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Swen Keller
Kenya Crypto Friendly Score
Kenya is one of the leading adopters of cryptocurrency as the country remains in the top 20 of Chainalysis’s Global Cryptocurrency Adoption Index Report.
Approximately 10.71% of Kenya’s total population, which is an estimated 6.1 million people own cryptocurrency, making the country one of the top 3 largest Bitcoin markets in Africa alongside South Africa and Nigeria.
Also, in a recent UN survey on the crypto climate of Africa, Kenya came out on top as the country with the highest proportion of its citizens holding cryptocurrencies on the continent.
Kenya’s enthusiasm for cryptocurrency space rubbed off on the government as the Central Bank of Kenya decided to adopt crypto as its reserve currency.
This decision was a move to save the rising financial crisis in the African nation.
In addition, the Kenyan Ministry of ICT is crafting the 2030 National Payments Systems Act Vision and Strategy with its primary priorities being Kenyan cryptocurrency regulation and security for cryptocurrency transactions.
Institutional Acceptance of Cryptocurrencies in Kenya
In terms of cryptocurrency holdings and blockchain-related transactions, Kenya is a top-ranking African country among the 10 most populous nations.
While the Kenyan Government and Institutions were not receptive to cryptocurrencies at the beginning of the crypto revolution in the continent, their stance appears to be a bit objective at the moment.
In 2015, the Central Bank of Kenya specifically warned the public about the risks of cryptocurrencies citing the volatility of the crypto markets and the lack of specific regulations.
This, however, did not mean that cryptocurrencies were prohibited in Kenya.
In 2018, the Central Bank issued another cautionary notice on cryptocurrencies. But since then, there has been no legislative process in regulating crypto, this has kept the crypto community in Kenya in a grey area.
This uncertainty about future regulations of cryptocurrencies in the country has had little or no effect on the rising popularity of crypto in the country.
About 6.1 million people in Kenya, (that is 10.71% of Kenya’s total population) currently own cryptocurrency.
By January 2018 Kenya’s Bitcoin holding had reached over 3% of the country’s gross domestic product. Holding more than $1.5 billion worth of Bitcoin excluding other cryptocurrencies like Ethereum.
A United Nations report stated that Kenya has the highest proportion of its people holding cryptocurrencies in Africa.
In July 2022, the Central Bank of Kenya decided to adopt crypto as its reserve currency. This decision was made to tackle the rising financial crisis in the country.
Government Regulation of Cryptocurrencies in Kenya
The Kenyan government had several regulatory bodies in place to regulate the activities of Kenya Crypto Exchanges and the use of cryptocurrencies in the country.
Cryptocurrency is primarily regulated by 3 acts, The National Payments Systems Act (NPSA), The Kenyan Information and Communication Act (KICA), and the Capital Markets Act (CMA).
The CMA is administered by the Capital Markets Authority, the KICA is administered by the Communications Authority the NPSA is administered by the Central Bank of Kenya (CBK)
The Central Bank of Kenya regulates cryptocurrency through the NPSA and Kenya’s money remittance regulations.
The Central Bank of Kenya is authorized by the NPSA to oversee and regulate payment systems and payment service providers within Kenya to ensure that platforms are safe for investors.
While the CBK has warned the public of the risks of cryptocurrencies, it does not prohibit the trading of cryptocurrencies.
This means that Kenyans are legally allowed to buy and sell cryptocurrencies.
That said, the Central Bank of Kenya is authorized to regulate cryptocurrencies through Kenya’s Money Remittance regulations.
These regulations require that crypto companies must be licensed by the Kenyan authorities to offer transmission services within Kenya.
This license is mandatory for all companies that offer services for the transmission of money or any representation of monetary value without any payment accounts being created in the name of the Payer or Payee.
Any crypto company that does not acquire the proper authorization from the Kenyan authorities will have their banking services suspended.
An example is Lipisha Consortium and BitPesa.
Bitpesa’s M-PESA services were suspended because it was operating a money remittance business without the authorization of the Central Bank.
This suspension was enforced by Safricom.
Safricom is the largest cell phone operator in Kenya that introduced M-PESA in 2007 as an alternative way for Kenyans to access financial services.
Safaricom’s policy is responsible for the suspension of banking services for any cryptocurrency firm and money remittance business that does not receive proper authorization from the CBK.
That said, a Kenyan parliamentary committee set up by data protection agencies in the country in August 2023 to investigate the activities of Sam Altman’s crypto project, Worldcoin, in the country has recommended that Kenya develops a comprehensive oversight framework and policies on virtual assets and virtual assets service providers in Kenya within 6 months of the adoption of the report and ensure that the National Assembly takes the appropriate legislative measures.
The committee insisted on the need for the development of regulations and enforcement infrastructure to ensure that virtual assets and virtual asset providers and their activities are adequately regulated and monitored.
In September 2023, the Central Bank of Kenya Governor pointed out to the national assembly that the lack of laws banning the trade of crypto in Kenya has created an avenue for the space to be used as a conduit for Money Laundering and terrorism financing.
According to him, trading in crypto has not been made illegal in Kenya because there is no regulation or legal framework in place.
Despite the attempts to ban or strictly regulate crypto trading in Kenya, a law (Digital Asset Tax) was introduced seeking to tax crypto exchanges in Kenya.
This law mandates crypto users to pay a 3% tax anytime they exchange an asset.
This bill has been opposed by the Blockchain Association of Kenya and the case was mentioned in court on September 28.
That said, the Central Bank of Kenya, Capital Markets Authority, and Kenya Revenue Authority possess regulatory power over cryptocurrency in the country.
Crypto Exchanges and Wallets Availability in Kenya
Despite the love-hate relationship between the Kenyan authorities and cryptocurrencies, there is no law or regulation banning the activities.
Several global cryptocurrencies like Binance, Kraken, KuCoin, Coinmama, Paxful, etc are fully operational in Kenya.
Kenya is also home to local crypto exchanges like the BitPesa crypto exchange.
Cryptocurrency companies can operate freely in Kenya as long as they acquire the required authorization to operate in the country.
That said, the recent introduction of the Digital Assets Tax law in September 2023 has threatened the operations of centralized exchanges in the country.
The law requires centralized crypto exchanges to act as tax collectors and deduct a 3% tax from the transfer or exchange of crypto assets. The exchanges have a 5-day window to remit cryptocurrency taxes to the Kenyan Revenue Authority and it is to be deducted from the total value of the exchanged asset regardless of profit or loss.
Aside from the fact that exchanges will be forced to use their own money to make the payments due to the short remittance time frame, it will lead to the migration of traders from centralized exchanges to decentralized exchanges where the government has no control.
In Indonesia and India where similar tax laws were introduced (0.1% and 1% respectively), the trading volume of local crypto exchanges dropped by 60%.
This could be the case in Kenya if the law is not reviewed or overhauled.
State of Decentralized Finance in Kenya
Regulatory frameworks created particularly for decentralized finance by the Kenyan government are still evolving. And Kenyan cryptocurrency regulators are actively monitoring the space and having discussions to develop appropriate frameworks.
The Central Bank of Kenya’s Governor stated during the World Bank conference that Kenya’s cryptocurrency regulation entities must upskill to meet the demands created by financial technology development, especially DeFi.
This was in the context of stating that DeFi and cryptocurrency in general are a product of the people’s lack of trust in the government.
That said, the future of decentralized finance (DeFi) in Kenya looks promising.
The country has a vibrant tech ecosystem, and indigenous Kenyan cryptocurrency exchanges, coupled with a progressive regulatory body which makes further innovation and adoption of decentralized finance a lot more probable.
As more Kenyans understand the potential of decentralized finance and awareness spreads, it is predicted that there will be a rise in the sector.
In general, the government’s perception of DeFi in Kenya appears to have little to no inhibitions to the growth of the sector in the region. This has moved financial governing bodies to seek out ways to regulate the space and create a favorable legal environment for cryptocurrency in the country.
Kenyan Cryptocurrency Exchanges Financial Offerings Scope
The Kenyan cryptocurrency regulation environment is still budding and there isn’t currently any law that controls the type of financial services that can be offered by Kenyan crypto exchanges.
At the moment, cryptocurrency exchanges only have to hold a license from relevant Kenyan authorities to offer services that include the transmission of money.
This means that there are no laws passed that directly determine the type of financial services (margin trading, futures, permitted leverage) cryptocurrency exchanges can offer.
There is no law stating what cryptocurrencies in the country can be classified as securities for regulation. However, the Capital Markets Authority can regulate cryptocurrencies by classifying certain digital currencies as securities but this has yet to have any form of implementation beyond a proposition.
Regulatory Compliance
As stated earlier, cryptocurrency in Kenya is regulated by the Central Bank of Kenya, Capital Markets Authority, and Kenya Revenue Authority.
All Kenyan crypto exchanges and Kenyan crypto wallets are mandated by law to be licensed by the CBK if they intend to offer monetary transmission services without any payment accounts being created in the name of the customer.
For example, as previously stated, Bitpesa, Kenya’s largest indigenous crypto exchange had its M-PESA services suspended because it offered it without CBK authorization.
The licensing requirement for all crypto exchanges mandates financial platforms operating within the country to adhere to Anti Money Laundering laws by requesting KYC verification documents from customers.
This has largely been adhered to by most crypto exchanges operating within the nation.
Using Crypto in Kenya
Kenya, like most sub-saharan nations, is still in the early stages of cryptocurrency adoption, especially concerning direct usage.
For example, at the time of writing there was only 1 Bitcoin ATM in Kenya and it is located at Kenrail Towers, Nairobi, the capital city of the country.
Beyond this singular Bitcoin ATM, there is no way created by local financial infrastructure whether private or governmental to spend cryptocurrency directly in the country.
Kenyan crypto traders and investors do not have access to Kenyan crypto cards for spending digital assets like cash.
To use crypto in the country most Kenyan traders have to convert the funds to KES using peer-to-peer services like Binance P2P or Local Coin Swap. Others use services like BitPesa to convert Bitcoin into the local fiat currency.
The Relationship Between Banks and Cryptocurrencies in Kenya
While there are no laws regulating cryptocurrencies in Kenya, the Central Bank Act does not recognize virtual currencies citing money laundering and terrorism financing risks.
As already stated, over the years, the Central Bank of Kenya has issued several warnings against cryptocurrencies.
Kenyan banks have been warned against dealing with virtual currencies or entities dealing with digital assets like Bitcoin.
In 2018, a guidance note was issued to all commercial banks and payment service providers mandating them to appoint money laundering reporting officers to track and prevent the activity and terrorist financing.
Several commercial banks in Kenya have advised their customers not to buy, hold, or trade cryptocurrencies.
Many of them including the NCBA Bank of Kenya have sent cautionary emails to customers who have transacted in crypto in the past.
Despite a shift from the government’s opposition to crypto assets as a result of the decision to adopt crypto as the national reserve currency and the potential introduction of a central digital currency, most commercial banks are still skeptical.
That said, there are several crypto-friendly banks in Kenya with some of them supporting the buying and selling of cryptocurrencies.
Crypto-Friendly banks in Kenya include Standard Chartered Bank, Co-operative Bank of Kenya, Equity Bank, KCB Bank, Bank of Baroda, ABC Bank, and Bank of Africa Kenya.
Closing Thoughts
Kenya’s cryptocurrency landscape showcases robust adoption and institutional acceptance, positioning the nation as a key player in Africa’s crypto market. Despite regulatory uncertainties, approximately 10.71% of Kenyans own cryptocurrency, with the government even considering crypto as a reserve currency.
While regulatory frameworks are evolving, challenges persist regarding decentralized finance and banking integration. Moving forward, achieving regulatory clarity and enhancing financial infrastructure will be pivotal in nurturing Kenya’s burgeoning crypto ecosystem for sustained growth and stability.
FAQ
Most frequent questions and answers
Kenyans can buy and sell crypto freely as there are no laws prohibiting the purchase of digital assets.
However, in terms of usability, there are no current frameworks that allow Kenyans to directly use cryptocurrencies in day-to-day transactions without having to convert them to Kenyan Shillings.
Most Kenyan crypto investors purchase cryptocurrencies to secure their savings due to a lack of trust in the traditional banking system as well as carry out international transactions either for individual remittance for those working in regions like North America and Europe or for commercial purposes such as importation of goods to sell in the country.
Paying for imports via cryptocurrency is perceived as more convenient and fast because traders do not have to purchase dollars using the Kenyan Shilling or pay high fees to money transfer companies like Western Union.
An estimated 6.1 million Kenyans, which translates to roughly 10.71% of the population own cryptocurrencies.
This is a tremendous growth from its 2021 numbers where just over 4 million people (an estimated 4% of the population) held cryptocurrency.
This is the highest population share of cryptocurrency owners on the African continent and places Kenya ahead of economies like the United States, which has 8.3% of its population owning digital currencies.
This is despite warnings from regulators like the Central Bank of Kenya (CBK) that cryptocurrencies can be high risk.
The rising adoption of crypto assets in the country has been linked to the low fees charged by cryptocurrency exchangers, remittance speed, and widespread internet access.
The sub-Saharan nation has proposed to charge a 3% tax on your exchange or transfer value of digital assets.
This law, if passed, will require cryptocurrency wallets and crypto exchanges like Binance and Yellow Card or individuals facilitating the transfer and exchange of crypto assets to withhold the 3% tax deductions and send them to the nation’s tax authority.
All crypto exchanges per the law would then be required to first register to the tax authority to remit the deductions.
The Bank of Africa supports cryptocurrency payments in Kenya.
Yes, a digital service tax (DST) alongside VAT on digital market supply was introduced by the last administration. The introduction of the Digital Service Tax is aimed at imposing a 1.5% tax on the total value of digital services.
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