Fintech Regulations in Africa: The Case of Kenya and What You Need To Know

Africa is home to some of the most promising financial technology (Fintech) companies that have expanded across the continent. In recent years, the proliferation of fintech in Africa has posed new challenges for policymakers and regulators. These challenges vary widely depending on the country and the economic community to which a nation belongs, as fintech technologies are leveraged to address diverse financial issues. As fintech companies continue to grow and disrupt the traditional financial sector, policy and regulatory interventions in the African fintech landscape remain complex. Let's examine the case of Kenya.

Fintech Regulations in Kenya

Kenya, often regarded as the cradle of fintech in Africa, boasts a population of 55 million people, a rich cultural heritage, and a robust tech ecosystem. This has made the country an attractive destination for expansions and investments, especially in the field of fintech. Nairobi, the capital city, serves as the financial hub for Eastern and Central Africa. Recently, Nairobi launched the Nairobi International Financial Centre, which offers support to investors and businesses looking to scale their operations in Africa's emerging markets.

The fintech sector in Kenya is thriving, and the government has implemented regulations to oversee this burgeoning industry. Key fintech activities in Kenya encompass mobile payments, digital lending, asset and wealth management, InsureTech, and money remittance services. The Central Bank of Kenya (CBK) is the primary regulatory authority responsible for ensuring that all financial institutions adhere to established standards. Other authorities overseeing fintech services and products in Kenya include the Capital Markets Authority, the Insurance Regulatory Authority, the Communications Authority of Kenya, and the Competition Authority.

Payment Service Providers (PSPs) & Mobile Money in Kenya:

Payment service providers – also known as merchant service providers or PSPs – are third parties that help merchants accept payments. Simply put, payment service providers enable merchants to accept credit and debit card payments (as well as Mobile Money payments, Direct Debit, bank transfer, real-time bank transfer, etc.).

In short, payment service providers work with acquiring banks (payment processors) to manage the entire transaction from start to finish. Here’s how the transaction process works in a little more detail:

1. First, the customer initiates payment and transaction details will be sent to the acquiring bank.
2. Then, the information is sent to the credit card network or mobile money operator (MMO), which then sends the transaction details to the issuing bank (bank that issues the card to the customer) or MMO.
3. After deciding whether or not to approve the transaction, the issuer passes the decision back to the credit card network or MMO, which passes it back to the acquiring bank or MMO.
4. Then, the decision is passed back to the payment service provider, which shares the result with the customer and the merchant.
5. After payment has been authorised, the issuer will send the funds to the network, which passes them back to the acquirer to be deposited in the PSP’s merchant account

Mobile money services are a dominant sector within Kenya's fintech landscape, regulated under the Kenya Information and Communications Act (KICA) of 1998 (under the jurisdiction of the Communication Authority of Kenya) and the National Payment Systems Act, of 2011, which regulates Payment Systems and Payment Service Providers. To offer Payment Services in Kenya, providers must be licensed by the Central Bank of Kenya. Recently, the CBK approved the two largest mobile money operators, M-PESA with a 96.5% market share and Airtel Money with a 3.4% share, to increase daily transaction volumes from KES 300,000 ($1,972) to KES 500,000 ($3,287) per day.

The full requirements for a PSP License can be viewed here. The updated list of all PSPs in Kenya can be found here.

Money Remittance Operations in Kenya:

Providers of money remittance services in Kenya are licensed under the Central Bank of Kenya Act and Money Remittance Regulations. These providers must be incorporated as limited liability companies under the Companies Act and obtain approval from the Bank for their proposed business name, which must include 'money remittance' or 'money transfer.' Licensing to provide money remittance services is subject to the regulations.

In September 2023, the Central Bank of Kenya implemented new restrictions on the sale of US dollars to individuals through money transfer companies. Under the new guidelines, money remittance firms will no longer be permitted to sell more than $100,000 per day to any individual. This has been precipitated by the declining Kenya shilling and pressure on dollar availability in the country.

The full requirements can be viewed here . The list of all licensed remittance operators in Kenya can be found here .

Digital Lending in Kenya:

Digital lending businesses in Kenya are defined under the Central Bank of Kenya (CBK) Act as "the business of providing credit facilities or loan services through a digital channel." In 2022, the CBK introduced a new law mandating that all digital lenders obtain operational licenses, adhere to customer privacy and data protection rights, and comply with anti-money laundering regulations. Digital lenders in Kenya must submit an application form containing descriptions of their ICT system, delivery methods, loan products and services, anti-money laundering policies, data protection policies, consumer redress systems, and proof of financing sources. The CBK is expected to grant or reject digital credit license applications within sixty (60) days of receiving the application.

In the recent past there has been a major hullabaloo on this issue and many players who provided this service have found themselves on the wrong side of regulation and new rules by Platform Players like 谷歌 , who now require a CBK license or proof of application before your App can be allowed onto the Google Play Android Platform.

The full requirements can be viewed here .

Asset and Wealth Management in Kenya:

Asset and wealth management are vital components of #fintech, enabling individuals to effectively manage their assets and wealth. Kenya's Capital Markets Authority- Kenya (CMA) has introduced a #RegulatorySandbox framework to encourage the use of electronic commerce for the expansion of the capital markets in the country. This framework allows businesses to test innovative products, services, or approaches for up to a year while being governed by the CMA's regulatory framework. The CMA has the option to grant permission for operation under existing regulations, establish new regulations based on the sandbox test's findings, or deny the firm permission to do business. Several fintechs have so far gone through this regulatory sandbox. These include Pezesha and Innova.

The full requirements can be viewed here .?

Insurance in Kenya:

The Insurance Regulatory Authority (IRA) is responsible for regulating and supervising the insurance industry in Kenya. The IRA ensures effective management, supervision, regulation, and control of the insurance and reinsurance business within Kenya. It also formulates and implements guidelines for the operation of the insurance and reinsurance industry. All individuals involved in the insurance industry must obtain a license. In the event of a claim, insurance institutions in Kenya must acknowledge receipt within seven working days, provide the necessary claim form, and offer a list of required documents.

Unfortunately, the insurance penetration rate in Kenya and across Africa is declining. Is it possible that micro-insurance AKA InsureTech might come to the rescue of this beleangured industry? According to FSD Africa , Insurtech is revolutionising an almost century-old insurance industry in Kenya, leading to its financial system becoming more accessible to low-income populations. With the trend being recorded across the globe, technology is reshaping the competitive landscape, challenging traditional structures to significantly improving access to insurance. Only 3% of Africa’s GDP is driven by insurance, which is less than half the world average of 7%. Yet, insurance provides a safety net from many external threats like natural disasters, health threats and economic disruptions.

To leverage such innovations, Kenya’s Insurance Regulatory Authority, together with its partners, launched BimaLab, a pilot accelerator programme in 2020. The move is meant to enhance visibility and push for resources for talented insurtech founders of early to mid-stage start-ups. The programme will harness innovation for inclusion and enhanced access to insurance products and services with an aim of increasing insurance penetration in Kenya. The programme, now in its second phase and with FSD Africa’s involvement, has seen an increasing contribution of technology to insurance inclusivity through companies such as AiC Chamasure and Sprout.

The jury is still out on whether #InsureTech will come to the rescue of the growth of this industry.

The full requirements for insurance players in Kenya can be viewed here .???

As fintech continues to drive innovation and create new markets across many African countries, including Kenya, policymakers and regulators in Kenya and throughout the continent must act swiftly to protect both fintech providers and customers.