Financial technology (Fintech) has transformed the financial sector with increased efficiency, convenience, and improved access to services.
In Kenya, financial inclusion is mostly attributed to financial technology advancement.
Financial inclusion has increased from 26.7 per cent in 2006 to 82.9 per cent in 2019, while exclusion has narrowed to 11.0 per cent from 41.3 per cent in 2006.
Furthermore, the disparities in financial access have remarkably declined between rich and poor, men and women, and rural and urban areas.
With this change underway, regulators must choose the most efficient way, if regulation is necessary.
In recent times, fintech stakeholders have expressed frustration with the regulatory space due to long approval processes and ambiguous requirements when applying for compliance.
The problem is exacerbated by the overlapping layers of regulation that may put a fintech company under the supervision of multiple regulators, leading to confusion on relevant regulations.
Currently, there is no single regulatory source that fintech innovators can contact for clarity on regulations, raising the risk of regulatory uncertainty that discourages investment into the local fintech market.
Among the fintechs that have witnessed impressive growth are those in digital lending.
Since 2013, the percentage of mobile owners who accessed digital loans shot up from less than five to 35 per cent.
Contrary to popular belief that monies borrowed from digital lenders are used for gambling, recent studies have shown that over 70 per cent of Kenyans with access to the digital loans use them for business and meeting daily needs.
The loan in this area has grown from 6.5 percent in 2016 to 14.2 percent in 2019.
Access to credit during a time of economic need can play an important role in improving household welfare. Access to short-term loans enables households to respond to negative shocks without necessarily foregoing other expenditures, hence smoothing their consumption.
The growth in the sector has undoubtedly come with its own fair of social costs, with a majority of Kenyans struggling to repay multiple digital lenders while others defaulting.
Ideally, regulation intervention should not be driven by any kind of irresponsible or poor borrowing choices.
Irresponsible borrowing has existed even within mainstream financial system world over, hence the fear should be not be overtaken by the benefits so far.
Martin Mulwa, Nairobi