Grace Ashiru
For fintech startups expanding into Kenya, obtaining an operating license is often the most challenging hurdle.
A Payment Service Provider (PSP) license can take up to two years due to approval delays, pushing startups to seek alternative solutions like forming partnerships with telecoms, banks, and mobile money providers.
“We don’t enable services that require a license, but in Kenya, we connect licensed entities,” said Rachael Balsham, Managing Director for East and Southern Africa at fintech company Onafriq, during last week’s Africa Fintech Summit in Nairobi.
She explained, “Safaricom’s M-PESA is licensed to provide mobile money services, and we link them with other licensed parties.” Onafriq facilitates money transfers across 40 African countries, but is only licensed in 12, excluding Kenya.
The slow licensing process in Kenya presents a significant obstacle for fintech companies aiming to establish themselves in the East African market.
Although the Central Bank of Kenya (CBK) has promised legal reforms to accelerate fintech licensing, high market entry barriers and shifting regulations have slowed progress, allowing traditional players such as commercial banks and telecoms to maintain their dominance.
“We are in the process of updating and amending the Payments Act, essentially creating a new act. We hope to finalize it soon, along with the accompanying regulations, which will guide our approach to the payment service provider space,” CBK Governor Kamau Thugge said in an interview with TechCabal in June.
“The CBK currently lacks the capacity to conduct thorough due diligence before issuing licenses to the hundreds of fintech companies that have set up shop in Kenya,” said a fintech co-founder who wished to remain anonymous.
The CBK did not immediately respond to requests for comment.
Balsham suggested that “license passporting” could be a potential solution for established fintech companies.
License passporting is a regulatory mechanism that acts like a passport for fintech firms, allowing them to operate in multiple countries within a region without needing separate licenses for each one.
To illustrate, it’s similar to holding a driver’s license issued in Kenya and being able to drive in other Eastern or Southern African countries without having to apply for a separate license in each one. However, no African country has yet adopted this approach.
“If implemented, it could simplify cross-border services, potentially leading to lower costs, improved products, and more options for consumers,” a banking lawyer told TechCabal
