The combination of a regulatory sandbox and a one-stop-shop regulatory helpline is what the Kenyan fintech market needs to continue innovating.
Thanks to Kenya’s many successes in fintech innovations, the country is now one of Africa’s leaders in financial inclusion and the development of new technologies in the fintech space. However, as technology continues to advance at a rapid pace, oversight structures often struggle to keep up, and regulators struggle to maintain the balance between allowing the innovations space to flourish and protecting consumers while maintaining market stability.
To address this challenge, the Capital Markets Authority (CMA) in partnership with FSD Kenya engaged Open Capital Advisors, a management consulting and financial advisory firm, to map the Kenyan fintech market and identify use cases on how a regulatory sandbox could drive innovation. This was done to lay the foundation for the establishment of a regulatory sandbox regime in order to promote innovation in the fintech space.
The mapping research revealed that Kenya’s fintech market is a vibrant space, with innovations across at least 16 service categories, regulated by relevant government bodies.
Despite the big gains made, fintech companies still face some key challenges to launching new innovations and scaling their business models. Responses from a survey deployed to industry stakeholders pointed to access to capital, lack of specialized talent, and current regulatory gaps as the main challenges hindering scale, similar to many other small and growing businesses (SGBs) in Kenya.
Fintech stakeholders believe that regulators often struggle to keep abreast of new innovations and business models in the fintech space, which leads to long approval processes and ambiguous requirements when applying for compliance. One of the most common outcomes of this process, a “letter of no objection”, was noted as not providing enough certainty around regulatory support for businesses to feel comfortable proceeding with innovations. It was noted that the challenge could be exacerbated by the overlapping layers of regulation that may put a fintech company under the jurisdiction of multiple regulators, leading to confusion on relevant regulations. 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.
The good news is that CMA recognizes the challenges around regulatory uncertainty and is willing to be a market leader in Africa by exploring what could be the continent’s first regulatory sandbox for fintech. Based on research and consultations with fintech stakeholders, the combination of a regulatory sandbox and a one-stop-shop regulatory helpline is what the Kenyan fintech market needs to continue innovating. A regulatory sandbox benefits both innovators and regulators. Regulators gain visibility into new innovations and can better inform policy formulation, whereas innovators can build relationships with regulators while testing their products and services in live environments. The boundaries that a sandbox puts around live testing also reduce risks to consumers from new financial products and services.
In addition to a regulatory sandbox and one-stop-shop helpline, fintech stakeholders highlighted a few other opportunities to better support the fintech industry:
- Consumer awareness and education around fintech innovations could potentially increase uptake of these products and services as well as reduce risks to consumers of adopting services that consumers do not fully understand;
- Open forums for fintech stakeholders and regulators to highlight challenges and increase mutual understanding, and
- Use of Policy Guidance Notes, as an interim measure, to reduce the approval time for compliance for applications
We hope that these findings, along with the crucial work being done by other stakeholders, will help Kenya’s financial sector regulators design new groundbreaking initiatives to position Kenya as a regional and global fintech hub.