CBDC will sabotage Fintech growth in Kenya

The International Monetary Fund has issued a statement warning that Kenya is at risk of stalling the “significant” economic progress led by banks and mobile money providers.

The IMF stressed the need for the proposed Kenyan central bank digital currency (CBDC) to have no impact on the private sector in a statement.

According to the International Monetary Fund (IMF), given Kenya’s financial sector’s impressive progress in creating digital solutions.

Crucially, the paper highlights that the CBDC will not “do any harm” and not stifle such welcome digitization developments by luring customers away from banks and other digital finance providers, increasing funding costs for banks or robbing banks of important information they collect. through building customer relationships.

According to the IMF’s own analysis, which also identifies the following rationales from central banks, Kenya is one of the 13 nations in Africa pursuing CBDCs.

Several rationales for seeking out CBDCs in Africa include:

• If created for offline use, CBDCs can offer financial services to people who previously lacked bank accounts.
• Especially during sudden crises such as a pandemic or natural disaster, CBDCs can be used to provide targeted welfare payments.
• Remittances, which cost about $8 of the amount sent in Africa, can be sent across borders using CBDC.

The IMF additionally urged Kenya to guarantee that CBDCs will “complement” rather than “replace” pre-existing innovations.

The IMF further noted that the paper may indicate that the proposed issuance of the CBDC is intended to supplement existing digital payment options in the private sector rather than replace them and reaffirm the CBK’s dedication to an open, competitive payment system.

Kenya launched a public conversation on CBDC in February 2022, and Patrick Njoroge, the governor of the Central Bank of Kenya (CBK), invited ordinary Kenyans to share their thoughts with the bank.

The validity of the CBDC in Kenya, where financial inclusion increased from 26.7 percent to 83 percent as a result of private sector innovations such as MPESA, is one of the bank’s concerns.

The IMF expressed skepticism about the viability of the central bank providing CBDC data to help private lenders:

The IMF went on to note that while in theory it might be possible to find information sharing protocols with banks to use transaction activity data in their loan portfolios, we note that it would be highly unlikely for a central bank to share such information.

The benefits of doing so would only be noticeable if the use of CBDC were to substantially replace payment instruments in the private sector.

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