Kenya urged to loosen stablecoin reserve rules

The International Monetary Fund has raised concerns about two specific provisions in Kenya’s stablecoin regulations, warning they could undermine the country’s ambitions in the cryptocurrency sector. According to the IMF, forcing issuers to hold reserves locally and imposing fixed capital thresholds may drive firms to operate from abroad, leaving Kenya with fewer licensed businesses to oversee and less revenue from the industry.

These rules were established under the Virtual Asset Service Providers Act (VASP Act), which took effect in November 2025. The legislation requires stablecoin issuers to deposit at least 30% of their reserves in Kenyan commercial banks, with the remaining funds allocated to approved local assets such as government securities or cash-backed agreements. The minimum capital requirement for issuers stands at Sh300 million, a reduction from the originally proposed Sh500 million. Exchanges and wallet providers face lower thresholds of Sh150 million and Sh100 million, respectively.

The IMF’s objections focus on two main areas. First, it questions whether mandating that foreign-denominated stablecoins—such as USDT and USDC—be backed by Kenyan assets makes sound economic policy. The Fund argues that if the objective is protecting holders, the quality of reserves matters more than their location. If Kenyan banks are not the safest place to hold these funds, the requirement could discourage issuers from establishing operations in the country. The IMF suggests allowing foreign-denominated stablecoins to maintain reserves abroad, provided they comply with strict transfer and oversight standards.

IMF Warns of Capital Rules Driving Relocations

Second, the IMF criticizes Kenya’s rigid capital requirements, which apply uniformly regardless of a firm’s size or risk profile. The Fund recommends adopting a proportionate approach, where larger exchanges face higher thresholds than smaller platforms. The current system, the IMF notes, may exclude early-stage firms that have already indicated they may relocate to jurisdictions with more flexible regulations.

By August 2026, local media reported that at least five Kenyan crypto entrepreneurs were considering moving their operations to South Africa or Mauritius due to the high capital demands. One founder, Eric Michubu, described the November 4 compliance deadline as an “expiry date” for many local builders. South Africa’s Financial Sector Conduct Authority has licensed 310 crypto providers, using a risk-and-scale-based model instead of fixed capital floors. Mauritius, meanwhile, has permitted virtual asset businesses since 2022, though neither country has publicly detailed its capital requirements.

The deadline for compliance has now passed, but there is no public record of how many firms adhered to the rules—or whether any have relocated. This would weaken Nairobi’s ability to enforce regulations, collect fees, or resolve disputes.

Kenya’s Crypto Market Grows Despite Regulatory Hurdles

Kenya’s crypto market remains substantial. According to TechTrends KE, citing Chainalysis, transactions reached Sh740 billion ($5.7 billion) in the year ending June 2026, a 38% increase from the previous period. Stablecoins dominate activity, while Bitcoin accounts for just 2% of transactions. The country ranks 25th globally in Chainalysis’s 2025 adoption index, trailing Nigeria and Ethiopia but outpacing South Africa.

Nigeria presents a contrasting regulatory approach. Its central bank requires foreign stablecoin issuers to establish local operations, with a ₦15 billion capital requirement, offering no exemptions for offshore entities. This highlights how African regulators continue to debate whether to prioritize local control or market access.

Global Compliance Gaps and Kenya’s 2027 Deadline

The Fund has urged Kenya to integrate these obligations into its VASP regulations without delay, citing a significant gap in international information-sharing for crypto transactions. Authorities aim to exit this status by April 2027, a timeline that could influence whether regulators opt for stricter compliance measures or seek flexibility in licensing rules.

The Virtual Asset Service Providers Act and its accompanying VASP Regulations 2026, published in Legal Notice 134 on July 22, specify how issuers must structure their reserves. Stablecoin providers must deposit at least 30% of reserves in trust accounts at Kenyan commercial banks, with funds ring-fenced for issuance and redemption.

The minimum paid-up capital requirements under the VASP Act vary by business type. Stablecoin issuers must commit Sh300 million, while exchanges face a lower threshold of Sh150 million, and wallet providers Sh100 million, approximately $770,000. These figures represent a reduction from earlier drafts, where the proposed capital for issuers had been Sh500 million. The Committee on Delegated Legislation in Parliament had recommended easing the local investment requirement, but the National Treasury retained the original provision.

The IMF’s objection to static thresholds is that they fail to account for a firm’s scale, risk profile, or operational complexity. A proportionate approach, the Fund suggests, would allow regulators to impose higher capital demands on larger exchanges while easing burdens on smaller platforms. However, the IMF has not specified what alternative thresholds it envisions.