CENTRAL BANK OF KENYA
Remarks By
PROF. NJUGUNA NDUNG’U
GOVERNOR
4th ICPAK FINANCIAL SERVICES CONFERENCE:
“Financial Services Sector: Steering the Economy to the Next Level”
HHiillttoonn HHootteell,, NNaaiirroobbii
July 4, 2012

Mr. Patrick Mtange, Chairman, Institute of Certified Public
Accountants of Kenya;
Ms. Caroline Kigen, Chief Executive Officer, ICPAK;
Distinguished Guests;
Ladies and Gentlemen:
It gives me great pleasure to be here today to open this 4th Financial Services
Conference. Let me at the outset thank the Institute of Certified Public
Accountants of Kenya for organizing this forum and particularly for the choice of
the theme “Financial Services Sector: Steering the Economy to the
Next Level”. At the Central Bank we work on the subject at the policy level with
patriotic interest.
Ladies and Gentlemen: For our country to develop and realize the aspirations
of Vision 2030, the financial services sector must take the lead in steering the
economy ‘to the next level’. Towards this goal, it is critical to keep in focus the
vision for the financial sector as contained in the Vision 2030 blueprint that is, to
create a vibrant and globally competitive financial sector.
Ladies and Gentlemen: In pursuit of this vision, the Central Bank in
collaboration with the government and market players continues to play a proactive role in initiating the necessary reforms geared towards creating an
enabling environment. Significant progress has been made on these initiatives
but at the outset, we need to recognize that it is financial inclusion that will
provide the gateway. The progress made so far shows that financial inclusion is a
major public policy instrument. Several successes can be listed on this front:
I. Licensing of Deposit Taking Microfinance Institutions (DTMs)
Since 2008 when the DTMs regulatory framework became effective, 6 DTMs
have been licensed and two granted approval in principle. As at the end of May
2012, the 6 licensed DTMs had 63 branches and 1.56 million deposit accounts
with deposits worth over Ksh.11.6 billion. They also had 495,840 loan accounts
with an outstanding loan portfolio of over Ksh.17.7 billion. This is significant
progress given that banks in total only have 2.1 million loan accounts.
The DTMs provide an avenue of reaching out to the lower levels of the
population given that our markets are segmented, requiring different and more

specialized actors in some segments. DTMs can be community based or
nationwide with different core capital requirements of Ksh.30 million and
Ksh.60 million, respectively.
II. Agency Banking
Effective 2nd January 2012, DTMs were allowed to appoint third parties (agents)
to offer specified DTM services on their behalf. This followed the successful
rollout of agent banking by banks effective May 2010. So far eleven (11) banks
have been granted approval to roll out their agency networks. Eight (8) of these
banks have appointed 11,176 agents, which had executed over 18.6 million
transactions valued at over Ksh.93.1 billion over the two year period to May
2012.
III. Mobile Phone Financial services
There has been tremendous growth in Mobile phone financial services in the
country. Consequently, a number of institutions have initiated various
innovations and new products to conveniently serve their customers and reduce
the long queues that were previously experienced in banking halls. Mobile phone
money transfer services have been a phenomenal success and have put the
country at the global centre stage of financial inclusion and innovation.
In a country like ours with remote corners not served by financial institutions,
Mobile Financial Services has provided the answer. More importantly, our banks
have easily integrated into their financial services with these technological
platforms. The up-scaled level is now to use mobile phones to send money to
savings accounts and credit provision through the same channels. This is already
taking place with M-Kesho type of products in the market.
IV. Credit Information Sharing
The Credit Information Sharing (CIS) mechanism for banking institutions has
successfully taken root with mandatory sharing of negative information on a
monthly basis. All the 43 licensed commercial banks in Kenya and institutions
under the Deposit Protection Fund Board have been submitting negative credit
information to the licensed Credit Reference Bureaus (CRBs) within the required
timeframes.
The Banking Act and the Central Bank of Kenya Act have now been amended to
allow institutions licensed under both the Banking Act and the Microfinance Act
to share both positive and negative credit information of their customers. This

will go a long way in enriching the CRBs database for the benefit of the entire
banking sector and create objectivity in reporting. Credit information sharing
allows the market to build information capital for the financial sector in Kenya.
This will help build credit histories of borrowers and support a change of
collateral technology in use currently. Development of information capital will
remove information asymmetry that promotes moral hazard and adverse
selection consequences in the financial market.
V. East Africa Community Harmonization of Legal and Prudential
Supervisory Rules and Practices
As part of the ongoing integration of the East African Community (EAC) member
states, the EAC Central Banks are in the process of harmonizing their supervisory
prudential rules. This will enhance the performance of Kenyan banks covering
the EAC region.
The harmonization process has already identified the key aspects of divergence
that require harmonization. A draft convergence criteria based on international
best practice as well as feedback from players in the banking industries of
member countries has been developed.
VI. Anti-Money Laundering Framework
Following the operationalisation of the Proceeds of Crime and Anti-Money
Laundering Act, 2009 effective 28th June 2010, the Financial Reporting Centre
(FRC) was created on 12th April 2012. The Central Bank and the Ministry of
Finance seconded staff to facilitate the setting up of the FRC. The CBK has
continued to undertake public sensitization on the AML regulatory framework
including the establishment of the FRC. This is to safeguard the credibility of the
financial sector as we push our financial inclusion agenda and goals forward.
Ladies and Gentlemen: In order for us to appreciate where we have came
from; allow me to mention some key indicators of financial performance:
Total Assets of banks have increased from Ksh.951 billion as at
December 2007 to Ksh.2.12 trillion in April 2012, an increase of 123%.
The loan portfolio in the same period has increased from Ksh.534
billion in December 2007 to Ksh.1.26 trillion in April 2012, an increase
of 136%
Banks’ branch network has increased from 740 to 1200 currently, while
we also have more than 10,000 Agents now in operation

Mobile phone financial services have 19 million subscribers to date
transacting an average of Ksh.3.0 billion every day
Increase in the number of bank deposit accounts from 4.7 million in
2007 to 14 million in April 2012, a phenomenal increase of almost
300%. While the deposit values have grown from Ksh. 710 billion in
2007 to Ksh.1.6 trillion in April 2012, an increase of 125%.
Loan and Advances accounts have increased from 1.2 million in 2007 to
2.1 million currently.
Ladies and Gentlemen: These statistics show a phenomenal growth in less
than five years. In 2010, the financial sector grew by 8.8% while the economy
grew by 5.6%. In 2011, the financial sector grew by 7.8% and the economy by
4.4%. This shows that the financial sector is deepening and that its growth is
pulling the national economic growth with it. As the economy continues to
recover and the government is rolling out infrastructure projects to increase the
capacity for future economic growth, the financial sector will thrive and must
stand ready to finance long-term projects to support this growth of the economy.
Indeed this impressive performance is an indication of our growing economy but
also supported by the prudent risk management and regulatory reforms that
continue to be put in place in line with best practice. As efforts progress towards
a more developed financial sector, there is need to ensure fairness and
transparency. The public needs to be furnished with reliable and adequate
financial information.
While discharging your duties therefore, be it as accountants, auditors or
advisers of financial institutions, bear in mind that you play a critical role
towards protecting and guiding the sector in the development of our economy.
The constitution has two important contributions on this: the Competition Policy
(that lowers unit cost) and Consumer Protection. These two important aspects
will drive a healthy balance for the sector and the consumers of financial
services. As ICPAK theme this year is in these lines, we consider you as partners
in this important journey.
Ladies and Gentlemen: The Central Bank in conjunction with Government
and all other stakeholders in the financial sector will continue the policy path of
maintaining macro-economic stability for development and financial inclusion

for financial deepening and development even with frequent occurrences of
economic shocks.
Ladies and Gentlemen: It is now my honor and privilege to declare this
conference with a very enviable theme officially open and to wish you fruitful
deliberations.
Thank you