PREVIEW
Buoyed by mobile money advances, the central bank is launching a digital currency that could boost growth in an election year
Out of 52 emerging markets and developing economies, Kenya ranks third after Mongolia and China in financial inclusion, amplified by the fact that the country pioneered mobile money transfer through the M-Pesa platform.
Dwindling paper currency usage, the need to meet growing public demand for digital currencies and systems facilitating cheaper and faster transactions have built the case for the development of Central Bank Digital Currencies (CBDC) issuance.
The Central Bank of Kenya's (CBK) potential CBDC roll-out, intended to serve as legal tender, employs a similar technology to crypto-currencies.
It comes as reports proliferate about the government planning to borrow more ahead of elections in August. Inflows of fresh cash could help establish President Uhuru Kenyatta's legacy of mega-projects and may also help his favoured candidate, Raila Odinga.
Yet unlike crypto-currencies that are decentralised, largely unregulated and their value dependent on speculators, CBDCs will be centralised, regulated, and based on the value of the Kenya shilling. Existing proposals suggest the digital currency would be established as a means of payment that would appear as a liability on the CBK's balance sheet and an asset to users holding it.
CBDC could allow the central bank to expand mobile wallet interoperability to merchants and agents, currently limited to person-to-person payments. Almost 80% of adults have a mobile money account compared with 40% who have a bank account.
Despite its potential to reduce the numbers of Kenyans who not use banks, CBDC's impact could be limited by the high market penetration of mobile money and financial services in Kenya.
But if the central bank scraped transaction fees for its CBDC to facilitate small-value online transactions, it could quickly gain mass popularity.
If it reduces or abolishes fees for small-scale transactions the digital currency would encourage other competitors to revise their tariffs. M-Pesa (launched by the Safaricom telecoms company), has a market penetration of nearly 70% in Kenya. In March 2021, Kenyan digital transactions accounted for 81.5% and 38.6% in number and value respectively.
The CBDC could speed cross-border transactions, in line with the African Continental Free Trade Area (AfCFTA), and spare the central bank the costs of printing physical currency. Potential risks relate to cybersecurity and the impact on the central bank's core functions of monetary policy, financial stability, and payment systems oversight.
Ahead of its launch, policymakers will have to decide how far they want the digital currency to be a means of promoting financial inclusion and take on the mobile money and telecoms companies which currently have the lion's share of the digital market. Kenya's commercial banks, some of which have lost substantial market share to the digital companies, will be watching closely.
Copyright © Africa Confidential 2025
https://www.africa-confidential.com
Prepared for Free Article on 20/11/2025 at 22:21. Authorized users may download, save, and print articles for their own use, but may not further disseminate these articles in their electronic form without express written permission from Africa Confidential / Asempa Limited. Contact subscriptions@africa-confidential.com.