Central Bank of Kenya to Issue Payment Licenses to Fintech Startups

The Central Bank of Kenya (CBK) is poised to grant payment licenses to fintech startups operating within the country, marking a pivotal change from the regulator’s earlier stance. This strategic move will unlock East Africa’s largest payments market to these innovative firms, fostering a more inclusive and modern financial ecosystem.

Among the fintech companies eagerly awaiting these licenses are Flutterwave and Chipper Cash, two prominent players in the industry. CBK Governor Kamau Thugge highlighted that the regulator is diligently working on amending the National Payment Systems Act of 2011. The objective is to establish a robust legal framework that legitimizes the operations of fintech firms in Kenya.

These proposed amendments signify a major victory for remittance and payment providers, who have previously faced scrutiny and raids by Kenyan authorities over allegations of money laundering. The absence of clear regulations had placed these companies in a legal gray area, hindering their expansion and operational stability. Thugge acknowledged the pressing need to revise the existing payment systems legislation. “We are in the process of updating and amending the Payments Act, basically coming up with a new act,” he stated. “We hope to be able to finish that soon, along with the regulations, which will guide our way forward in terms of the payments service providers space.”

Governor Thugge’s comments came during a post-monetary policy committee press briefing, in response to inquiries about the registration status of Flutterwave and Chipper Cash in Kenya.

Currently, Kenya’s financial sector is regulated under several laws: 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 explicit provisions for fintech companies, resulting in regulatory ambiguity that has stymied their growth and led to conflicts with Kenyan authorities. This legal uncertainty has prompted actions from law enforcement agencies, including the Financial Reporting Centre (FRC) and the Asset Recovery Authority (ARA), which have frozen accounts and seized assets of sector players on money laundering suspicions.

In 2022, CBK directed local financial institutions, including banks and mobile money service providers, to cut ties with fintech firms, citing unspecified threats to the country’s financial systems. The regulator asserted that these firms were operating without proper authorization.

By establishing a clear regulatory framework and issuing payment licenses to fintech startups, CBK aims to resolve this legal uncertainty. This move is anticipated to foster a more inclusive and innovative payments ecosystem in Kenya, enabling fintech firms to contribute more effectively to the country’s financial landscape.

This regulatory evolution not only aligns with global trends in financial technology but also positions Kenya as a forward-thinking leader in fintech innovation within the region. The impending changes are expected to create a more conducive environment for fintech growth, benefiting consumers and the broader economy alike.