Kenya to review MFI regulations

April 7, 2010

, NAIROBI, Kenya Apr 7 – The Ministry of Finance has announced plans to review the legal and regulatory framework of the microfinance sector in Kenya.

Speaking during the opening of the Africa-Middle East Micro Credit Summit, Finance Minister Uhuru Kenyatta said this would strengthen microfinance institutions (MFIs) in an effort to fight poverty through deepening financial access.

Mr Kenyatta said the move was informed by the critical role MFIs play as a tool by innovative Kenyans to uplift their social status.

“The major challenge has been the lack of a specific legal framework as well as appropriate regulatory oversight to guide the specific operations of microfinance institutions,” Mr Kenyatta said.

He said this is also intended to speed up the process of licensing MFIs to become deposit-taking institutions.

The Treasury is already working with the Central Bank of Kenya (CBK) in an effort of increasing the number of deposit taking microfinance institutions.

The CBK has already issued two licensees to Faulu Kenya and the Kenya Women’s Finance Trust making them the only MFIs able to conduct nationwide deposit taking activities.

Mr Kenyatta said this would also work towards incorporating them into the formal banking system.

Better regulation of the microfinance sector is aimed at improving the credibility of the sector in the eyes of the public. This is expected to move the industry to new heights of financial reach through mobilisation and intermediation of public deposits.

Licensed deposit-taking microfinance institutions are able to protect their clients through the Deposit Protection Fund Board which is an important safety net for depositors.

Since the Microfinance Act and its attendant regulations came into effect in 2008, the CBK has approved 34 business names, which is the first step in the licensing process.

In addition to the two that have been licensed, one applicant has been issued with a letter of intent, while seven other applications are at various stages of review and appraisal by the Central Bank.

Also speaking at the Summit, 2006 Nobel Prize winner Muhammad Yunus reiterated the need to redesign the banking system in an effort of making it more inclusive.

Prof Yunus said lack of micro credit laws in many African countries was denying many poor people access to loans.

“There is a need to re-invent the banking system so that it takes the good things found in micro credit institutions and avoid collapsing as was evident during the global financial crisis,” Prof Yunus said.

The 43 Microfinance Institutions in the country account for close to 6.5 million Kenyans. A Financial Access report of 2007 shows that 106 million people bank with MFIs with most coming from Asia and the Middle East.

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