Kenya could soon adopt a tokenised or blockchain approach in Money Market Fund (MMF) schemes if a recommendation by the Capital Markets Authority (CMA) is implemented by the government.
In the latest Capital Markets Soundness Report (CSMR), CMA urged Kenya to follow in the footsteps of China, which became the first nation globally to launch the world’s first tokenised money market fund, denominated in yuan, the local currency.
In the new system, it combines traditional fund management with the transparency and flexibility of blockchain technology.
Unlike conventional money market funds, which rely on centralised records, this fund issues digital tokens that serve as proof of ownership and can be tracked in real time on a public blockchain.
CMA noted that there was an opportunity to explore tokenised or blockchain investment in a move that could make capital markets more accessible, efficient, and transparent.
Still, CMA emphasised that the move would need to be exercised with caution, stressing the need for careful planning and regulatory oversight.
“Such innovations could offer investors greater flexibility, strengthen trust in the financial system, and help position Kenya as a forward-looking financial hub in Africa,” the report read in part.
In the China MMF, the fund primarily invests in safe, short-term instruments such as government bonds, fixed deposits, certificates of deposit, and commercial papers, with at least 70 per cent of its holdings denominated in Chinese renminbi or settled assets.
Investors can access the fund through traditional banks and brokers or via Hong Kong’s regulated virtual asset trading platforms, making it a dual approach designed to bring tokenised products closer to mainstream finance while maintaining regulatory safeguards.
How a Blockchain-Based MMF Could Work in Kenya
Currently, there is no blockchain-based MMF in Kenya, but there is an opportunity for such an investment scheme to be established. The recent ascension of the Virtual Assets Service Providers (VASP) Bill, 2024, would provide the legal framework for such a scheme, but the CMA would still have a huge role to play in regulation.
For a blockchain-based MMF to operate legally in Kenya, the provider would need to meet stringent requirements. For instance, one would need to obtain a VASP licence from CMA.
Also, the VASP Act requires a licensed entity to be a company registered in Kenya, with a physical office and a local bank account. The company would also be required to comply with the Anti-Money Laundering (AML), Counter-Terrorism Financing (CFT), and Know Your Customer (KYC) procedures to prevent illicit activities.
The fund must segregate client funds from its own operational capital, ensuring investor protection in the event of company insolvency. Also, the provider would be subject to regular, independent IT and financial audits and ongoing reporting requirements to the regulators.
Potential benefits of such a scheme would be increased transparency and efficiency through real-time monitoring, financial inclusion as seen in the low investment amounts, and institutional certainty as provided for by the VASP Act.
However, challenges might be seen in regulatory coordination between the CMA and the Central Bank of Kenya (CBK), operational burden through the rigorous compliance requirements, and lack of a specific regulation, as specific subsidiary regulations for complex products like tokenised MMFs are yet to be developed.
