Central Bank of Kenya to License Fintech Startups: A Game-Changer for East Africa’s Payments Market
The Central Bank of Kenya (CBK) is poised to issue payment licenses to fintech startups operating in the country. This pivotal move represents a significant departure from the regulator’s previous stance and is set to transform East Africa’s largest payments market by welcoming these innovative firms.
Fintech Giants Await Licensing
Leading fintech companies, including Flutterwave and Chipper Cash, are among those eagerly anticipating the granting of these licenses. According to CBK Governor Kamau Thugge, the regulator is diligently working to amend the National Payment Systems Act of 2011. This amendment aims to create a legal framework that legitimizes the operations of fintech firms.
“We are in the process of updating and amending the Payments Act, essentially creating a new act,” Thugge stated. “We aim to complete this soon, alongside the regulations that will guide our future direction regarding payment service providers.”
CBK Governor Kamau Thungge
Legal Framework Overhaul
Legal Framework Overhaul
The proposed changes are expected to be a major victory for remittance and payment providers who have faced scrutiny and enforcement actions from Kenyan authorities over money laundering allegations. These companies have been navigating a legal grey area due to the lack of clear regulations governing their activities.
“We are in the process of updating and amending the Payments Act, essentially creating a new act,” Thugge stated. “We aim to complete this soon, alongside the regulations that will guide our future direction regarding payment service providers.”
Addressing Legal Ambiguities
Governor Thugge’s comments were made in response to inquiries about the registration status of Flutterwave and Chipper Cash in Kenya during a post-monetary policy committee press briefing. Currently, Kenya’s financial sector is regulated under the Central Bank of Kenya Act, the National Payment Systems Act, the National Payment Systems Regulations of 2014, and the e-money Regulations of 2013. However, these laws lack clarity concerning fintech companies, resulting in ambiguity and obstructing their growth in the country.
Conflict with Authorities
This legal ambiguity has sparked conflicts between remittance and payment startups and Kenyan authorities. Law enforcement agencies, including the Financial Reporting Centre (FRC) and the Asset Recovery Authority (ARA), have frozen accounts and seized assets of sector players, citing concerns over money laundering.
In 2022, the CBK directed local financial institutions, including banks and mobile money service providers, to sever ties with fintech firms, citing unspecified threats to the country’s financial systems. The regulator claimed these firms were operating without authorization.
A Path Towards Innovation
By establishing a clear regulatory framework and issuing payment licenses to fintech startups, the CBK aims to resolve this legal uncertainty and cultivate a more inclusive and innovative payments ecosystem in Kenya. This initiative is expected to not only legitimize the operations of fintech firms but also encourage further innovation and competition in the market.
In conclusion, the Central Bank of Kenya’s decision to license fintech startups marks a transformative moment for the country’s financial sector. This move will foster innovation, provide clarity and legitimacy to fintech operations, and potentially position Kenya as a leading hub for fintech in Africa.
