ALL THINGS AFFORDABLE HOUSING LEVY

WHAT IS THE HOUSING LEVY? 

  • This is a levy contribution introduced by the government to fund its plan to provide affordable houses for Kenyans.  
  • The imposition of the Housing Levy is anchored in the Affordable Housing Act, 2024 (AHA) which was assented into law by the President on 19th March 2024. 
  • The new Act incorporates amendments to the Affordable Housing Bill, 2023 which include mandatory contributions from non-salaried workers in the informal sector, participation of county governments, removal of a contribution cap, and the inclusion of a clause that one person may only access one unit. 

WHO SHOULD PAY THE HOUSING LEVY? 

  • An employer is obligated to deduct and remit 1.5% of an employees’ gross salary as well as the employers’ contribution at 1.5% of the employees’ gross salary.  
  • Persons not in employment but in business are also required to pay the levy at the rate of 1.5% of their monthly gross income as from 19th March 2024. 

WHEN TO PAY & NON-COMPLIANCE 

  • The Kenya Revenue Authority (KRA) Is the collecting agent of the Affordable Housing Levy.   
  • As per KRA guidelines, the effective collection date starts from Tuesday 19th March 2024. However, and contrary to the date of operationalization of the law, the iTax platform requires employers to remit as from 1st March 2024.  
  • The due date to remit the housing levy is the 9th working day of the following month in which the gross salary was due or gross income was received or accrued. 
  • Any person who fails to comply with the law shall be liable to payment of a penalty equivalent to 3% of the unpaid funds for every month if the same remains unpaid. 

HOW TO PAY 

KRA directed all employers to: 

  • declare the Housing levy under sheet “M” of the Pay as You Earn (PAYE) return on itax;  
  • generate a payment slip under the tax head “agency revenue” and tax sub-head “Housing Levy”; and  
  • make payments at KRA agent banks or mobile money through eCitizen Paybill Number 222 222 or by dialling *222# 

TAX RELIEFS 

  • Expenditure incurred by any person carrying on business in payment of the Levy will be a deductible expense for purposes of determining that person’s taxable income under the Income Tax Act. 
  • A resident individual who has paid the Levy in a year of income shall be entitled to the affordable housing relief when computing the individual’s taxable income under the Income Tax Act.  
  • The current affordable housing relief is 15% of the employee’s contribution subject to a cap of KES 108 000 per year. 

COURT CASES 

  • A Petition has been filed before the High Court seeking orders to temporarily suspend the commencement, levying, operationalisation, and effecting of the AHA. However, the court declined to issue conservatory orders therefore the implementation of the AHA continues until the Petition is determined. 

FROM CREATIVITY TO CAPITAL: HARNESSING INTELLECTUAL PROPERTY FOR FINANCIAL GROWTH IN KENYA’S ENTERTAINMENT INDUSTRY

In recent years, the landscape of the entertainment industry in Kenya has witnessed remarkable transformations, marked by unprecedented opportunities for artists and creators. Concurrently, developments in the realm of intellectual property (IP) have provided a new avenue for these entrepreneurs to leverage their creative assets for financial gain. This article aims to explore the intersection of creativity and capital, shedding light on how Kenyan artists can utilize their intellectual property as collateral to access crucial financial resources.

Understanding Intellectual Property as Collateral:

The Moveable Property Security Rights Act of 2017 (MPSR Act) serves as the legal framework that recognizes intellectual property as a form of intangible asset eligible for securitization. Section 2 of the MPSR Act encompasses various forms of IP, including copyrights, industrial property rights, trademarks, and related rights. This provision lays the groundwork for artists to harness the value of their creative works in financial transactions.

Utilizing Intellectual Property as Collateral

Kenyan artists have a myriad of IP assets at their disposal, each offering unique opportunities for financial leverage:

  1. Copyrights: Artists can utilize copyrights for their music, lyrics, artworks, literature, films, and other creative works as collateral.
  • Trademarks: Recognizable brands associated with an artist’s name or works can be used as collateral, including logos, brand names, or slogans.
  • Royalties: Future royalties from music streaming, publishing, film distribution, and other sources can be pledged as collateral.
  • Merchandise and Licensing Agreements: Licensing agreements and merchandise deals involving trademarks, copyrights, or other IP rights can serve as collateral.
  • Digital Assets: Kenyan artists can explore tokenizing digital artworks or creations, such as Non-Fungible Tokens (NFTs), to use as collateral.
  • Publishing Rights: Musicians can leverage publishing rights, including the rights to print, distribute, and sell sheet music or songbooks.
  • Endorsement Deals: Future earnings from endorsement deals with brands can be pledged as collateral.
  • Merchandise Sales: Revenue from merchandise sales, such as branded items and apparel, can serve as collateral.
  • Performance Contracts: Contracts for live performances, tours, or concerts can be utilized as collateral.

Seizing Opportunities for Financial Growth

By recognizing the inherent value of their intellectual property assets, Kenyan artists can transform their creativity into tangible financial opportunities. Through strategic planning and leveraging the MPSR Act, artists can access loan facilities, secure funding for new projects, and expand their artistic endeavours with confidence.

In conclusion, the journey from creativity to capital in Kenya’s entertainment industry begins with a deep understanding of intellectual property rights and their potential as valuable assets. As artists embrace this paradigm shift, they position themselves for sustainable financial growth and long-term success in a rapidly evolving landscape.

THE CRITICAL ROLE OF DATA PROTECTION OFFICERS IN MODERN BUSINESS

In the digital realm, where data flows as the lifeblood of business and innovation, Tim Berners-Lee’s astute observation that

“Data is a precious thing and will last longer than the systems themselves”

resonates with newfound urgency. Today’s data is not merely a byproduct of business operations; it is the cornerstone upon which futures are built and fortunes are made—and lost. As organizations race to harness this modern alchemy, turning data into strategic gold, the threat looms large: the specter of cyber threats, data breaches, and the ever-tightening noose of regulatory compliance.

Amidst this high-stakes arena, the role of the Data Protection Officer emerges as the strategic sentinel, a role not just of defense but of foresight. Charged with the dual mandate to shield sensitive information from the dark web’s prying eyes and navigate the legal labyrinth of data governance, they are the unsung heroes in the executive suite. To neglect this role is to gamble with the very lifeblood of your enterprise, risking not only financial penalties but the incalculable loss of customer trust and market reputation.

The introduction of a Data Protection Officer into your ranks is no longer a matter of best practice but a strategic imperative. It is a clarion call to those who understand that in the digital age, the most significant asset and the greatest vulnerability lie in the data that you hold. The question is not if you can afford to appoint a Data Protection Officer but whether you can afford not to. As you turn the page, consider this not just a narrative but a roadmap to safeguarding your company’s most valuable treasure in a world where data is king and trust is the currency of the realm.

WHO IS A DATA PROTECTION OFFICER?

A Data Protection Officer is the person appointed by an organization to ensure that data is handled, controlled and processed in a a manner that does not infringe on the rights of a data subject. Data, as has been stated in prior articles, is any information that can be used to identify a person i.e I.D Number, Age, Telephone Number etc.

A Data Protection Officer serves as a company’s information safety expert, responsible for developing and applying policies that protect sensitive data from unauthorized access and misuse.

In essence a Data Protection Officer plays a pivotal role in ensuring that your organization’s data is shielded from potential threats, breaches, and legal pitfalls. They act as custodians of privacy and compliance, making them indispensable in today’s age.

Under , Section 24(1) the Kenyan Data Protection Act, the appointment of a Data Protection Officer is at the discretion of data controllers and processors, rather than a mandatory obligation. This means that the appointment of Data Protection Officer is not a mandatory requirement and you can instead choose to have a consultant aid in data protection policies and compliance.

Under the Act, organizations are encouraged to appoint a Data Protection Officer particularly if;

  1. they are public entities;
  2. if they engage in processing data that includes monitoring of individuals; or,
  3. if they handle sensitive personal data.

This flexible approach recognizes the diverse nature of data-handling entities, allowing them to tailor their data protection governance in line with the scale and sensitivity of their data operations.

WHAT IS THE ROLE OF A DATA PROTECTION OFFICER?

The role of a Data Protection Officer is multifaceted and dynamic, encompassing a wide array of responsibilities that are essential for maintaining an organization’s data integrity. As outlined in Section 24(7) of the Data Protection Act, a Data Protection Officer is tasked with;

  1. guiding organizations on best practices for data management;
  2. ensuring that the organization adheres to data protection laws;
  3. enhancing the data protection skills of the staff of the organization;
  4. provide expert assessments on the impact of data processing activities; and
  5. work closely with the Data Commissioner to address any issues pertaining to data protection.

This continuous vigilance and collaboration are key to fostering a culture of data privacy and security within the organization.

CONCLUSION
In conclusion, as we navigate the complex and ever-shifting terrain of data protection legislation, the role of a Data Protection Officer emerges as a cornerstone for any forward-thinking organization.

By ensuring adherence to legal standards, a Data Protection Officer not only safeguards your business from substantial penalties and the risks of reputational harm but also reinforces the trust and confidence of your customers, partners, and stakeholders.

This commitment to data security transcends mere regulatory compliance and becomes a testament to your organization’s integrity and dedication to privacy. Therefore, appointing a Data Protection Officer is more than a strategic choice—it’s an investment in your organization’s ethical responsibility and long-term resilience. Take the step to empower your business with a dedicated Data Protection Officer; it’s an indispensable move in the digital era, where data is as precious as trust itself.

THE UNFOLDING SCENARIO OF DIGITAL LENDING REGULATION IN KENYA

Digital revolution has paved way for financial inclusion in Kenya. This revolution has changed how Kenyans’ access money, borrow money and save/store money. The growth of financial access through technology, Fintech solutions, has provided financial intermediation between many Kenyans were either underserved or unbanked.

This has, in turn, led to the mushrooming of digital lenders and lending platforms, which have dismantled traditional barriers and reduced bureaucratic hurdles that previously hindered Kenyans from accessing credit.

Unfortunately, this ease of access to credit has come with an unbearable burden on borrowers. Kenyans have complained of:

  1. High default rates among digital credit borrowers, leading to severe implications for negative listings at Credit Reference Bureaus (CRBs);
  2. Defaults triggering aggressive loan recovery tactics, including calls made to borrowers’ social networks, such as families and friends, for repayment;
  3. The pricing of loans, particularly the ambiguous application of interest rates and onerous penalty rates that render loans unpayable; and
  4. Digital lenders serving as obvious avenues for money laundering.

There was therefore need to regulate this sector and a public outcry from Kenyans to be protected from digital lenders who were operating like shylocks.

This led the government to initiate regulatory and supervisory reforms for digital lending, and in 2021, the Central Bank of Kenya (Amendment) Act empowered the Central Bank of Kenya (CBK) to license and oversee digital lenders. The Act refers to digital lenders as Digital Credit Providers (DCPs). Subsequently, in 2022, the CBK issued the Central Bank of Kenya (Digital Credit Providers) Regulations, which required all DCPs to apply to the CBK for a license.

ARE DIGITAL CREDIT PROVIDERS ONLY THOSE WHO LEND DIGITALLY?

Section 2 of the CBK Act states that;

“digital credit” means a credit facility where money is lent or borrowed through a digital channel;

“digital channel” means the internet, mobile devices, computer devices, applications and any other digital systems;

“digital credit business” means the business of providing credit through a digital channel;

“digital credit provider” means a person licensed to carry on digital credit business;

From a literal interpretation of this provisos, it can be easily assumed that any business that does not offer credit through digital channels is not a digital credit provider. The regulations also interchangeably use the word digital channel with the word platform.

This means that any lender who does not have a digital platform where Kenyans can apply for or receive a loan amount may of the considered view that they are not a digital credit provider. This interpretation led to many credit providers who still rely on non-digitized loan application forms and disburse funds through cheques or cash to not apply for the DCP License.

However, the question that begs is whether this literal interpretation aligns with the intention of the legislators when drafting the said provisos and regulations.

REASSESSING CBK’S OVERREACHING INTERPRETATION OF DIGITAL LENDING OVERSIGHT

Despite the literal interpretation that seems obvious from the reading of the legislation, CBK seems to take the mischief rule in interpreting these provisions. The mischief rule of interpretation means that CBK is looking at what the provision and regulation was meant to cure. 

The effect of CBK’s interpretation is to bring every unregulated lender under its purview through licensing, regulation, supervision. Our opinion is based on the communication excerpt below from the Central Bank of Kenya.

We do not agree with this interpretation because it subjects all lenders to CBK supervision, regardless of their debt book, the nature of their lending, and the size of their debt portfolio. However, the Act and the regulations were meant to regulate businesses that lend through digital channels/platforms. While we disagree with this interpretation, the CBK has made it clear that businesses should not offer credit facilities without the required license. This position has not been challenged in court and thus remains the CBK’s stance

 

In a recent case: Association of Micro-Finance Institutions Kenya (AMFIK)Vs The Central Bank of Kenya & 3 Others in Constitutional Petition E008 of 2022, AMFIK, sought exemption of non-deposit taking microfinance institutions from the DCP Regulations. However, the court dismissed this petition stating that it matters not that the institution offers other services, the only qualification for licensing under the DCP Regulations is for the institution to offer credit through digital channels. It is important to note that the court did not interrogate whether non-digital lending falls under DCP regulations.

Based on the aforementioned case, the court affirmed that the Central Bank of Kenya Act and the Digital Credit Providers (DCP) Regulations apply to all unregulated DCPs, inclusive of non-deposit taking microfinance institutions.

The Central Bank of Kenya’s interpretation of the regulations governing digital credit businesses has been notably broad, leading to an expansive regulatory reach. The CBK maintains that any entity engaged in the provision of credit, regardless of the degree of digital interaction in their lending process, falls within the scope of these regulations. This interpretation implies that all credit providers, even those utilizing traditional lending methods without a digital platform for underwriting or origination, are nonetheless subject to the requirement of obtaining a digital lending license.

Such an all-encompassing approach effectively places the entire credit sector under the CBK’s regulatory umbrella, a stance that extends the original intent of the regulations to cover all forms of lending, despite the absence of digital platforms in some business models. This broad application of the rules suggests that the CBK is positioning itself to regulate the entire credit market, which could have significant implications for lenders who do not primarily operate in digital spheres

CONSEQUENCES OF REGULATIONS OF LENDERS.

As Kenya’s financial sector evolves, the imperative for lenders to comply with the Central Bank’s licensing requirements has become a pivotal element for lawful operation. Failure to adhere to these regulations not only renders all unlicensed lending activities illicit, potentially complicating loan recovery processes, but also exposes lenders to severe penalties.

In addition, the imposition of a 20% excise duty on the interest charged on loans under the new regulation is poised to escalate the cost of credit. This significant financial burden will likely be passed on to borrowers, thus affecting the affordability and accessibility of lending services. Lenders are now faced with a dual challenge: navigating the complexities of obtaining a license, with its associated costs, and contending with the impact of increased taxation on their business model.

This situation leaves the lending industry in a delicate balance—straddling the necessity of compliance to avert legal repercussions and the need to maintain sustainable operations amidst rising costs.

DATA PRIVACY-A WAKE-UP CALL FOR SCHOOLS

In a recent and critical development, the Office of the Data Protection Commissioner (ODPC) has taken a stern stance on data privacy rights, raising questions about how educational institutions handle the personal data of minors. Roma School, based in Uthiru, was recently penalized a substantial fine of Sh4.5 million by the ODPC for posting a minor’s picture without parental consent. This resounding decision underscores the importance of obtaining consent from parents/guardians before processing minors’ data.

In today’s digital era, where sharing moments on social media is a common practice, concerns regarding data privacy, particularly concerning children, have become increasingly prominent. The question of whether public notices and waivers can serve as valid consent for schools to share children’s photos on social media platforms during events like sports days and school functions raises crucial issues at the crossroads of data protection and educational institutions.

The Data Protection Act of 2019 and its Implications:

The Data Protection Act of 2019, which governs data protection in Kenya, casts a discerning eye on the management of personal data, especially when it involves minors. Schools, as data controllers and processors, bear the onus of ensuring compliance with these regulations. Under this legal framework, schools must obtain explicit and informed consent from parents or guardians before processing any personal data relating to a child.

Challenges Faced by Schools:

The challenge schools grapple with during vibrant events lies in determining which children have parental consent for photo sharing. Section 33 of the Data Protection Act stipulates the need for consent, underlining the importance of safeguarding a child’s rights and best interests.

Proposed Solutions for Schools and Parents:

FOR SCHOOLS:

  1. Detailed Consent Forms: Implement a system where parents or guardians provide consent in advance, either at the beginning of the school year or before specific events, for the school to share their child’s photos on social media.It should also state;
  2. what the photo will be used for; advertising, social media, etc
  3. where the photo will be published; websites, magazines, bill boards etc
  4. and for how long thew school will retain the child’s photo i.e should the child transfer or leave the school, will their photo still be used?
  1. Opt-Out Mechanism: Establish an opt-out mechanism, allowing parents to communicate their objection to photo sharing. This empowers parents to exercise their rights easily.
  1. Technology Solutions: Leverage technology to streamline the consent process, age verification, and data protection compliance. Digital consent forms and tracking systems can efficiently manage consent records.
  1. Clear Communication: Maintain clear and transparent communication with parents regarding the school’s photo-sharing policies and practices. Parents should be informed about the purposes and methods of photo sharing.
  • Consent Identifiers– Have easy identifiers such as wrist bands on children whose parents have not issued consent.

FOR PARENTS:

  1. Check for School Policies: Inquire if your child’s school has a well-defined student photo policy that aligns with the Data Protection Act of 2019.
  1. Review Consent Forms: Ensure you receive a clear and detailed photo consent form that outlines how the school may use your child’s photos across various channels.
  1. Assess Consent Validity: Confirm that the consent you provided is voluntary, informed, current, and specific. It should grant the school permission to use your child’s photos for specific purposes.
  1. Awareness of Usage: Familiarize yourself with all possible ways your child’s photo could be used by the school. This knowledge enables you to make an informed choice regarding granting or refusing permission.

Legal Implications for Non-Compliance:

Non-compliance with the Data Protection Act carries significant penalties. Section 63 of the Act outlines penalties of up to five million Kenyan shillings or up to one per centum of the school’s annual turnover from the preceding financial year, whichever is lower. Schools and parents must take this obligation seriously to avoid potential penalties.

Conclusion:

While schools aim to celebrate events and activities, they must do so within the framework of data protection laws. By implementing the proposed solutions and fostering open communication with parents, schools can strike a balance between their objectives and compliance with the law. Parents, in turn, can exercise due diligence in assessing school policies and consent forms to protect their child’s personal data.

These penalties by the ODPC and the resulting dialogue emphasize the critical need for schools and parents to navigate the complex landscape of data privacy rights together. Responsible data management practices are the cornerstone of educational institutions’ commitment to their students and their families in an era marked by evolving technology and data privacy concerns.

KRA AND ARTIFICIAL INTELLIGENCE

Like all other tax collectors working for the Roman Empire, Zaccheaus, the chief tax collector in Jericho, was seen as a sinful figure of ill-repute: self-enriching, corrupt and traitorous to the Jewish community. Nonetheless, he was willing to do anything possible, even climbing a sycamore tree just to catch a glimpse of Jesus on his way to Jerusalem.

Similarly, the Kenya Revenue Authority (KRA) under has clearly demonstrated its readiness to go to great lengths to make sure every taxpayer gives to Caesar what belongs to Caesar. For the current financial year, KRA has set a Sh2.768 trillion target which it intends to meet by all means come June 30, 2024.

THE MENACE OF TAX EVASION

Though taxes are said to be as inevitable as death, many Kenyans are attempting to cheat their fate. With the skyrocketing cost of living and a struggling economy putting immense pressure on businesses, it is no surprise that tax evasion has become rampant in the recent past.

The Organization for Economic Cooperation and Development (OECD) has defined tax evasion as

“The intentional misrepresentation of tax obligations for instance underreporting of income and/or overreporting of expenses

According to KRA reports,

  1. tax evasion schemes;cost the country an estimated KES 259 billion annually in lost revenue.
  • statistics show that of the 759,164 companies registered in Kenya, only 504,036 of them filed annual returns for the financial year 2021/2022.
  • Of these, only 84,428 firms declared and paid corporate tax. This means that 84% of companies in Kenya are either loss making businesses or inactive.

This may speak to the treacherous business environment in Kenya, but it also raises concerns of endemic tax evasion among not only companies but individuals as well.

Needless to say, KRA is not willing to turn a blind eye to the atrocities of tax non-compliance that are being committed left right and center. The authority is using all the weapons in its arsenal to fight and obliterate the enemy of tax evasion; a war it does not intend to lose.

CAN KRA USE ARTIFICIAL INTELLIGENCE TO COMBAT TAX EVASION

Imagine having a super-efficient assistant who never sleeps, has an impeccable memory, and can sift through mountains of paperwork/data in seconds. That’s what Artificial Intelligence (AI) is to KRA. AI is like giving a computer a brain similar to ours, but with the ability to process and analyze data at an incredibly fast rate.

This technology enables KRA to quickly sort through tons of data from tax returns, financial statements, and online activities. Think of it as a detective that can spot a needle in a haystack — except the needle is tax evasion, and the haystack is the massive amount of financial data generated every day. AI looks for patterns that humans might miss, such as odd transactions or mismatched information, that could suggest someone isn’t paying their fair share of taxes.

By integrating AI, KRA isn’t just upgrading its toolbox; it’s revolutionizing the way tax compliance is monitored. The goal isn’t to replace human workers but to give them superpowers — allowing them to see through complex data with clarity and precision. In the future, KRA’s AI systems will connect with different economic sectors, making sure every transaction is visible and taxable, from mobile money transfers to online shopping carts.

So far, the reliance on technology has yielded positive results. According to KRA’s annual report for the period July 2022 – June 2023, the authority collected KES 2.166 trillion in revenue, which was a KES 135 billion increase from the previous financial year.

THE CHALLENGE OF USING ARTIFICIAL INTELLIGENCE

Despite the excitement around the potential and capabilities of AI, it is important to question the existential risks that come with using it. For instance, can we rely on a technology that we are yet to fully understand? Do we even have robust policies and regulations to cushion us from the ethical and safety concerns posed by AI?

Similar to many other African countries, Kenya lacks a dedicated national AI strategy or regulatory framework to handle the emerging challenges associated with the adoption of AI systems. Instead, it relies on several existing laws such as the Data Protection Act (DPA) of 2019, and the Computer Misuse and Cybercrimes Act of 2018 to tackle AI and related technology issues.

Needless to say, the lack of regulation of AI in Kenya poses a huge challenge to KRA’s efforts in fighting tax evasion. One major concern is the privacy and security of taxpayer data, which could be exposed to unauthorized access, misuse, or manipulation by malicious actors.

Additionally, the ethical and legal implications of using AI for decision-making must be carefully considered, as biased, discriminatory, or erroneous algorithms could infringe on taxpayers’ legal rights. Finally, enforcing and holding accountable an AI-based tax system is critical to ensure compliance, transparency, and fairness. KRA and AI developers must be prepared to answer for any harm or wrongdoing caused by AI.

HOW KRA CAN ADDRESS THESE CHALLENGES

In order to mitigate these challenges, it is imperative for Kenya to develop and implement a comprehensive regulatory framework for AI that balances between protecting the rights and interests of the taxpayers while promoting innovation and development of AI systems. The framework should include guidelines and standards for data privacy, security, ethics, accountability, transparency, and fairness in the general use of AI.

Moreover, in order to bolster the deployment of AI in tax administration, keen attention should be given to the quality of training data which is central to tax authorities’ operations. This can be achieved by ensuring that the data is representative, accurate, reliable, and relevant since AI can only be as good as the data it is trained on.

CONCLUSION

In a nutshell, the government has intensified its purge on entities and individuals who evade to pay their taxes with the aim of achieving its revenue collection targets. Kenyan taxpayers are now under even tighter scrutiny from KRA, which is now leveraging on technology by using AI to improve efficiency, effectiveness, and integrity in tax collection and enforcement.

However, relying on a technology that is unregulated is a dicey affair, akin to a soldier entering battle without proper knowledge of their weapon. It is therefore crucial that the use of AI in tax administration is implemented within established statutory boundaries to avoid a scenario where the taxman wins the battle but loses the war.

KENYA’S CONFLICTED STANCE ON CRYPTOCURRENCY: A REGULATORY PUZZLE

BACKGROUND

Kenya’s financial landscape is witnessing a transformation as digital currencies offer innovative alternatives to traditional banking. Amidst a weakening national currency and rising inflation rates, Kenyans are turning their gaze to the burgeoning world of virtual assets. This pivotal moment for the country is not just about adopting new technology—it’s about reshaping how Kenyans save, invest, and engage with the global economy.

THE QUEST FOR DIGITAL GOLD: KENYA’S CRYPTOCURRENCY BOOM

As the Kenyan Shilling struggles and inflation soars, citizens are in pursuit of financial stability, leading many to embrace cryptocurrencies. Over 6 million Kenyans now own cryptocurrencies, using them as a hedge against inflation, a means for international trade, and a safeguard for their savings.

In an article by Freeman Law;

Kenya holds more than $1.5 billion worth of Bitcoin alone, equating to 2.3% of Kenya’s GDP. Substantially, this figure does not include other cryptocurrencies, such as Ethereum or Dogecoin. These statistics indicate that cryptocurrency is accepted by Kenyan society despite the CBK’s warnings.

Additionally, and according to Chainalysys, Kenya’s ranks 5th globally in terms of P2P exchange trade volume ranking and 21st on the Global Crypto Adoption Index. This underscores its potential to become a regional blockchain powerhouse, offering a beacon of hope for financial freedom.

It is therefore apparent that despite the lack of regulations, virtual assets have surged in popularity as Kenyans seek refuge from economic volatility. These digital representations of value are more than just currency; they’re tools for investment and global money transfers, reshaping how Kenyans interact with the world’s financial systems.

We therefore can’t help but ponder, does ignoring and condemning the use of virtual assets create a safe and regulated environment for Kenyan investors in the virtual asset eco-system? Perhaps not.

Trading of virtual assets in Kenya operates on peer-to-peer model. The concept of Peer-to-Peer (P2P) trading is revolutionizing money exchange in Kenya. By enabling direct transactions between individuals in local currency, P2P platforms are democratizing access to the global marketplace and presenting a versatile solution for converting between cryptocurrencies and Kenyan Shillings.

This method not only bypasses traditional financial institutions but also empowers Kenyans to maintain control over their financial transactions.

NAVIGATING THE CRYPTOCURRENCY LEGAL PURGATORY STATUS

The burgeoning interest in virtual assets doesn’t come without its pitfalls. Kenyans face the dual challenge of cryptocurrency scams and the perils of an unregulated market, exemplified by the FTX Collapse of 2022. As the nation grapples with these risks, the need for robust financial literacy and prudent investment strategies has never been more critical.

Cryptocurrency we dare say is stuck in purgatory. While it is not illegal to deal with cryptocurrency in Kenya, the Central Bank of Kenya issued a cautionary notice to the public in 2015 stating that the public should desist from transacting in cryptocurrency. Similarly, through Circular No. 14 of 2015, the Central Bank of Kenya issued a directive which expressly advised financial institutions, not to open accounts for any person dealing with virtual currency. It specifically stated that failure to adhere to this directive would lead to remedial action for the financial institution.

A contrarian position to the CBK circulars was seen in the Finance Act 2023. The Act introduces a 3% tax on income earned from the transfer or exchange of digital assets. The owner of the platform or the person facilitating the transfer or exchange of a digital asset is expected to withhold the digital asset tax and remit it to the Commissioner within five working days after the withholding.

As Kenya Revenue Authority begins taxing crypto trades, the cry for clear regulations grows louder, underscoring the urgency for legislative clarity.

THE FUTURE OF CRYPTOCURRENCY IN KENYA: EMBRACING THE DIGITAL RENAISSANCE

Kenya is not alone in its struggle to find the right regulatory approach to cryptocurrencies. Nations worldwide are experimenting with different degrees of regulatory control, with varying degrees of success. These international experiences offer valuable lessons for Kenya as it seeks to chart its own course in the crypto world.

The road ahead for Kenya in the cryptocurrency domain is fraught with challenges but also ripe with potential. As the nation contemplates its next move, it must balance the need for innovation with the demand for stability. With the world watching, Kenya’s journey through the complex terrain of digital finance continues to unfold, promising to redefine the economic prospects and financial democratization for its people.

DISHONOURED CHEQUE, DAMAGED REPUTATION

Money makes the world go round and, in a world, where money is used in assessing value and facilitating transactions, banks, are deemed as steadfast allies.

The relationship, between banks and their customers is a tapestry woven in delicate trust and any breach by the bank in failing to delicately handle this relationship could lead to legal and reputational liability. As we shall see in Harit Sheth and Richard Kariuki T/A Harit Sheth Advocates v NIC Bank Limited (now NCBA) (Civil Suit 280 of 2010) the tapestry unraveled to the detriment of the Bank.

Harit Sheth and Richard Kariuki T/A Harit Sheth Advocates, a prominent city law firm, drew a cheque for about 13.2 million in favor of one of their clients knowing very well that their account had sufficient funds to settle the cheque. At the time the law firm had Kshs, 29 million in its account.

When the law firm’s client went to cash the cheque, the cheque was returned as dishonored. NCBA did not give any formal reasons as to why it chose to dishonor the cheque. The client, being disappointed that the cheque issued by the law firm was dishonored, lost trust in the firm and chose to terminate his engagement with the law firm.

The firm extremely aggrieved by the actions of the Bank to dishonor its cheque despite their being funds, proceeded to institute a suit on the grounds that reputation, character, and credit were severely damaged

The Bank subsequently proffered its defense and claimed that under its terms and conditions, it was obligated to verify and authenticate the validity of the cheque before honoring it. It further claimed that as part of its verification procedures, it made a call to the firm account’s signatories but to no avail. Subsequently, and upon no confirmation from the law firm on the validity of the cheque, it proceeded to dishonor it. It claimed that its actions were done to protect the law firm from fraud.

The court in its determination of the matter had this to say;

a)   There were sufficient funds to effect payment of the cheque and there was no good ground to decline payment;

b)   The bank had a duty to pay the law firm’s cheques as mandated, which duty should be exercised with reasonable care and skill.

c)   The terms and conditions on verification were founded on discretion as it stated that the Bank would sometimes require verification and as such, this step was not mandatory. Moreover, the law firm did not request for any verification step to be undertaken before the payment of a cheque and as such, this was a breach of duty.

d)   On the issue of loss of business, the court stated that dishonoring a cheque in such a circumstance could have a devastating effect on an advocate particularly where the Advocate is holding monies for his client. Therefore, the loss of business that came as a result of the dishonored cheque was foreseeable and thus not too remote.

In the end, the court found that the bank was in breach of its duty and ordered it to pay the law firm Kshs. 76 million in damages. Perhaps, going forward, Banks will exercise caution and we dare say some hesitation before quickly dishonoring a cheque. Just because the first call to a customer has gone unanswered does not mean that the cheque is not valid or should be dishonored.