If you’re looking into fintech startups in Kenya, you’re moving towards one of Africa’s most active tech markets.
Kenya is one of the world’s leading fintech centers, largely thanks to early innovators like M-Pesa, but with massive potential comes a need to follow the rules.
However, the regulations around fintech startups in Kenya have recently become quite a labyrinth.
Whether making a mobile payments platform, a digital lending app, or a crowdfunding solution, this guide will take you through the regulatory measures and real-life examples.
Why Regulating Fintech Startups in Kenya is Paramount
Before we dive into the details, why do the regulations around fintech startups matter in Kenya?
Fintech is all about innovation and dealing with people’s money, data, and trust. The Kenyan government aims to nurture innovation and protect consumers from fraud, high interest rates, or data breaches.
If your start-up is found breaking some of these regulations, you could be fined, lose your license, or land in jail.
It is also a way of establishing trust with your users and investors, which is something you absolutely can’t scale your startup without.
Fintech is having its moment in Kenya. The Financial Sector Deepening Africa (FSD-A) says mobile money transactions reached USD 116.4 billion in 2021, with 35.2 million mobile money users.
Yet, with this growth, regulators are clamping down to guard against instability and to protect consumers. This is why we need to understand the regulations of fintech startups in Kenya.
Key Regulatory Bodies Overseeing Fintech in Kenya
Understanding the key players calling the shots in fintech startups in Kenya would help you see restrictions around the regulatory environments of lending and savings. Here’s a guide to the major regulatory bodies and what they do:
Central Bank of Kenya (CBK)
The CBK is the overall boss of all bosses for financial services. It supervises banks, payment service providers (PSPs), digital credit providers (DCPs), and mobile money providers.
If your fintech is in deposits, payments, or lending, you will require a CBK license. The Central Bank of Kenya Act and the National Payment Systems Act (2011) are the principal legislations that inform CBK’s supervision.
In 2021, the Central Bank of Kenya went after unlicensed digital lenders like Tala and Branch, accusing some of predatory lending.
This occasioned the Central Bank of Kenya (Amendment) Act, 2021, which now makes it necessary for all DCPs to seek licensing.
The Capital Markets Authority- CMA.
The CMA regulates any fintech that deals with investments, securities, or crowdfunding.
If your startup deals with CIS, online forex, or P2P lending platforms that look like securities, you must have a CMA license as per the Capital Markets Act (2012). The CMA also operates a regulatory sandbox, which we will cover later.
Pezesha Africa Limited, a debt crowdfunding platform, graduated (successful exit) from CMA’s regulatory sandbox in October 2020 and was cleared to operate legally.
Communications Authority of Kenya (CAK)
If you have a fintech business that uses mobile networks (to give you an idea, or anything to do with mobile money or payment apps), the CAK is in your case.
Under the Kenya Information and Communications Act [PDF] (1998), it also regulates telecom providers, thereby securing a trustworthy infrastructure for fintech activity.
Office of the Data Protection Commission (ODPC)
Data is the lifeblood of fintech, and it’s also a regulatory minefield. Fintechs must protect user data and adhere to stringent privacy rules under the Data Protection Act (2019).
The ODPC enforces this, and failure to adhere to it can result in fines or action against you in court.
Other Regulators
Once again, this will vary depending on your niche within fintech; insurtech could bring you in touch with the Insurance Regulatory Authority (IRA), while anticompetitive practices could see you interfacing with the Competition Authority of Kenya (CAK).
The IRA, for instance, regulates fintechs that are providing micro-insurance products.
Compliance Requirements for Fintech Startups in Kenya: Licensing, Registration, and Reporting
Now that we have identified the audiences of these regulations, here are the rules for fintech startups in Kenya. Compliance is about ensuring you have the proper licenses, register correctly, and continue providing regular updates. Here’s the breakdown:
Licensing
Regulations vary depending on what your fintech business is doing. Here are the main ones:
Payment Services
If you are building a mobile money or payment platform, you must have a CBK license under the National Payment Systems Act. You will also need CAK authorization if you’re a mobile network operator.
Digital Credit Providers
Digital Loan providers must obtain a license from the CBK (Digital Credit Providers) Regulations (2022). You must provide a business plan, proof of funds, and information about your credit business.
Investment Platforms
A fintech should have a CMA license if it works with securities, crowdfunding, or collective investment schemes. For instance, anything over KES 10 million has to be operated with a fund manager’s licence.
Insurtech
In Insurance Provisions? Obtain an IRA licence under the Insurance Act (CAP 487).
Licensing can be a process that sometimes lasts months. Get an early start and consult with a lawyer in Kenya dealing with compliance practices; about preparing your application.
Legal Firms in Kenya like Chepchieng and Company Advocates specialize in helping fintechs through this process.
Registration
Apart from being licensed, you are not allowed to operate if you are not registered with the Corporate Affairs Commission (CAC) as required under the Companies Act.
For tax compliance, you must also get a Tax Identification Number (TIN) from the Kenya Revenue Authority (KRA).
Google Play Store has since 2022 started requiring digital lending apps to provide evidence of a CBK license or an application before being listed.
A few fintechs in Kenya rushed to be registered, highlighting the significance of applying early.
Ongoing Regulatory Reporting
The rules on fintech startups in Kenya are that this type of innovation comes with the requirement of filing ongoing reports to show you are legally compliant:
- CBK: DCPs must provide quarterly reports on disbursement of loans, interest rates, and customer complaints.
- CMA: Investment platforms must report on fund performance and client portfolios.
- ODPC: They must be notified annually within 72 hours of data breaches and of audit data protection.
- Anti-Money Laundering (AML): Fintechs are required to adhere to strong Know-Your-Customer (KYC) practices and to report any suspicious transfers to the Financial Reporting Centre (FRC) under the Proceeds of Crime and Anti-Money Laundering Act.
In 2023, CBK announced that 32% of digital lenders had defaulted by failing to submit timely reports, leading to penalties. Don’t be that startup.
In Summary:
Kenya’s Regulatory Sandbox and Innovation Hubs
One of the best aspects of the new regulations for fintech startups in Kenya is the chance to test your ideas. That’s where the regulatory sandbox and innovation hubs come in:
CMA Regulatory Sandbox
The CMA’s regulatory sandbox, which was launched in 2019, allows fintechs to test new products for up to 12 months with specific rules relaxed.
It’s ideal for startups in the capital markets, such as crowdfunding or investment platforms. To participate, you need a strong business plan and a product to deepen Kenya’s capital markets.
Innova, a cloud-based data analytics platform, piloted its solution in the CMA sandbox and received permission to carry on, proving the value of the sandbox as a work platform for fintech innovation.
How to Apply
You can apply to the CMA with the details about your product, your market, and how you will test it.
If you’re accepted, you’ll work under CMA supervision, and you may be able to earn a full license when you leave.
CBK and Multi-Sector Sandboxes
CBK currently does not have its sandbox, but is exploring a multi-sector sandbox with the CMA for cryptocurrencies and payment technologies.
This could potentially be a game-changer for fintech companies powered by blockchain.
Seven fintechs have experimented in the CMA sandbox since 2019; two graduated successfully.
Innovation Hubs
Nairobi also hosts hubs such as Nairobi International Financial Centre (NIFC), which provides mentorship, funding, and regulatory support to fintech startups. These hubs link you to your investors and regulators, making compliance easier.
Tip: Make sure you can connect with other founders and stay familiar with the regulations on fintech startups in Kenya.
Keeping up with New Rules and Regulations
The rules for fintech startups in Kenya are constantly evolving. New legislations, such as the Central Bank of Kenya (Amendment) Bill, 2021, and prospective taxes, such as Digital Service Tax (DST), can hit you, especially if you are not paying attention. Here’s how to stay ahead:
Follow Regulation
Subscribe to CBK, CMA, and ODPC newsletters. New rules, like the Digital Credit Providers Regulations (2022), appear on the CBK’s website.
Engage Professionals
Law firms such as Chepchieng and Company Advocates can help you with compliance. They’ve helped dozens of fintechs side-step fines.
Work with Regulators
Get to know the CBK and CMA. Their “test-and-learn” philosophy, as demonstrated in M-Pesa’s early days, shows they are open to innovation if you’re upfront.
Challenges and Tips for Fintech Startups in Kenya
While Kenya has a fintech conducive environment, the laws for fintech startups in Kenya do have some challenges:
Fragmentation– Overlapping rules among CBK, CMA, and CAK can be a source of confusion to start-ups.
High Compliance Costs- Licensing and reporting can be costly for early-stage startups.
Crypto Pilfer- With the CBK’s reluctance towards crypto, blockchain fintechs are often left to ponder in the void.
Tips to Overcome Them:
- Collaborate with licensed financial intermediaries to divide compliance responsibilities.
- Leverage SaaS models to ramp up the market more rapidly without full licensing.
- Purchase a compliance solution that can automate your KYC and reporting efforts.
Final Thought
It’s an exciting entrepreneurial journey to start a fintech company in Kenya, but the regulations for startups in Kenya are your guide to success.
Knowing what the CBK, CMA, CAK, and ODPC do, which licenses you need, and how to use sandboxes and hubs, will help you create a compliant and trustworthy business.
Stay ahead of changing laws, engage with regulators, and take notes (cases such as Pezesha and M-Pesa). Kenya boasts 35.2 million mobile money users and a great tech scene, so you could also stay and prosper in Kenya.
If you’re part of any fintech startups in Kenya and need legal help with regulations, work with us at Chepchieng & Associates Advocates.
Our team specializes in navigating Central Bank of Kenya, Capital Markets Authority, and data protection laws, ensuring your business stays compliant and grows strong. Contact us for expert guidance today.
