Is Kenya finally ripe for disruption by cryptocurrencies?


Blockchain transactions are immutable and offer end-to-end transparency. FILE PHOTO | NMG

There is no doubt that cryptocurrencies and blockchain, the technology behind these virtual currencies, is set to disrupt every industry - especially the financial sector. We have previously seen waves of disruption: the computer, the internet and the mobile phone.

At first, they were criticised and rejected, but sooner it was a matter of embrace or die. At the advent of mobile money service M-Pesa, banks were up in arms saying the platform exposed users to great risk, with some senior bankers asking where exactly money in a mobile wallet is held. We all know what followed. I predict a similar curve for crypto and blockchain.

Adoption of cryptocurrencies would go a long way in enhancing financial inclusion not only in Kenya but across sub-Saharan Africa where many remain unbanked.

Today sub-Saharan Africa remains the global leader in the use of mobile money: 21 percent of adults in the region have a mobile money account, according to the World Bank 2017 Global Findex Report.

With seven out of every 10 adults in Kenya using mobile money, a switch to cryptocurrencies is likely to be smooth. The costs would be lower, and settlement is real-time, for virtual currency users to make both peer-to-peer and merchant payments.

As argued by World Bank, diaspora remittances to developing countries also stand to gain massively from adoption of blockchain technology. Sub-Saharan Africa remains the most expensive place to send money to, where the average cost is 9.4 percent.

Cryptocurrency-based diaspora remittances and cross-border payments bypass the barriers of traditional banks which expose users to high transaction fees, delays in settlement and losses incurred in forex conversions.

Virtual currencies are also a good store of value - especially for Africa's volatile economies where inflation can wipe out ones savings. We have experienced hyperinflation in Zimbabwe and South Sudan. In such cases, crypto would be a good bet to safeguard one's cash from the vagaries of inflation. Key to the adoption of cryptocurrencies in Kenya is a trading platform where users can buy and sell their holdings.

There is also need for cash-in and cash-out services - and Kenya's vast network of mobile money and bank agents would be a good fit. Contrary to concerns that virtual currencies such as bitcoin are largely untraceable and anonymous hence making them susceptible to abuse by criminals in money laundering and financing of terrorism, blockchain transactions are immutable and offer end-to-end transparency.

The financial services sector in Kenya is ripe for blockchain adoption, with news that commercial banks have applied to the central bank seeking approval to roll out blockchain-backed products and services.

And just the other day, a UK-based blockchain fintech announced its buying a stake in a tier III bank in Kenya and transform it into "the world's first fully licensed crypto bank with low-cost funding availability."

There are other use cases for blockchain that would greatly impact the banking sector. Think about a distributed ledger of credit scores that would great a global credit bureau where all lenders and borrowers can plug in.

SHAUN BURROW, Founder, DeMars (DMC)