NAIROBI, Kenya, Feb 19 – The Central Bank of Kenya has expressed concern over the slow pace with which local microfinance institutions (MFI) are applying for licenses to become deposit-taking organisations.
CBK Governor Prof Njuguna Ndung\’u said on Friday that the MFIs had not taken advantage of this avenue through which that can increase access to financial services in the country and cultivate a savings culture among Kenyans.
“We are concerned about the slow uptake of this platform for MFIs to be mainstreamed into the financial sector,” he complained.
Currently, only Faulu Kenya has a deposit-taking license while Kenya Women Finance Trust has been granted an approval subject to meeting some conditions.
“KWFT will be granted a license once a few pre-licensing requirement are fulfilled,” the Governor said while adding that eight other license applications were being reviewed.
He said the Central Bank was willing to listen and address the problems that could be hindering these firms from reaching millions of Kenyans who are financially excluded.
“Are there bottlenecks in the licensing procedures of CBK?” he posed but appealed to industry players to liaise with the regulator in order to come up with solutions of challenges that have already been identified.
Some of these issues include the restructuring the shareholding of MFIs to ensure that they comply with shareholding restrictions as specified in the Microfinance Act (2006) and the Regulations (2008).
The Act restricts shareholding by an individual or entity to 25 percent of the firm’s share capital.
To encourage more firms to apply for the deposit-taking licenses and make the law more responsive to their needs, Prof Ndung’u said the Act could be reviewed in order to for instance facilitate the use of agency model where the firms can partner with the provider of services at the grass root level.
This, he added would in effect enable them to reduce the cost of rolling of braches and other infrastructure.
Already some amendments (to the Act) have been effected which have for example made it possible for deposit-taking firms to share information with effect from January 1 2010.
This is geared towards assisting borrowers particularly those in the Small and Medium Enterprise Sector to find it easier to access credit as such information would act as ‘personal collateral’ when applying for loans.
The Governor promised that the Central Bank would set up a division to deal with microfinance issues once the sector becomes vibrant.
“It is the speed of development in the Microfinance that will tell us to wake up and create expertise in this area. We will unleash this potential as demanded by the sector,” he vowed.
Prof Ndung’u spoke during the Standard Chartered Bank sponsored East Africa Microfinance conference which brought together industry players to discuss ways of how better to serve the industry.
Standard Chartered Bank Kenya Chief Executive Officer Richard Etemesi pointed out that the sector can play a major role in poverty eradication and increasing access to financial participation in Africa as well as offering an opportunity for banks to make money.
Mr Etemesi said they bank had recognised this fact and was already offering services such as debt finance and solutions to the MFIs problems such as foreign currency hedging.