Kenya relies on FinTech to drive financial inclusion

Kenya has an opportunity to become a continental leader in FinTech and dramatically boost financial inclusion by enhancing the existing ecosystem. This is according to a new study by TheCityUK and the Nairobi International Financial Center (NIFC), developed by PwC.

In doing so, the public and private sectors will refocus on removing barriers to entry and growth for startups, helping startups access more capital and achieve scale, and adopting a cross-sector approach to FinTech regulation.

The research, set out in a report ‘FinTech in Kenya: Towards an improved political and regulatory framework’, noted that Kenya is already established as a leading source of FinTech innovation, developing solutions that leapfrog existing infrastructure and drive financial inclusion and economic empowerment of its citizens. Formal financial inclusion in services and products in Kenya has increased significantly from 26.7% in 2006 to 83.7% in 2021 [2] – Growth mainly driven by new financial technologies and innovations, particularly in the areas of mobile money and mobile banking.

Digital financial products have played a significant role in driving financial development and inclusion across the country, particularly due to the affordable and accessible services that have subsequently been placed on top of mobile and digital platform infrastructure. Kenya’s drive for FinTech growth is evident in its forward-thinking financial inclusion strategies and incentive schemes such as the phasing-in of dedicated payment and regulatory frameworks for digital lending and the adoption of regulatory sandboxes. However, gaps and challenges remain that affect the assessment, approval and regulation of new and complex FinTech products and innovations.

In the report, TheCityUK and PwC advocate a range of policy and regulatory improvements which, if pushed ahead, could lead to more innovation, freeing up capital and investment and further accelerating financial inclusion.

“FinTech is changing the nature of financial services around the world. It has become an important driver of economic development by accelerating financial inclusion and the rapid introduction of innovative financial products. While Kenya is at the forefront of the FinTech world, a greater impact can be made by allowing greater innovation and attracting more investment in FinTech. A supportive regulatory framework is key to attracting more players to the market and setting the stage for more innovation in the industry,” said Joseph Githaiga, Associate Director of PwC Kenya.

Glynn Austen-Brown, Partner at PwC UK, said advances in digital innovation around the world have prompted countries to recognize the evolution of financial services offerings. “Kenya’s drive for FinTech growth can be seen in its forward-thinking financial inclusion strategies and incentive schemes such as regulatory sandboxes. However, the gaps and challenges faced by fintech players may serve to mitigate the many positive aspects of the Kenyan fintech ecosystem. Overcoming these challenges will allow Kenya to remain at the forefront of technological innovation and development and provide an enabling environment for such innovation to scale in Africa.”

The report contains a number of recommendations for policymakers to take into account. For near-term priorities, the report recommends establishing a FinTech provider versus a one-stop shop or FinTech bureau staffed by relevant regulators. It also recommends the creation of a consolidated FinTech sandbox that shortens approval lead times by allowing regulators to oversee business models involving multiple sub-sector elements together, and greater collaboration between FinTech providers, regulators and stakeholders, leveraging existing fora on Creation of a coordinated Kenya FinTech Policy Roadmap.

In addition, it is recommended that policymakers should create a framework to continuously identify and prioritize training needs for FinTech regulation and explore mechanisms to bridge training gaps.

The report notes that longer-term success will depend on broader regulatory reform, with regulators coordinating their efforts to develop a FinTech policy and creating a well-coordinated national FinTech regulatory framework. FinTech policy and regulatory intervention should aim to provide certainty, maintain a balance between innovation and risk to the public, and attract venture capital investment to sustain the burgeoning FinTech sector in Kenya.

Deepening existing collaborative efforts between regulators in Kenya and peer regulators in other jurisdictions will also facilitate cross-border FinTech operations, according to the report.

“Nairobi has the potential to become a leading financial services hub in Africa and to achieve that vision we must strive to be at the forefront of future-oriented growth areas such as FinTech. Ensuring our business environment keeps pace with the industry will help ensure we deliver the sustainable growth we need, which will benefit our local and regional economies,” said Oscar Njuguna, Acting CEO of the Nairobi International Financial Center (NIFC) .

Scott Devine, Head Middle East and Africa, TheCityUK, noted that there is a rapidly evolving global market for FinTech, data and technology and this presents real opportunities for the countries that are able to capitalize on it. “Kenya stands out as one of the world’s leading mobile money providers and is home to some of the best-known examples of FinTech-powered financial inclusion. Now is the time to build on that strong foundation, with governments and regulators working closely with FinTech providers to develop policies and regulations that positively shape the sector and lower market barriers.”

Ultimately, Kenya should aim to develop a national FinTech policy framework that supports FinTech transformation and innovation, fosters industry growth and eliminates double regulation in financial services to provide certainty in FinTech services and products. The main goal of this policy should be financial inclusion and incentivize FinTech companies by improving their operations.

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