What happened

The Central Bank of Kenya (CBK) together with the Ministry of Finance has issued a set of rules governing the use of stablecoins for payments, including cross‑border remittances. The policy, announced in a joint circular, clarifies the licensing requirements for crypto‑asset service providers and sets out the reporting obligations for any entity that wishes to accept or transmit stablecoins on behalf of customers. While the exact date of the circular is not disclosed in the source, it represents the latest regulatory step after months of stakeholder consultations. The new framework aims to bring transparency to a market that has grown rapidly despite limited formal oversight.

Context and background

Kenya has long been a regional hub for mobile money, with services such as M‑Pesa handling billions of dollars in daily transactions. In recent years, global interest in stablecoins—digital tokens pegged to a fiat currency—has surged, and Kenyan fintech firms have begun experimenting with them as a cheaper, faster alternative to traditional bank transfers. The CBK has historically taken a cautious stance on cryptocurrencies, issuing warnings in 2021 that digital assets are not legal tender. However, the rise of stablecoins, which promise price stability, prompted regulators to reconsider a blanket ban.

The Treasury’s involvement reflects the government’s concern over foreign exchange flows and tax compliance. Stablecoins can be issued by foreign entities, potentially bypassing conventional foreign exchange controls. By integrating the Treasury into the rule‑making process, the authorities seek to ensure that any inbound stablecoin remittance is captured for customs and tax purposes, aligning with Kenya’s broader fiscal objectives.

Stakeholder engagement included consultations with local banks, mobile network operators, and crypto‑exchange platforms such as BitPesa and Paxful Kenya. These dialogues highlighted the need for a clear licensing regime that protects consumers while allowing innovation. The final policy draws on lessons from other jurisdictions, notably Nigeria’s recent licensing framework for crypto‑asset service providers, and adapts them to Kenya’s unique mobile‑money ecosystem.

Historically, the CBK has required all payment service providers to obtain a license under the National Payment System Act. The new stablecoin rules extend this requirement to entities dealing with tokenised assets, mandating anti‑money‑laundering (AML) and know‑your‑customer (KYC) procedures that match existing banking standards. Failure to comply could result in fines, suspension of operations, or criminal prosecution, underscoring the seriousness of the regulatory shift.

Internationally, the Financial Action Task Force (FATF) has issued guidance on virtual assets, urging jurisdictions to apply the same AML standards to crypto‑transactions as to traditional finance. Kenya’s updated policy aligns with these recommendations, signalling the country’s intent to stay compliant with global standards while fostering a regulated environment for digital finance.

For the Kenyan diaspora, which sends an estimated US$4 billion annually through formal channels, the rules could open a new, potentially cheaper corridor for sending money home. Stablecoins typically incur lower transaction fees than conventional remittance services, and they settle near‑instantly, reducing the lag that often frustrates senders and receivers alike.

Compared with what is normal

Prior to the new guidelines, Kenyan remittance channels were dominated by banks, money‑transfer operators (MTOs) and mobile money platforms, all of which charge between 3 % and 7 % per transaction. Stablecoins, by contrast, can be transferred for as little as 0.5 % in network fees, though the cost of converting the token to Kenyan shillings can vary. The policy therefore introduces a potential cost advantage that is not present in the traditional system.

• Transaction speed: Mobile money transfers typically settle within minutes; bank transfers can take 1‑3 days. Stablecoin settlements are near‑instant on the blockchain, regardless of the time of day.
• Regulatory oversight: Existing channels are fully regulated under the CBK and the Central Bank of Kenya Act. The new stablecoin rules place token‑based transfers under the same supervisory umbrella, reducing the regulatory gap.
• Market penetration: As of 2023, less than 2 % of Kenyan adults had used a stablecoin, compared with over 70 % using mobile money. The policy could accelerate adoption by providing legal certainty.

When compared with the regional norm, Kenya is moving faster than many East African neighbours. Tanzania and Uganda have yet to publish comprehensive stablecoin guidelines, leaving Kenya in a pioneering position. However, the Kenyan approach remains more measured than the permissive stance taken by some Caribbean nations that have embraced stablecoins without extensive licensing.

In terms of foreign exchange, the Treasury’s reporting requirement mirrors the existing practice for bank‑mediated remittances, where every inbound foreign currency transaction is recorded for balance‑of‑payments statistics. Stablecoin inflows will now be captured in the same way, providing the government with a clearer picture of capital flows.

Why it matters

For Kenyan SMEs that rely on remittances to fund operations or pay suppliers, the stablecoin framework could lower transaction costs and speed up cash availability. Faster settlement means less working‑capital strain, especially for businesses that import raw materials or need to meet short‑term payroll obligations.

From a macro‑economic perspective, the formalisation of stablecoin flows can improve the accuracy of foreign‑exchange data, aiding policymakers in managing the shilling’s volatility. Better data also supports more effective monetary policy, as the CBK can gauge the true volume of external funds entering the economy.

Consumers stand to benefit from increased choice. Those who previously avoided formal remittance channels due to high fees may now find a cheaper, regulated alternative. However, the requirement for service providers to obtain licences may limit the number of players, at least initially, potentially keeping fees higher than the theoretical minimum.

On the risk side, the new AML and KYC obligations aim to curb illicit financing, but they also impose compliance costs on startups. Smaller fintech firms may need to invest in robust identity‑verification systems, which could delay market entry or push some operators to operate informally.

Finally, the policy sends a clear signal to international investors that Kenya is willing to engage with emerging digital assets while safeguarding financial stability. This could attract foreign fintech capital, spurring job creation and technology transfer in the sector.

Practical steps

SMEs and individuals can begin preparing for the new environment by taking the following actions:

• Review existing payment workflows and identify any cross‑border transfers that could be switched to stablecoins.
• Engage with licensed crypto‑asset service providers to understand their KYC procedures and fee structures.
• Update internal accounting systems to capture stablecoin transactions in both crypto and fiat terms, ensuring compliance with reporting requirements.
• Consult with a tax professional to assess any implications of receiving stablecoin‑based remittances, especially concerning valuation at the time of receipt.
• Monitor CBK and Treasury communications for any further clarifications or amendments to the licensing process.

By taking these steps now, businesses can position themselves to benefit from lower costs while staying within the regulatory framework.

Financial Management & Analysis services at Beavoren Ventures can help firms navigate the new stablecoin rules, design compliant payment processes and integrate crypto‑assets into their financial reporting.

Need help with compliance? Email info@beavorenventures.co.ke or call +254 716 296 857.

Disclaimer: This article is informational and does not constitute formal tax, audit or legal advice. For guidance specific to your circumstances, please contact Beavoren Ventures.