The State of Crypto Regulation: Kenya
Kenya embraces cryptocurrency with evolving regulations and taxation.
Note: You can get the latest crypto regulatory overview of every country on the planet here using Umoja Labs’s BRAF-based map below (Blockchain Regulatory Assessment Framework).
…and access cryptocurrency ownership and blockchain protocol-based financing (i.e., tokenized real world assets) by country
The Regulatory TLDR
- Policy & Regulation Status: Developing Regulatory Environment, with Blockchain Regulatory Assessment Score of 48.25/100.
- Number of Cryptocurrency Owners: ~2M-4M (~5%-10% of Country)
- Summary: Regulators embrace the potential of blockchain technology but very critical of cryptocurrency secondary markets and crypto exchanges
The Kenyan Crypto Ecosystem
Overall, there are an estimated 2.7 million to 4 million cryptocurrency owners in Kenya, representing approximately 5% to 9% of the country’s populations. On Umoja Lab’s BRAF (Blockchain Regulatory Assessment Framework), Kenya is rated a 40.63 out of 100, indicating that it is a “Developing Regulatory Environment” that is becoming more clear on where blockchain technology and cryptocurrency sit with regards to expected compliance measures.
A Regulatory Overview
In Kenya, cryptocurrency is legal with no specific laws or regulations prohibiting its use or possession. However, it is not recognized as legal tender or an asset. The Central Bank of Kenya has issued warnings without specified penalties and has expressly forbade financial institutions and payment service providers from doing business with Web3 businesses that ‘trade cryptocurrencies.’ Existing regulations are not well-communicated, and a clear legal framework is lacking.
The Capital Markets Authority has proposed regulations for ICOs and digital asset exchanges, but they are not yet implemented. Tax guidelines for cryptocurrencies are unclear, and the government has not provided specific incentives or support for blockchain startups.
While Web3 businesses lack explicit support in Kenya’s banking system, there is no prohibition either. Some banks tolerate cryptocurrency transactions and have partnered with blockchain-based companies. The Central Bank of Kenya has initiated a pilot program for a central bank digital currency, demonstrating openness to new financial technologies.
Consumer protection regulations are not comprehensive, but warnings have been issued by the Central Bank of Kenya. Proposed regulations for ICOs and digital asset exchanges offer some level of consumer protection. Kenya has shown a trend toward stricter environmental regulations and efforts to combat tax evasion and corruption, particularly given the nation’s need to increase its revenues with looming debt payments.
Kenya’s regulatory landscape for cryptocurrencies is primarily governed by the National Payments Systems Act, Capital Markets Act, and Kenya Information and Communication Act. The Central Bank of Kenya oversees payment systems, and trading cryptocurrencies is allowed. Kenya holds over $1.5 billion worth of Bitcoin, indicating acceptance.
Cryptocurrency companies in Kenya must obtain licenses to offer transmission services or face suspension of banking services. Safaricom suspended M-PESA services of Lipisha Consortium Limited and Bitpesa for unauthorized cryptocurrency transactions.
The Capital Markets Authority can regulate cryptocurrencies through securities regulations, classifying certain cryptocurrencies as securities on a case-by-case basis. The aim is investor protection and financial stability, applying the Howey test for classification.
Kenya introduced a digital service tax on cryptocurrency transactions, with traders now subject to income taxes at a rate of 1.5%. Capital losses can be deducted by individuals with a permanent establishment in Kenya. The Kenya Revenue Authority plans to create a unique tax agency for cryptocurrency taxes and digital service tax collection.
Overall, the Central Bank of Kenya, Capital Markets Authority, and Kenya Revenue Authority possess regulatory power over cryptocurrency. The government strives for updated regulations and a favorable legal environment while ensuring financial stability and addressing money laundering and terrorism financing risks.
Taking a Deeper Dive
The proposed amendment to the Kenyan Capital Markets Law represents a significant step in the regulation of cryptocurrency in Kenya. Under the amendment, individuals who own or deal in cryptocurrencies would be required to provide the country’s Capital Markets Authority with information on their activities for tax purposes. Kenyans would also be required to pay capital gains taxes to the Kenyan Revenue Authority when they sell or use digital currencies. Cryptocurrency held for less than a year would be subject to income tax, while after that, capital gains tax would apply.
The amendment aims to promote innovation in the cryptocurrency space while also instituting consumer protection measures, such as creating a fund to protect investors from financial loss arising from the failure of a licensed broker or dealer. This shows that the government is taking steps to ensure the safety and security of cryptocurrency transactions in Kenya.
Kenya has seen significant growth in cryptocurrency adoption and peer-to-peer trading. The country has approximately 4 million cryptocurrency users, which accounts for about 8.5% of the population. This gives Kenya the world’s fifth-highest rate of ownership. The proposed amendment comes at a time when Kenyan President William Ruto has called for the doubling of the country’s tax base. The regulation and taxation of cryptocurrency could potentially contribute to this goal.
However, it remains to be seen how the cryptocurrency community in Kenya will respond to the new regulations, as some may view them as burdensome or restrictive. The government will need to strike a balance between regulation and innovation to ensure that the cryptocurrency industry can thrive while also protecting consumers and investors.
Emerging Trends & Themes
One recurring trend observed across the articles is the growing acceptance and adoption of cryptocurrencies in Kenya. Despite the risks associated with cryptocurrencies, such as volatility and potential for money laundering, Kenyans have embraced digital assets as a means of investment, international money transfers, and personal financial transactions. Kenya ranks second in Africa and 19th globally in terms of crypto adoption, and fifth globally in terms of peer-to-peer exchange trade volume.
Another theme that emerges is the government’s efforts to regulate and tax cryptocurrencies. The proposed amendments to the Kenyan Capital Markets Law aim to bring cryptocurrencies into the mainstream financial system and ensure compliance with existing tax laws. The government recognizes the economic potential of the digital economy and aims to tap into the opportunities presented by blockchain and cryptocurrencies.
Forecasts for the Crypto Regulatory Future
The discussed news items indicate that the regulatory environment for blockchain and cryptocurrency in Kenya is evolving. The proposed amendments to the Kenyan Capital Markets Law and the introduction of taxes on digital assets and online earnings demonstrate the government’s recognition of the economic potential of the digital economy and the need to regulate and tax activities in this sector.
In the future, it is likely that the government will continue to refine and update regulations to keep pace with the rapidly evolving cryptocurrency landscape. The government may introduce more stringent regulations to protect consumers and investors, while also providing a favorable legal environment for cryptocurrency businesses to thrive. It is also possible that the government will explore opportunities to support blockchain and cryptocurrency startups or projects through incentives or funding.
However, there are challenges and opportunities that may arise in relation to cryptocurrency, decentralized finance, and blockchain technology. One of the main challenges is striking the right balance between regulation and innovation. Excessive regulation could stifle innovation and drive businesses and investors away, while inadequate regulation could expose consumers and investors to risks.
Another challenge is ensuring the security and integrity of cryptocurrency transactions. The government will need to invest in robust cybersecurity measures to protect against hacking and fraud. It will also need to collaborate with international partners to address cross-border regulatory challenges and ensure the global interoperability of blockchain and cryptocurrency systems.
On the other hand, there are opportunities for Kenya to position itself as a regional hub for blockchain and cryptocurrency innovation. The country has a high level of technological literacy and a growing number of cryptocurrency users. By providing a favorable regulatory environment and supporting blockchain and cryptocurrency startups, Kenya can attract investment and talent in this emerging sector.
In conclusion, the regulatory environment for blockchain and cryptocurrency in Kenya is evolving, with the government taking steps to regulate and tax digital assets. The government aims to provide up-to-date regulations and a favorable legal environment for cryptocurrency while ensuring financial stability and mitigating the risk of money laundering and terrorism financing. The government will need to strike a balance between regulation and innovation to ensure that the cryptocurrency industry can thrive while also protecting consumers and investors.
Read more here:
- Kenya — Cryptocurrency Laws and Regulation
- Kenyan legislation establishes crypto taxation, creates consumer protections
- Renewed hope for crypto regulation in Kenya
- Crypto, influencers targeted in Kenya’s new tax bid
- CBK softens stance on crypto, considers regulation
- Kenya Creating Legal Framework for Crypto Regulation — Central Bank
- Kenya Cryptocurrency information about Kenya
- Kenya, Nigeria central bankers criticise crypto, tout digital currencies
- Crypto Regulations in Kenya: 4 Million Kenyans Will Be Affected If Proposed Bill Accepted
- The Proposed Kenya Capital Markets 2023 (Amendment) Bill Advocates for Widening ‘Securities’ Definition to Capture Cryptocurrencies
- Central Bank Of Kenya Warns Banks Against Dealing In Crypto
- Kenya Central Bank Takes Ambivalent Stance on Digital Currency
- Kenya’s central bank tests public opinion about digital currencies
About the Author
Robby Greenfield has over a decade of experience in blockchain and financial engineering. He has served as an industry leader in deploying decentralized applications in emerging markets, such as Sub-Saharan Africa, the Asia Pacific, and LATAM. Robby has worked with renowned blockchain firm ConsenSys, co-deploying innovative solutions and collaborating with organizations like the U.S. State Department, the World Bank, the UNOPS, Oxfam International, and Care International. Currently, he is the CEO of Umoja Labs, a Coinbase and Mercy Corps-backed Web3 fintech providing payments and credit infrastructure across Sub-Saharan Africa.
