Several Kenyan commercial banks are studying the feasibility of US dollar-pegged stablecoins on the back of the shortage of their dollar reserves, according to the founder of a Kenya-based crypto and virtual assets capacity building and management startup.

Alice Anangi, the founder and CEO of Crypsense, told Nodo News in an interview that up to eight major financial service companies have approached the firm in the past one month seeking information on how they can protect themselves against currency fluctuation using stablecoins.

Dollar shortage in Kenya started in March last year, when the U.S. largest bank JPMorgan Chase revealed it was straining to finalize client transactions in the country due to dollar liquidity constraints. The Kenya Association of Manufacturers (KAM) said last May that many manufacturers and processors were struggling to do business on the back of the scarcity of dollars in commercial banks, which they use to source for raw materials in foreign markets, but the government plaid down the issue.

“Numbers have doubled and are from well-established financial institutions,” Anangi says. The company would usually “receive one to two inquiries from fintech startups”, but it now sees “a growing interest from commercial banks.”

The scarcity of US dollars is attributed to repayments of loans to bilateral and commercial lenders, as well as the Central Bank of Kenya (CBK)’s efforts to control the ‘free fall’ of the shilling against global currencies. As of Mar. 15, the shilling was traded at a CBK rate of 130.10 against the US dollar from KSh 125.6 in mid-February. It has lost 30% of its value since February 2020.

Kenya’s usable foreign exchange reserves remained at $ 6.56 billion as of Mar. 16, according to the the Central Bank of Kenya. This is compared to $ 7.4 billion by Dec. 2022.

There are reports that Kenyan banks are rationing dollars. “We are receiving between $5,000 and $10,000 to serve our customers for a whole week. But this is not enough for our customers. It’s usually depleted by Wednesday,” an official at a Co-operative Bank branch in Nairobi who sought anonymity told Nodo News. Bank representatives from Stanbic Bank Kenya and Kenya Commercial Bank did not respond to our requests for comments on the dollar shortage.

How Can Established Financial Institutions Plug in?

Anangi urges anyone who wants to get into the blockchain space must first take time to learn about it.

“They should learn how to buy, sell, transact and safely store their stablecoins,” Anangi explains. “Secondly, they should align with business partners willing to accept stablecoins in exchange for goods and services.”

She adds that companies and individuals should align with verified institutions that can support their demand requirements. These institutions such as Crypsense, can offer extra customer support such as capacity building, infrastructure set-up, API, security and algorithm integrations.

The firm educates individuals and firms on how to get into the blockchain and crypto space. Crypsense helps individuals and companies to understand the problem at hand and how blockchain and digital assets solve these problems, she asserts.

Crypto Ownership High in Kenya

Cryptocurrency is largely unregulated in most African countries such as Kenya. The CBK has been mulling over cryptocurrency regulation in the country, whereas it has not stopped over 6 million people from owning cryptocurrencies by the end of 2022.

Already a working group has been formed to under the Joint Financial Sector Regulators Forum (JFSRF). It will advise the National Treasury on how to regulate cryptocurrencies in Kenya.

According to the Chainalysis report, cryptocurrency received from July 2021 to June 2022 in Kenya, was almost $20 billion.

“Deeper analysis reveals that Africa contains some of the most well-developed cryptocurrency markets of any region,” the report said. It established deep penetration and integration of cryptocurrency into everyday financial activity for many users.

“We see this primarily in Nigeria and Kenya, which rank 11th and 19th on our Global Crypto Adoption Index respectively. Both countries see strong adoption when weighted for purchasing power and population,” it said.

-Edited by Faustine Ngila