Kenya’s cryptocurrency licensing framework could face adjustments to how international stablecoin issuers maintain their backing assets and how much capital digital asset businesses must commit to operating locally. The International Monetary Fund (IMF) wants the country to reconsider requirements that currently compel stablecoin issuers to hold part of their reserves within Kenya, arguing that the rules could discourage foreign providers from establishing locally licensed operations.

The Fund is proposing that issuers of foreign-denominated stablecoins be allowed to keep their reserves in their home jurisdictions or with foreign custodians, subject to strict conditions governing fund transfers and regulatory oversight. It also wants Kenya to adopt capital requirements that reflect the size and complexity of individual cryptocurrency businesses rather than applying fixed thresholds across different operators.

The recommendations come as Kenya implements its Virtual Asset Service Providers (VASP) Act and accompanying regulations, which establish licensing and supervisory requirements for cryptocurrency exchanges, stablecoin issuers and other digital asset intermediaries.

They also follow concerns from local industry participants about the financial commitments required to obtain licences under the new framework.

Kenya’s crypto licensing framework faces fresh scrutiny

The IMF’s recommendations address two areas of Kenya’s regulatory framework that could influence the composition of its domestic cryptocurrency industry: reserve custody and minimum capital.

Under the VASP Regulations published in July 2026, cryptocurrency exchanges operating in Kenya must maintain minimum paid-up capital of Sh100 million, equivalent to approximately $770,000. Stablecoin issuers face a higher minimum requirement of Sh300 million.

The capital thresholds have attracted attention from local industry participants, particularly smaller businesses that may struggle to meet the financial conditions for licensing.

TechTrendsKE’s August 2026 reporting documented concerns among crypto founders about the cost of remaining in the Kenyan market under the new requirements. Some businesses were considering alternative jurisdictions, including South Africa and Mauritius, as they assessed the financial implications of compliance.

The IMF is now recommending a more differentiated approach.

It wants regulators to consider the scale and complexity of a company’s operations when determining the capital it must maintain. An exchange offering a limited range of services, for example, may not present the same risks as a larger intermediary performing several functions across the digital asset market.

The Fund argues that larger and more complex operators could introduce greater financial risks and should therefore face stronger prudential oversight.

“Ensure there is a proportionate approach to regulating crypto entities in Kenya in line with the scale and complexity of their activities. Currently, capital requirements are static,” the IMF says in its recommendations.

The proposal does not amount to a blanket reduction in capital requirements. Instead, it would give regulators room to differentiate between businesses according to their activities and the risks they introduce into the financial system.

Why the IMF wants foreign stablecoin reserves held abroad

The reserve requirements present a separate challenge for international stablecoin providers.

Kenya’s framework requires both foreign and locally denominated stablecoin issuers to maintain a portion of their backing assets within the country. The arrangement is intended to give regulators greater visibility over the assets supporting digital currencies and provide a degree of protection for local users.

The IMF argues that applying the same localisation approach to foreign-denominated stablecoins could create problems for international issuers.

Under its proposal, providers of dollar-pegged tokens such as Tether’s USDT and Circle’s USDC could maintain their reserves in their home jurisdictions or through foreign custodians rather than being compelled to hold part of those assets in Kenyan banks.

The Fund says foreign currency held in Kenyan banking institutions could be exposed to risks that may be lower in the issuers’ home jurisdictions.

It also warns that the localisation requirement could influence where international providers choose to establish their businesses.

Global issuers that consider the conditions too restrictive could decide against creating Kenyan subsidiaries. They could instead continue serving customers through international cryptocurrency exchanges, leaving those transactions outside the direct supervisory reach of Kenyan authorities.

The IMF therefore wants Kenya to consider separating reserve custody from the domestic regulation of stablecoin activity.

Its recommendation is to allow foreign-denominated stablecoins to maintain reserves abroad while limiting how these digital currencies can be used within the local financial system, particularly by regulated financial institutions.

The Fund also proposes allowing reserves to be held with foreign custodians under strict conditions governing transfers and regulatory oversight.

This would give international issuers greater flexibility over the location of their backing assets without removing the need for Kenyan authorities to supervise their domestic activities.

Kenya’s dollar-backed stablecoins present a wider regulatory challenge

The debate over reserve localisation comes against a market in which foreign-denominated stablecoins have an important role.

USDT and USDC are pegged to the US dollar, allowing users to hold and transfer digital assets whose value is designed to track the dollar rather than fluctuate like Bitcoin.

Their use extends beyond cryptocurrency trading. Dollar-backed tokens can facilitate cross-border transfers, payments and access to dollar-denominated digital assets.

Previous IMF commentary covered by TechTrendsKE in August 2026 highlighted concerns that dollar-backed stablecoins could deepen dollarisation in emerging markets.

The Fund has warned that their liquidity, international acceptance and network effects could encourage greater use of foreign-currency digital assets, potentially affecting domestic monetary systems.

Kenya’s regulatory approach has consequently sought to balance the benefits of digital asset activity with safeguards against financial and monetary risks.

The IMF’s latest recommendation does not call for unrestricted access to foreign stablecoins. Its suggested restrictions on their use by regulated financial institutions indicate that the Fund still sees a role for domestic controls even where reserve assets are held overseas.

The arrangement would instead give regulators a different means of supervising foreign-issued tokens, focusing on how they enter and circulate within the domestic financial system.

The Fund also says greater public awareness of the protections available under Kenya’s VASP framework could encourage users to transact through locally licensed issuers. Such arrangements would give customers a direct claim against the issuer, providing a legal relationship that may be less clear when dealing with offshore platforms.

Kenya’s growing crypto market raises the stakes

The regulatory debate is taking place as cryptocurrency activity in Kenya continues to expand.

Kenyans transferred Sh740 billion ($5.7 billion) worth of cryptocurrency in the year to June 2026, according to Chainalysis. The figure represents a 38% increase from Sh505 billion ($3.89 billion) recorded in the preceding comparison period.

The growth elevated Kenya above Ethiopia to become Africa’s third-largest cryptocurrency economy, behind South Africa and Nigeria.

Chainalysis’ figures cover the broader cryptocurrency market rather than stablecoins alone. However, TechTrendsKE’s November 2026 reporting on the composition of Kenyan crypto activity found that Bitcoin accounted for only 2% of transactions, highlighting the importance of other digital assets, including stablecoins.

The expanding market gives regulators a larger ecosystem to supervise, spanning local exchanges, international platforms, payment providers and businesses facilitating digital asset transfers.

The IMF has also raised concerns about transaction monitoring in its separate recommendations on Kenya’s VASP framework. Its November 10 proposals addressed implementation of the Financial Action Task Force’s Travel Rule, which requires relevant information about transaction originators and beneficiaries to accompany qualifying virtual asset transfers between service providers.

Together, the recommendations cover several parts of the regulatory system, from the location of stablecoin reserves and the financial capacity of licensed businesses to information-sharing between cryptocurrency platforms.

For Kenya, the decisions will influence how international issuers participate in the domestic market, how smaller exchanges meet licensing conditions and how regulators maintain oversight as cryptocurrency activity expands.

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