There is a new way to send money to and from Kenya by way of the virtual currency bitcoin.
While the company, Bitpesa, charges fees significantly lower than traditional money transfer services, some worry that the lack of regulation around bitcoins could put transactions at risk and open the way to criminal activity.
The bitcoin has been around for six years. It is a digital, decentralized currency, meaning it only exists electronically and there is no regulation or oversight by any bank or financial institution.
A Kenyan start-up called Bitpesa now allows people to send money into and out of Kenya through bitcoins. The company said in just two years, the number of registered users has grown to 4,000.
Research analyst Michael Kimani has been using Bitpesa since 2013. The cheap transfer rates are a plus, he said, but there are limitations like the volatile bitcoin exchange rate.
“The downside is the volatility, like the price usually goes up and down, so a lot of times I have to convert immediately if I really need the cash because I don’t want to hold it and find that the value has gone down in like a week or something. So that’s usually the downside,” Kimani said.
The Overseas Development Institute (ODI) said sending $200 to Africa via traditional money transfer services can carry a fee of up to 12 percent. Bitpesa charges a flat rate of 3 percent on all transactions.
The Central Bank of Kenya has warned people against using digital currencies, like bitcoin. The Central Bank said these currencies can be used for money laundering and to finance terrorism. In the event of losses, the Central Bank said users will have no recourse locally.
Elizabeth Rossiello, co-founder of Bitpesa, believes resistance from financial regulators is misplaced. “We sell Bitcoins for Kenyan shillings and we buy it for Kenyan shillings. There’s no law in Kenya, nor anywhere in Africa, that states bitcoin or virtual currencies to be illegal,” she explained. “We are a registered company in Kenya that follows the law. We do not engage in illegal activities.”
Rossiello said traditional money transfer services charge high fees because they can. There is not enough competition.
Bitcoin has had a reputation as the currency of choice for hackers and criminals though that perception is changing.
Safe and secure
Rossiello said Bitpesa is secure and safe to use. “I think there’s been a general misconception about this technology where people believe bitcoin transactions to be untraceable, therefore inherently insecure. In reality, the reverse is true,” she said. “Every bitcoin transaction leaves an indelible record that can be observed and traced by anyone, including authorities.”
But Aly Satchu Khan, the CEO of the Nairobi financial management company, Get Rich, said Bitpesa is not yet proven to be a “rock solid platform.”
“I think the concern is predominantly around criminals, criminality or even terrorism funding, that essentially given that they are operating out in an environment outside the purview of most governing authorities, monitory authorities in Africa, that therefore there was an opportunity here, a gap, that the terrorists or the criminal could potentially use virtual currency in order to fund their operations or raid cash or anything of that sort,” said Khan.
The World Bank people pay $110 million in fees every year to send remittances totaling $1.3 billion to Kenya.
On a continent-wide level, those remittance fees add up to an estimated $1.4 billion annually.