions deemed cyber-risk their key risk in this area. The surveyed institutions also identified a lack of clarity in several regulatory requirements, including requirements on cloud computing, distributed ledger technology (DLT) and turnaround time for approval of new products. Money laundering is another primary challenge to the financial sector and its regulators. According to an International Narcotics Control Strategy report, Kenya remains a major hotspot for money laundering, terrorist financing and fraud.11
Financial Regulatory Authorities
The Central Bank of Kenya is the country’s central bank and the primary regulatory authority for the financial sector.
The Capital Markets Authority of Kenya regulates and supervises the capital markets in Kenya.
The Office of the Data Protection Commissioner (DPC) enforces the Data Protection Act (DPA).
Policy, Laws and Regulations
Biometric Identification Requirement in Insurance Coverage, 11 July 2021
The National Hospital Insurance Fund (NHIF), Kenya’s national insurance agency, replaced its insurance cards with a fingerprint recognition system. Members must register their biometric data in order to file claims and receive insurance, and may register at participating hospitals or NHIF service centers. The move aims to tamp down on fraud and manual claims processing. The Kenyan government has also sought to introduce a national biometric identification system, but the project has stalled.12
Central Bank Digital Currency, June 2021
In an interview, Central Bank of Kenya Governor Dr. Patrick Njoroge stated that, “We are already having discussions with other global players, in various ways, around the introduction of Central Bank Digital Currencies. The push comes as a result of mushrooming of private cryptocurrencies and we are already feeling left out and need to create our own space.”13 Njoroge also mentioned the need to address cryptocurrency’s role in illicit activities such as money laundering.
The Capital Markets Soundness Report (CMSR) Volume XVIII, Quarter 1 2021 outlines national, regional and international capital markets developments. Per the report, the CMA now welcomes fintech firms with artificial intelligence and machine learning applications to apply for participation in the authority’s regulatory sandbox. The CMA is also reviewing a plan to allow fintech firms with crypto applications (except cryptocurrencies) to participate in the sandbox. In response to the rising popularity of crypto investment in Kenya, the CMA expresses the desire to forge a “common stance and joint-messaging” with the central bank. The CMA would also like to establish a joint Financial Sector Regulatory Sandbox with other financial sector regulators, so that “joint expertise from the various subsectors may be leveraged to test various forms of crypto-assets and other FinTechs to inform future oversight of the same.”14 The number of cryptocurrency investors in Kenya is estimated to be around 4.5 million, 8.5% of the population,15 and Kenya ranks #1 in the globe for P2P crypto trade.16
Kenya National Payments System Vision and Strategy 2021-2025, December 2020
The central bank issued the draft Kenya National Payments System Vision and Strategy 2021-2025, which aims to drive digital payments and promote innovation, choice and security. The four main objectives of the vision and strategy are:
- “1. To facilitate payments systems that meet the diverse needs of users and supports the country’s development agenda.
- 2. To ensure payments systems are secure through influencing industry and global standards, and adopting safe technologies.
- 3. To power an ecosystem based on collaboration leading to launch of premier and globally competitive innovations.
- 4. To implement a supportive policy, legal and regulatory framework that is firmly enforced across all existing and emerging players.”17
Towards these objectives, the central bank seeks to promote the development of a financial data protection framework; promote the adoption of digital identity in verification, including e-KYC; strengthen security data analytics and security reporting; promote efficient and effective clearing infrastructure for payment systems; spearhead initiatives to facilitate cross-border payments; and boost accessibility to payment instruments amongst vulnerable communities.
First Data Protection Commissioner, 16 November 2020
Immaculate Kassait was sworn in as Kenya’s first data protection commissioner (DPC). The DPC enforces and oversees implementation of the 2019 Data Protection Act, and is authorized to conduct investigations, impose fines for non-compliance and facilitate negotiation in the case of a dispute. Kassait has vowed to hold big tech companies accountable.18
1. “The World Bank in Kenya.” The World Bank, 30 March 2021. https://www.worldbank.org/en/country/kenya/overview
2. Herbling, David. “Kenya Sees Economy Expanding at Fastest Pace in a Decade.” Bloomberg, 05 August 2021. https://www.bloomberg.com/news/articles/2021-08-05/kenya-forecasts-economy-to-expand-at-fastest-pace-in-a-decade
3. “Kenya.” International Monetary Fund, 23 June 2021. https://www.imf.org/en/Countries/KEN
4. “The World Bank in Kenya.” The World Bank, 30 March 2021. https://www.worldbank.org/en/country/kenya/overview
5. “Kenya Economic Update: COVID-19 Erodes Progress in Poverty Reduction in Kenya, Increases Number of Poor Citizens.” The World Bank, 25 November 2020. https://www.worldbank.org/en/country/kenya/publication/kenya-economic-update-covid-19-erodes-progress-in-poverty-reduction-in-kenya-increases-number-of-poor-citizens
6. Chitavi, Mike et al. “Kenya Is Becoming a Global Hub of FinTech Innovation.” Harvard Business Review, 18 February 2021. https://hbr.org/2021/02/kenya-is-becoming-a-global-hub-of-fintech-innovation
7. “Mobile money revolutionises Kenyan fintech.” Global Business Outlook, 15 June 2021. https://www.globalbusinessoutlook.com/mobile-money-revolutionises-kenyan-fintech/
8. “Finnovating for Africa 2021: Reimagining the African financial services landscape.” Disrupt Africa. https://disruptafrica.gumroad.com/l/razjs
9. Creemers, Tijsbert et al. “Five Strategies for Mobile-Payment Banking in Africa.” Boston Consulting Group, 13 August 2020. https://www.bcg.com/en-gb/publications/2020/five-strategies-for-mobile-payment-banking-in-africa?mc_cid=9db89d0f52&mc_eid=e740b6a321
10. “Finnovating for Africa 2021: Reimagining the African financial services landscape.” Disrupt Africa. https://disruptafrica.gumroad.com/l/razjs
11. Wambui, Mary. “Kenya ranked among world’s major money laundering, fraud hotbeds.” Nairobi News, 10 March 2021
12. “Kenya Replaces Insurance Cards With Fingerprint Biometrics.” Find Biometrics, 09 July 2021. https://findbiometrics.com/kenya-replaces-insurance-cards-with-fingerprint-biometrics-070904/
13. Okoth, Jackson. “CBK Holds Discussions on Digital Currencies.” The Kenyan Wall Street, 07 June 2021. https://kenyanwallstreet.com/cbk-in-discussions-over-digital-currency/
14. “The Capital Markets Soundness Report (CMSR) Volume XVIII, Quarter 1 2021.” The Capital Markets Authority, April 2021. https://www.cma.or.ke/index.php?option=com_content&view=article&id=705:…
15. Kaaru, Steve. “Kenya leads in global P2P volume for second year in a row.” CoinGeek, 16 September 2021. https://coingeek.com/kenya-leads-in-global-p2p-volume-for-second-year-in-a-row/
16. Onyango, Conrad. “Kenyans lead the world in peer to peer crypto trade.” Quartz Africa, 23 August 2021. https://qz.com/africa/2050735/kenyans-lead-the-world-in-peer-to-peer-crypto-trade/
17. “Kenya National Payments System Vision and Strategy 2021-2025.” Central Bank of Kenya. https://www.centralbank.go.ke/wp-content/uploads/2020/12/CBK-NPS-Vision-and-Strategy.pdf
18. Okwara, Elias. “Kenya appoints its first ever data protection commissioner.” The International Association of Privacy Professionals, 01 December 2020. https://iapp.org/news/a/kenya-appoints-its-first-ever-data-protection-commissioner/
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Last updated: November 2021