Kenyan start-up incubation hubs take root in push for innovation
From the Capital Markets Authority (CMA) to the Insurance Regulatory Authority(IRA) and the Communications Authority of Kenya (CA), a new shift towards regulatory sandboxes is picking up with eyes on nurturing innovation in various sectors of the economy.
A regulatory sandbox is a concept of testing grounds for new business models that are not protected by current regulations, or supervised by regulatory institutions.
In the latest development, the CA is seeking to set up a regulatory sandbox to incubate and live-test innovations in the information and communications technology (ICT) sector, which would make it the third regulator to establish such a hub.
The CA says the incubation hub will nurture innovation products in telecommunications, e-commerce, broadcasting, and postal and courier services and will provide a dynamic, evidence-based regulatory environment to test emerging technologies such as the Internet of Things (IoT), Big Data analytics, artificial intelligence (AI) and Over-the-Top (OTT) services.
It says the sandbox will reduce time-to-market by removing regulatory uncertainty, which it says disproportionately affects first-movers and discourages innovation and will enable innovators to access better financing to boost the growth of their products.
Negative impact
Further, it says that the hub will enable more products to reach the market as it lowers the risk of innovations being abandoned at an early stage and that risks of failure will be contained which will see a negative impact on consumers and the innovator limited.
The CA will follow the CMA and the IRA, which are the only regulators, both in the financial services sector, that have introduced a regulatory sandbox to test financial and insurance innovative products respectively.
“Despite there being limited evidence so far on the effectiveness of regulatory sandboxes in promoting innovation in the country, two regulators have embraced sandboxing in recent years,” said the communications sector regulator.
“Regulatory sandboxes offer many potential benefits, importantly, including improving the dialogue between the regulators and innovators. Regulatory sandboxes are more likely to contribute to enduring results if they are part of a broader, more comprehensive package of initiatives to spur innovation and address underlying weaknesses that block beneficial innovation.”
The CMA was the first regulator to put up a sandbox in 2019 to allow for the testing of innovative products, solutions, and services that have the potential to deepen or broaden the Kenyan capital markets.
Pezesha, Innova, and Genghis Capital were the first three firms to be admitted to the sandbox by CMA in July 2019. The trio successfully tested their products in the incubation hub for 12 months before exiting and is now in the mass market.
The Central Depository and Settlement Corporation (CDSC) and Fourfront Management also joined the sandbox in 2020 to provide screen-based securities lending and borrowing and automated, algorithm-driven financial planning services respectively.
Others that have since been admitted include Pyypl, Belrium, Moneto, Koa, Sycamore, Acorn and Waanzilishi.
“Drawing on emerging global best practices, the authority seeks to position the regulatory sandbox as a tool for facilitating capital markets innovation in Kenya and helping to advance the authority’s goal of creating a vibrant and globally competitive financial sector,” says the CMA.
In 2020, the IRA also set up its sandbox after developing a policy to facilitate the testing of new ideas and innovations in the insurance sector to boost the growth of the sector.
“The authority has developed a policy to facilitate testing of new ideas and innovations in the insurance sector through a regulatory sandbox. This is intended to drive innovation in the insurance sector in developing new products or services with a clear potential to advance the objectives of inclusive insurance,” the IRA announced at the time.
Borrowing lessons
The CA says it is borrowing lessons from how countries such as Rwanda, Mauritius, Mozambique, Australia and Sierra Leone have set up such incubation hubs, which have gone on to make an impact in those jurisdictions.
“While not a “one-size-fits-all” solution, the regulatory sandbox can guide regulation toward embracing emerging technologies and services, as well as create a dynamic, evidence-based regulatory environment from which regulators can learn,” it notes.
The increased focus on these incubation hubs comes at a time Kenya is seeking to bolster its position as among the leading innovative countries in Africa to boost key local markets such as education, health, finance, agriculture, and trade among others.
Kenya ranked position 88 in the World Intellectual Property Organization’s (WIPO) Global Innovation Index (GII) ranking of 2022 and 3rd in Sub-Saharan Africa behind South Africa and Botswana.
The report highlighted that Kenya is performing above expectations on innovation relative to its level of economic development.
Kenya scores above its income group in having effective institutions, business sophistication, knowledge and technology outputs, and creative outputs, according to the report.
“India, Kenya, the Republic of Moldova, and Vietnam hold the record by outperforming for the 12th year in a row,” said the report. BY DAILY NATION
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