Cryptocurrencies, Central Bank Digital Currencies and Digital Lenders

The Central Bank of Nigeria (CBN) announced the commencement of the second phase of the eNaira project, nearly one year after its launch of the project. In October 2021, the CBN introduced the eNaira wallet to enhance financial inclusion. As of August 2022, the eNaira wallet has been downloaded about 840,000 times, with around 270,000 active wallets (including over 252,000 consumer and 17,000 merchant wallets) created. Moreover, over 200,000 transactions valued at N4.4bn have occurred on the platform. The second phase aims to improve financial inclusion by enrolling the unbanked and underserved through offline channels. With the eNaira wallet, Nigerians can conduct transactions on their mobile phones by using the Unstructured Supplementary Service Data (USSD) code*997. For a population with over 50m active bank accounts, the registration for the eNaira wallet is relatively low in proportion to the country’s economic size. Therefore, the CBN has decided to collaborate with fintech organisations to plan and organise events aimed at building public trust in the eNaira.

Meanwhile, in April, the Central Bank of Uganda warned banks and fintechs found facilitating cryptocurrency trading that they would lose their financial licenses, but recently the Blockchain Association of Uganda (BAO) and the Central Bank announced that crypto startups have been formally invited to the bank’s regulatory sandbox programme which indicates a change of policy towards cryptocurrencies. Another country to flipflop is Ethiopia where the central bank banned the crypto business in June. Less than 3 months later, the country seems to have reversed this decision, instead requiring cryptocurrency operators to register with the national cybersecurity agency —the Information Network Security Administration— within 10 days. This move by the government to acknowledge the industry is driven by a desire to be proactive in protecting citizens from crypto-related cybercrime. While African countries acknowledge the rising threat of cyber insecurity in the continent, none has laid down measures to mitigate against cyber-attacks hidden in online crypto marketplaces. Ethiopia wants to lead in this front. And though a laggard in the adoption of crypto in Africa, it is fast catching up with dominant players such as Nigeria, Kenya, SA, and Egypt. With 1.8 million Bitcoin traders, Ethiopia ranks 7th in Africa in crypto holding capacity. The latest Chainalysis report indicates that losses arising from cryptocurrency scams rose by 60% in the first 7 months of this year to $1.9bn, propelled by a surge in funds stolen from decentralized finance (DeFi) protocols.

Finally, Kenya has revealed plans to introduce a 20% excise tax on fees charged by digital lenders. Last year, the Central Bank of Kenya (CBK) was given the power to oversee the lending industry to help curtail predatory lending and debt-shaming in the country; in March, the CBK released is Digital Credit Providers Regulations which now requires lenders to also obtain a license from the bank. Now comes this new tax