Loss of Trust in Governments Reason Behind DeFi and Crypto, Says Governor, Central Bank of Kenya

Kenya’s Central Bank governor, Dr. Patrick Njoroge, has said that decentralized finance (DeFi) and crypto have emerged because people are losing trust in governments.

He has also indicated that the global financial crisis of 2008 contributed to the emergence DeFi.

Speaking at a World Bank event, the Governor said:

“The promoters of DeFi sought to leverage on the loss of trust in governments and financial institutions particularly in advanced economies. This saw the emergence of cryptocurrencies, headlined by bitcoin, positioned as alternative payment instruments.”

                                                – Governor, Central Bank of Kenya


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According to Dr. Njoroge, cryptocurrencies have now become more of wealth management instruments and less of payment instruments.

The governor was speaking at the Agile Regulation for Digital Transformation webinar organized by the World Bank where he also provided insights about digital transformation in Kenya’s financial sector.

According to the governor:

While digital transformation of the financial sector is credited with lifting financial inclusion from 26.7% ten years ago to 83% currently, the governor is particularly wary about the consumer threat posed by digital lending apps following inconsiderate practices.

Some of the practices by mushromming digital lending apps in Kenya include:

  • High interest rates
  • Over-indebtedness
  • Unethical collection practices
  • Personal data abuse

As the governor sees it, such private fintechs are making consumers lose trust in governments.

However, the Central Bank has been pushing to get powers that give it regulatory purview over fintechs, particularly those that aren’t deposit taking, like most of the lending apps.

With a bill making its way through Kenya’s Parliament, the bank is set to get the authority to license digital lending apps across the country.

Speaking about the need for agile regulation, the governor outlined 3 broad directions in order to leverage the opportunities presented by technology and innovation while minimizing the risks:

  • Regulators need to walk with the innovators – Agile fintechs are key partners in the ecosystems and regulators must seek innovative approaches to understand these fintechs, mentor them, and grow their risk-management capabilities
  • Regulators need to be alert to changing perimeters – With digitization breeding a new generation of services that mimic financial services, regulating such entities should focus more on the market conduct concens as opposed to the traditional prudential concerns of capital and liquidity
  • The need for regional and international co-operation – With the shift from institution-based financial services to ecosystems, opportunities and risks will traverse national and indeed regional boundaries. Regulators will need to coordinate, co-operate and share information

The governor also called on regulators to upskill so that they meet the demands brought on by technological developments in the financial sector.

He also urged for regulators and developers to work hand in hand in developing regulations.


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