Financial technology startups, crowdfunders and robot traders will find it easier to operate across Kenya after the Capital Markets Authority said it will introduce flexibility in financial policy to exempt Fintechs from some requirements.
The Capital Markets Authority (CMA) chief executive Paul Muthaura Wednesday said CMA will in the next quarter issue a consultative paper on the policy and guiding framework to support and nurture innovations.
Mr Muthaura said it will be done under a “regulatory sandbox” model for market stakeholders. It is expected that the regulator will provide policy exemptions to allow the startups operate but they may be required to meet the requirements after an agreed period of time.
Under the so called regulatory sandbox, the regulator will vet companies and once approved, the startups will be allowed to operate across the country.
This however may meet complaints from established banks given that the traditional banks have had to operate under tight rules but their fierce competitors just coming out of the laboratories may get away with so much and also take away their revenues.
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“We are seeing a lot of global markets looking into Kenya to learn the lessons on how they can effectively leverage on mobile money and how to use the platform to raise capital for government debts,” he said.
According to a recent report by the Financial Sector Deepening Africa (FSDA) crowdfunding in East Africa raised $430m for small businesses opening vast opportunities for fundraising and east Africa is the largest alternative finance regional market in Africa.
The FSDA recommended the need for a database of existing regulator acknowledged platforms across East Africa, supporting regulator engage opportunities and encouraging crowd funding platforms to build and industry focused association and foster self-regulation.
With a wide range of startups from crowdfunding, to remittances, market place lending, debt raising and many of which are driven by the controversial Blockchain technology, the regulatory is up for teething challenges given that central bank of Kenya had said bitcoins are not a recognized legal tender in Kenya and therefore no consumer protection will be provided.
The announcement came a few days after the Kenya government successfully used a capital raising app M-Akiba to raise debt from ordinary people. This will open increased revenue streams for Fintech startups creating new mainstream companies and spurring job creation.
Kenya is among the three major countries on the continent that received the highest capital flows into tech startups in the year 2016 underlining its position innovation and technology.
The move is seen spurring partnerships between banks and startups as fear looms that banks stand to lose revenues to startups according to the 2017 PwC global Fintech Survey.
“One driving factor behind these partnerships is an increasing fear within the industry that revenue is at risk to standalone FinTechs, with 88% of financial services respondents seeing it as a real threat (83% in 2016),” says PwC in the report.
However fintech startups are still grappling with trust and customer security issues which traditional banking has handled well until the advent of ICT and cybercrime. How fintech by their quick nature will employ biometrics and identity management and blockchain to reduce security threats but incumbents will struggle.
The approval of M-Pesa by the central bank of Kenya elicited reactions from the mainstream banking sector on fears their revenue streams will narrow. It is not clear whether banks have really lost a lot of money since the intoduction of M-Pesa or the have actually gained revenues from partnerships with the mobile money application.