Regulatory Sandbox in Kenya

Kenya’s Capital Markets Authority (CMA) is currently working on a regulatory sandbox.The Consultative Group to Assist the Poor (CGAP) defines a regulatory sandbox as “a framework set up by a regulator that allows fintech startups and other innovators to conduct live experiments in a controlled environment under a regulator’s supervision.” This means that entrepreneurs will have a chance to innovate while regulators ensure that consumers remain protected.

The proposed draft rules, which are based on benchmarks from sandbox rules implemented in countries like Australia and Malaysia, will allow companies to test their products within a defined time period which will then be followed with a review from peer groups working with the CMA. The regulator also proposed an annual fintech day featuring sandbox participants and submission of outcomes by fintechs of the results from their experiments.

A G20 report on digital financial inclusion in emerging economies says that regulatory sandboxes are a means of balancing innovation and risk in favour of financial inclusion.

Regulatory sandboxes could enable innovations that are likely to benefit excluded customers, regardless of whether inclusion is a key objective. Other benefits a regulatory sandbox could bring include driving innovation, providing increased job opportunities, enhancing cybersecurity, boosting internet usage, attracting foreign investors and alleviating poverty. However, regulatory sandboxes are still new and the evidence for their effectiveness is still weak.