Kenya could soon join the ranks of global financial innovators by adopting tokenised or blockchain-based Money Market Fund (MMF) schemes, a move that could transform the country’s investment landscape if recommendations by the Capital Markets Authority (CMA) are implemented.
In its latest Capital Markets Soundness Report (CSMR), CMA urged the government to explore blockchain-driven investment models, drawing inspiration from China, which recently became the first country in the world to launch a tokenised money market fund denominated in yuan.
Unlike traditional MMFs that rely on centralised record-keeping, the tokenised system leverages blockchain technology to issue digital tokens representing investor ownership. These tokens can be tracked in real time on a public blockchain, ensuring transparency, efficiency, and security in fund management.
According to CMA, adopting such a model could increase market accessibility, enhance investor confidence, and solidify Kenya’s position as a modern financial hub in Africa. However, the authority cautioned that such a transition must be guided by strong regulatory frameworks to protect investors.
“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 stated.
In China, the blockchain-based MMF primarily invests in low-risk assets such as government bonds, fixed deposits, certificates of deposit, and commercial papers, with at least 70 percent of its holdings denominated in the local currency. Investors can access the fund via traditional banks, brokers, or regulated virtual asset trading platforms, bridging the gap between digital and conventional finance.
While Kenya has not yet launched a tokenised MMF, the recent enactment of the Virtual Assets Service Providers (VASP) Bill, 2024, provides a legal foundation for such innovations. Any potential operator would be required to obtain a VASP licence from the CMA and comply with Anti-Money Laundering (AML), Counter-Terrorism Financing (CFT), and Know Your Customer (KYC) regulations.
The law also mandates segregation of client funds, independent IT and financial audits, and continuous reporting to ensure investor protection and operational integrity.
The potential benefits of tokenised MMFs include greater transparency, real-time transaction monitoring, financial inclusion, and institutional certainty under the VASP framework. However, challenges remain, notably in regulatory coordination between the CMA and the Central Bank of Kenya (CBK), the compliance burden for operators, and the absence of tailored subsidiary regulations for complex tokenised products.
If implemented, Kenya’s entry into blockchain-based MMFs could mark a new era of digital finance, merging technological innovation with traditional investment instruments, and setting the stage for a more inclusive and modern financial ecosystem.
