This post is also available in: esEspañol

Once touted as a technology that will disrupt and possibly replace banks, blockchain is now being implemented by major financial institutions across the globe. A report by Bloomberg last week indicates that banks in Kenya are turning to blockchain technology for cutting-edge payment solutions, they are now just waiting for their country’s central bank to give them the green light.

Similar to other Central banks’ relationship with the blockchain, Kenya’s is treading cautiously to ensure that the country’s financial system taps into the benefits of blockchain, and at the same time, minimizes the risks accompanied with such a new and disruptive technology. According to the Kenyan central bank, “there is thus the need to ensure that robust controls are in place to ensure that the risks and opportunities associated with emerging technologies are balanced.”

The motivation? Kenya’s financial sector profitability. The sector’s profits fell 9.6% last year to $1.32 billion (133 billion shillings). Additionally, the ratio of bad debts skyrocketed from 9.3 percent in 2016 to 12 percent in 2017, while gross loans and advances plummeted at a rate of 5.7 percent to 2.16 trillion shillings.

This profit decline was sparked by the introduction of legislation in 2016 which led to limitations on the interest rates charged by lenders. Coupled with prolonged election uncertainties, possible corruption, and declining profitability; Kenya’s financial sector needed a solution – enter, the blockchain.

Blockchain and Kenya’s Financial Future

While the central bank is happy with the blockchain technology and other banks are ready to cooperate, it doesn’t promote cryptocurrencies. Referring to them as “associated with anonymity, and commonly used by criminals.”

If approved, the regulation will allow Kenya’s banks to use blockchain to create solutions geared towards distributed payments as well as credit-scoring models to rate future borrowers. On a national level, banks will be able to solve the problems plaguing the country’s financial sector, decentralize payment processing, and together with M-pesa, which has already lifted about 2 percent of the country’s population out of poverty, boost the country’s status to one that embraces new and emerging technologies on the African continent.