Nearly a third of Kenyan banks are ready to start facilitating cryptocurrency deals as the country works on regulations for virtual assets (VAs) amid increasing adoption.
The Central Bank of Kenya (CBK) innovation survey for 2024 shows 31 percent of the lenders indicated that they were “highly likely” to undertake activities in the area of virtual assets, which includes cryptocurrencies such as Bitcoin and Ethereum, non-fungible tokens and digital tokens.
The findings signal a shifting view of banks on the back of increased use across sectors such as finance, entertainment, real estate and art.
“Financial institutions indicated their interest in virtual assets, noting the potential opportunities of virtual assets in enhancing financial access to the unbanked by providing alternative payment and investment channels, improving transaction speed, and reducing transaction costs,” said CBK.
Banks have been missing out on revenue from virtual assets on the back of CBK barring them from facilitating such deals, even as multiple reports showed growing uptake.
An International Monetary Fund technical assistance report released in January said interviews with local companies found unregulated but regular use of stablecoins.
"Domestic companies are said to be making regular use of stablecoins such as USDT as a means of payment to settle contracts with foreign suppliers, in particular in times of domestic USD shortages," said the IMF.
There is a lack of consensus among authorities regarding the actual size, structure, and risks of the Kenyan crypto assets market. However, various reports have all pointed to increased use.
The 2023 Geography of Cryptocurrency Report by crypto market analysis firm, Chainalysis, ranked Kenya 21 out of 155 countries on the crypto adoption index and third overall in terms of peer-to-peer exchange trade volume.
A 2017 Citi research estimated the volume of bitcoin holdings in Kenya at 2.3 percent of GDP in 2016.
Denied opportunity
Currently, Kenyan banks are barred from facilitating VAs deals, denying them an opportunity to earn revenue from such transactions.
However, there has been a policy shift, with the country now working on regulations for such transactions instead of a ban.
The National Treasury in January this year published Draft National Policy on VAs and Virtual Asset Service Providers in which it seeks to spend about Sh1.82 billion to formulate and publicise regulations on the use of crypto currency and digital tokens in the country.
The Treasury has been raising concerns that the absence of a law for Vas carries the risk of tax evasion, fraud and cybercrime. Kenya is also keen to regulate VAs as part of efforts to get out of the Financial Action Task Force grey list. The country was listed on February 23, 2024.
