Kenya CMA drafts Sandbox Rules to test Bitcoin and other Fintech

Kenya’s Capital Markets Authority (CMA) has proposed rules to create a regulatory fintech sandbox for innovations which do not fit within the country’s current financial regulatory framework.

The proposed draft rules to enable the introduction and testing of financial technology (fintech) products such as peer to peer finance (crowd funding), cryptocurrencies, distributed ledger technology (blockchain technology), artificial (e.g. algorithmic trading), big-data, RegTech credit rating, online lenders, and online banks. 

They give a safe legal status and safe space to investors and developers to confidently test and unlock these unique financial innovations tailored for Kenyan consumers. The draft rules were drawn after consultation and in lines with rules in  Australia, Singapore, Abu Dhabi, Malaysia and UK as guides.

The fintech tools must be ready for testing in a live environment; this will allow them to be tested for defined periods of time and for them to be reviewed by peer groups who work with the CMA. Once companies apply to the CMA, they are to get decisions within 21 days, and at the conclusion, they are to give the CMA a report of their outcomes.

Also
• The CMA will have an annual fintech day that will feature all the sandbox participants.
• Participation in the sandbox can be revoked if a company does not do what it says it intended to, has a security breach, or harms the public, among others violations.

The sandbox rules aim to position Kenya as an investment destination of choice. CMA has in the past drafted rules on REIT’s, bonds and venture capital. Will these new fintech sandbox rules lead to more M-Pesa-like innovations? Will they enable the legal use of bitcoin in Kenya?  Review the rules (download)  and give the CMA feedback by July 26.

IFC in Kenya

A snapshot of the pipeline of approved, pending, and other projects at the International Finance Corporation (IFC) that relate to Kenya. The IFC is the private sector lending arm of the World Bank and lends to private sector projects and entities in diverse sectors such as finance, logistics, energy, communications, and health, among others.

Financial Services

  • (Considering advancing $1.19 million to) Co-operative Bank to increase access to finance to the underserved SME market segment
  •  Britam Holdings (Kenya Shillings 3,553,375, 000 equity (approximately US$35 million for 10.37% of Britam to support the insurance company develop its local agency network, strengthen its capital base, and the integration of a new IT platform.
  • KCB Group ($75 million loan) facility to KCB to be on-lent as Tier II qualifying subordinated debt.
  • NIC Bank ($198,000) and is designed to increase access to finance to the underserved SME market segment.
  • Equity Group Holdings (US$100 million senior loan) to help the Bank grow its lending to Small and Medium Enterprises (“SME”), women entrepreneurs and to support the continued diversification of funding sources.

Communication & Infrastructure

  • C-Squared – IFC ($15 million) together with Google Inc., Convergence Partners, and Mitsui & C to start a partnership in CSquared building metro fibre optic networks in Sub-Saharan Africa starting in Uganda and Ghana
  • Western Indian Ocean Cable Company (US$20 million) to fund regional expansion through the acquisition of additional capacity in Africa, increase connectivity to other fibre optic systems, upgrade its capacity on the EASSy cable and purchase network equipment.

Investment Funds

  • Investisseurs and Partenaires Afrique Entrepreneurs II ($10 million into the $80 million IPAE Fund), that will invest in small and medium companies in West, Central, East Africa and the Indian Ocean Region.
  • LeapFrog Emerging Consumer Fund III ($25 million) to make mid-market growth capital investments into financial services and healthcare investments.
  • Catalyst Fund II, LLC (US$15 million) to the fund that is seeking to raise up to US$200 million in third party commitments to make 8-12 mid-market growth capital investments.
  • (IFC to invest $7.5 million in) Fanisi Capital Fund II, a 10 year closed-end SME Ventures fund targeting growth-oriented SMEs in Kenya, Rwanda, Tanzania and Uganda in four sectors: agribusiness, retail consumer (FMCG), healthcare and education.
  • African Local Currency Bond Fund (investment of $40 million) in a local currency bond fund sponsored by KfW and managed by LHGP Asset Management LLP.

    Food Business
  •  ($3 million loan to) Nespresso (guaranteed by Nestlé S.A.) and $3 million grant from the World Bank’s BioCarbon Fund (to be disbursed through the Nespresso Sustainability Innovation Fund) to support smallholder coffee farmers and producers in Ethiopia and Kenya involved in Nespresso’s AAA Program that is  being implemented by TechnoServe.
  • Kenya Tea Development Agency ($2.7 million)
  • (A proposed investment in Tropical Heat) to finance the expansion plans of the company which has purchased eight acres of land in Redhill to set up a new state-of-the-art factory, free of logistical constraints, and add production lines as needed for exports in the region.
  • (Approved loan of $3.5 million to) Insta Products (EPZ) a producer of ready to use therapeutic food, a high calorie fortified peanut paste based food product.

Energy & Logistics

  • Tobene Power SA – Melec PowerGen thermal plant in Senegal.
  • Africa Logistics Properties (US$10 million in ALP) which will develop and manage Grade A warehousing space in sub-Saharan Africa. For the first phase of this project, ALP is raising US$65-70 million to develop three key strategic sites (Tatu, Tilisi and Embakasi) around Nairobi. In May 2017, they broke ground on the Tatu one which, with 50,000 sqm in three units, will be the largest warehouse in Kenya to be built to international standards.
  • (IFC is looking to invest $5 million in equity with Investec Africa Private Equity Fund II) in Mobisol, a pay-as-you-go off-grid solar electricity provider operating in Tanzania, Kenya, and Rwanda.

Health

  • The Medical Credit Fund (MCF) is a financing and technical assistance vehicle with a mandate to improve access to quality healthcare for underserved populations in Sub-Saharan Africa.
  • IFC is considering a $10 million loan to Meghji Pethraj Shah Hospital (M.P. Shah) is one of Kenya’s oldest and most reputed hospitals for the construction and equipping of a new physiotherapy building and purchase of key medical equipment.

From Other Sources

  • IFC owns 10% of Kenya Airways that’s about to undergo a balance sheet restructuring.
  • As Kenya plans a green bond launch, in in South Africa, IFC successfully raised a 9-year, 1 billion Rand Green Bond via the Johannesburg Stock Exchange.
  • Gulf African Bank aims to support SME businesses in Uasin Gishu County through provision of affordable Shari’ah compliant financing facilities and free business advisory services to be offered in partnership with (IFC.
  • The KCB Foundation and IFC, have a partnership to improve the sustainability of SME’s within the informal sector through IFC training within 2jiajiri to improve the management capacity and business performance of SME’s.
  • IFC invested $15 million in the Stanlib Fahari I-Reit.

Kenya Bankers launch Cost of Credit calculator

Last week, the Kenya Bankers Association (KBA) in conjunction with the Central Bank of Kenya launched the cost of credit calculator feature.

It iss available on the KBA website and as an app (in the google store) and one important feature is that it allows borrowers to see the annual percentage rate (APR) – the true cost of a loan, which can vary greatly from the original loan interest rate that is advertisd. It also enables customers to  download repayment schedules, and see the entire amount that has to be paid back to a bank (the total cost of credit).

Many loan customers pay their installment and get to what they consider the end of the loans only to find they owe a bit more. This is because they only go by the amortization rate (schedule of principal and interest) but leave out other charges and fees which are incurred in securing the loans – such as legal fees, insurance, government taxes and fees, valuation, security and other loan fees.

At the time of drawing a loan, there’s a temptation to forego paying many of these upfront, and ask the bank to add the myriad charges on to the loan – but these can add up over the duration of the loan.

This comes after an earlier attempt by the KBA to get all banks to price their loans around a single rate – the Kenya Bankers Reference Rate – KBRR. This was abandoned after interest rate caps law was passed in 2016.

Why the Future is Kenya

Friday saw the launch of the Future is Kenya a film designed to lead the promotion of Kenya as a leading trade and investment hub. It is led by the Brand Kenya Chairman, Dr. Chris Kirubi, and draws on corporations and other private sector and government officials.

Through a campaign dubbed ‘WHY THE FUTURE IS KENYA’, business leaders drawn from the financial, technology, service and hospitality sectors celebrated Kenya’s status as an investment hub with the premiere of a specially-commissioned short film and campaign launch at Nairobi’s Coca-Cola Auditorium.

Receiver to salvage Imperial Bank

Today the Receiver Manager of Imperial Bank, the Kenya Deposit Insurance Corporation and the Central Bank of Kenya issued a notice of, and a timeline for, the recovery of Imperial Bank.

This is a suprising about-turn from the perception for much of period since Imperial Bank was suddenly closed in October 2015, in which there appears to have been a leaning by the receiver-manager that Imperial was beyond recovery and that it should be liquidated. Today’s notice comes exactly a year after NIC Bank was appointed to liquidate Imperial bank assets and pay off Imperial’s depositors.


Now, the envisioned recovery process is similar to one being used for Chase Bank which is open, but still in receivership. Expressions of interest are invited from strategic investors. They will be evaluated and the short-listed ones will be given further confidential data to enable them to do due diligence and come up with formal offers that they will present to the to the receiver-manager to decide on. The process will take about a year.

This is a nice sign, but is it one that should have happened earlier? In the same period the fate of other troubled banks in the region has been concluded – in Uganda (Crane and Imperial) and in Rwanda (Crane, which was bought by Kenya’s CBA last week from DFCU of Uganda.