Although Kenya is one of the leading African countries in financial inclusion, regulation in the fintech market is lagging behind. According to a survey carried out by FSD Kenya, a firm that supports the development of financial inclusion in Kenya, current regulatory uncertainty is hindering fintech companies to scale their business models. Therefore, fintechs are uncomfortable in pursuing innovations in the Kenyan market.
“Currently, there is no single regulatory source that fintech innovators can contact for clarity on regulations, raising the risk of regulatory uncertainty that discourages investment into the Kenyan fintech market.”
Hinged on research and consultations with fintech stakeholders, FSD Kenya recommends the “combination of a regulatory sandbox and a one-stop-shop regulatory helpline” to encourage innovation in the Kenyan fintech market.
Presently, the Capital Markets Authority is working on a regulatory sandbox since it acknowledges the need to promote regulation in the country.
A Regulatory Sandbox
A regulatory sandbox will help fintech companies to test their products and services in live environments while regulators will have a better view of innovations thereby reducing consumer risk.
Therefore, a regulatory sandbox in Kenya will create a win-win situation for both innovators and regulators allowing the fintech market to thrive while protecting consumers.
The central bank governor Dr Njoroge has advocated for the regularisation of fintech lenders who are using the Kenyan population as a test lab.
“What I think is worrisome is a lot of products that are coming in a sort of a fly-by-night operation and you only hear about it because somebody gets burned,” he said.
As a result, Kenya needs a regulatory sandbox sooner rather than later to safeguard the interest of unsuspecting consumers.
The Service Categories in the Kenyan Fintech Market
The CMA in partnership with FSD Kenya mapped out the Kenyan fintech market with the help of financial advisory firm Open Capital Advisors to find out how a regulatory sandbox would drive innovation.
The mapping research indicated that the fintech market in Kenya is vibrant with innovations in at least 16 service categories. Some of these categories include regtech, cryptocurrencies, big data, blockchain technology, artificial intelligence, FX trading and management, P2P lending, crowdfunding, and money transfer.
Other Recommendations
The other recommendations from fintech stakeholders that can improve the fintech market in Kenya are consumer education to reduce the risk of consumers using products they do not understand, open forums for regulators and fintechs to share ideas and challenges, and use of policy guidance notes temporarily to decrease the approval time for applications.
Recently, Kenyan regulators issued a warning against fraudulent financial products and services such as mobile applications and online pyramid schemes.
