NAIROBI, Kenya, Dec 9 – Microfinance institutions will now be able to take deposits from the public as well as offer a wide range of financial services such as savings, lending and money transfer.
This follows the launch of the Micro Finance Act (2006) and Regulations (2008) that sets out the legal, regulatory and supervisory framework for the microfinance industry.
“These regulations are part of the broader strategy to create an enabling environment to promote an orderly growth of the (microfinance) industry to enable it to integrate into the country’s financial system,” said Acting Finance Minister John Michuki on Tuesday.
Mr Michuki observed that through the Act, microfinance institutions will expand and deepen access to majority of Kenyans who are financially excluded.
Observing that the access to financial services in the country is geographically skewed to urban areas, the minister impressed upon the need to develop a variety of ‘sound and viable’ financial service providers.
“The development of an all-inclusive financial system that provides access for a majority of Kenyans remains the central goal of the government. I therefore urge these institutions to extend their reach to cover some of the un-banked people and those served by informal service providers,” he added.
The Act became operational in May 2008 and provides a mechanism for protecting customers’ deposits to a maximum of Sh100, 000 through the Deposit Protection Fund. The regulations on the other hand are intended to enhance corporate governance, accountability and transparency in the industry.
The minister asked the Central Bank of Kenya (CBK) to periodically issue a gazette notices of all the licensed deposit-taking microfinance institutions in order to keep the public updated on which firms they should deal with to avoid being duped by unscrupulous individuals.
The enactment of the law followed a public outcry as many Kenyans lost their hard-earned money through pyramid schemes which were largely unregulated and fraudulent. The industry has over the years made significant contribution in enhancing access to financial services and the government has committed itself to promoting and supporting it as a savings vehicle.
Mr Michuki issued a stern warning to unlicensed individuals or firms that were taking deposits from the public that they would face dire consequences should they be caught.
“They will not only be breaking the law but will be severely dealt with within the law. I therefore strongly advise the public not to risk losing their money by investing in these schemes,” he advised.
CBK Governor Prof Njuguna Ndungu explained that Treasury was in the process of working out how to regulate non deposit-taking microfinance business.
He assured microfinance institutions that the recently launched credit reference bureau regulations, 2008 would help them to establish credit information about their debtors.
“We have started discussions on the modalities for extending such mechanism to all credit providers including the Saccos as a way of improving financial inclusiveness with a rich information base,” Prof Ndungu disclosed.