Fintech Regulation in Kenya
Kenya’s fintech industry is booming. The Economic Survey Report of 2022 highlights a 6.9% increase in the Information and Communication Technology (ICT) sector’s output, rising from USD 4.03 billion in 2020 to USD 4.31 billion in 2021. Mobile money subscribers grew by 8.5% to 35.2 million, while mobile commerce transactions surged by 63.2% to USD 116.4 billion. Total mobile money transfers also climbed 31.7% to USD 52.5 billion; a spike linked to the COVID-19 pandemic when the Kenyan government promoted cashless transactions to curb virus transmission.
Financial technology, or “fintech,” integrates technology into financial services, offering innovative solutions like mobile payments, digital lending, and money remittance. In Kenya, a leader in East Africa’s fintech landscape, this growth is driven by widespread mobile adoption, technological innovation, and investor interest. The Central Bank of Kenya (CBK) spearheads regulation, but the industry’s complexity creates a multifaceted legal framework. Below, we explore key fintech sectors and their regulatory oversight.
Mobile Payments
Mobile money dominates Kenya’s fintech scene, regulated under two key laws: the Kenya Information and Communications Act (KICA), 1998, governing mobile network operators, and the National Payment Systems Act, 2011, overseeing payment systems and providers. A Mobile Payment Service Provider must be licensed under KICA and authorized by the CBK to offer services such as:
1. Sending, receiving, storing, or processing payments via electronic systems;
2. Managing public switched networks for payment services; and
3. Handling data processing and storage for providers or users.
Legal compliance in this space demands alignment with both telecom and financial regulations, a nuance businesses must navigate carefully.
Digital Lending
Defined under the Central Bank of Kenya (CBK) Act as providing credit through digital channels, digital lending is governed by the CBK (Digital Credit Providers) Regulations, 2022. Aspiring providers must obtain a CBK license, with applications assessed based on funding sources and evidence of capital. These regulations aim to curb predatory lending practices while fostering innovation, making legal counsel essential for compliance and licensing success.
Money Remittance Operations
The Money Remittance Regulations, 2013 define this service as transferring money without creating payer or payee accounts, solely to move funds between parties. To operate legally, a provider must:
a. Incorporate as a limited liability company under the Companies Act;
b. Secure CBK approval for a business name including “money remittance” or “money transfer”; and
c. Obtain a license under the regulations.
Non-compliance risks penalties or operational bans, underscoring the need for robust legal frameworks.
Asset and Wealth Management
The Capital Markets Authority (CMA) regulates fintech innovations in asset and wealth management under the Capital Markets Act No. 3 of 2000. The CMA’s Regulatory Sandbox, launched in 2019, allows firms to test novel solutions, like electronic securities offerings, for up to 12 months under oversight. Outcomes range from full authorization under existing laws to new regulations or rejection. This flexible approach balances innovation with investor protection, a critical consideration for fintech start-ups.
Insurance
Insurtech, the fusion of technology and insurance, lacks specific regulations in Kenya. Instead, the Insurance Act CAP 487 applies, with the Insurance Regulatory Authority overseeing compliance based on the underlying insurance product. As insurtech grows, firms must adapt traditional legal requirements to digital models, often requiring expert guidance.
CROSS-CUTTING REGULATIONS
Beyond sector-specific rules, fintech firms face broader legal obligations:
i. Data Protection and Privacy: The Constitution of Kenya 2010 (Article 31) and the Data Protection Act, 2019 safeguard personal data, critical for fintechs handling KYC and transactional information. Compliance involves lawful data collection and processing.
ii. Consumer Protection: The Consumer Protection Act, 2012, alongside sector-specific provisions (e.g., CBK’s 2022 Digital Credit Regulations), mandates transparency, fair practices, and redress mechanisms.
iii. Anti-Money Laundering (AML): Under the Proceeds of Crime and Anti-Money Laundering Act, 2009, fintechs are “reporting institutions” required to register with the Financial Reporting Centre, verify customer identities, and monitor transactions.
CONCLUSION
Kenya’s fintech ecosystem thrives on innovation but operates within a complex regulatory web. Firms offering multiple services-like mobile money or digital lending-may need several licenses from bodies like the CBK and Communications Authority, plus adherence to data, consumer, and AML laws. Navigating this landscape demands legal expertise to ensure compliance, mitigate risks, and seize opportunities.