CENTRAL BANK OF KENYA
Remarks by
PPRROOFF.. NNJJUUGGUUNNAA NNDDUUNNGG’’UU
at the opening of the
2011 REGIONAL MICROFINANCE SUPERVISOR
TRAINING PROGRAM FOR THE EAST AFRICAN
COMMUNITY
at the
Kenya School of Monetary Studies, Nairobi
November 7-11, 2011

Program Director, Toronto Centre for Leadership in
Financial Supervision, Mr. Chris Cardoza;
Representatives, Consultative Group to Assist the
Poor;
Workshop facilitators present;
Ladies and Gentlemen;
I am delighted to be here today to make brief opening remarks
at this Microfinance Supervisors’ Training Program for the
East African Community. But before I make my remarks, I
would like to thank the co-organisers of this workshop, Central
Bank Staff, Toronto Centre for Leadership in Financial
Supervision and the Consultative Group to Assist the Poor
(CGAP), for providing a platform to strengthen the skills of
regulators and supervisors in this region. I would also like to
thank the Financial and Legal Sector Technical Assistance
Program (FLSTAP) which has given us financial support
towards this Training. Last but not least, I extend a warm
welcome to all participants. For those who have never travelled
to this part of the East Africa region and for those who have, I
hope you will take some time to enjoy Kenya’s diverse cultural
and tourist attractions- ‘Karibuni Sana.’.
This regional training program has been designed with the aim
of strengthening the skills and capacity of supervisory
personnel responsible for the regulation and supervision of
microfinance in the East African region. In addition, it will
accord the participants a forum to discuss and share

experiences on fundamental issues cutting across the
microfinance sector. It is indeed a laudable initiative that will
complement the East African Central Banks’ efforts towards
upgrading the skills of the region’s supervisors. The expected
outcomes of this training are quite critical given that EAC
member countries are working on the harmonization of the
microfinance regulatory and supervisory framework towards
further regional integration.
Ladies and Gentlemen, it is a fact that financial inclusion
has become a critical factor in the development agenda for the
EAC member countries, as is the case in most developing
nation’s across the globe. Studies over the last few years have
shown that the average exclusion rate in the EAC (excluding
Burundi which has not carried out any financial access survey)
is 50.7%, indicating that slightly over half the East African
populace is excluded from accessing financial services. In this
regard, we all have to embrace financial inclusion.
Financial inclusion is an essential reality for developing strong
financial institutions, fighting poverty sustainably and
financing development outcomes. The push towards enhancing
financial inclusion is therefore quite critical. Evidence shows
that financial inclusion is key in reducing the economic
vulnerability of households, promoting economic growth,
alleviating poverty and improving the quality of peoples’ lives.
CGAP has defined it as a “state in which all people who can
are able to have access to a full suite of quality financial

services, provided at affordable prices, in a convenient
manner, and with dignity for the clients”. These financial
services are delivered by a range of providers, most of them
private and reach everyone who can use them, including
disabled, poor, rural, and other excluded populations.
Ladies and Gentlemen, we as financial sector regulators,
share common aspirations of making our financial sectors
more stable, efficient and accessible. In this regard, while we
are charged with the mandates of pursuing policies for
inclusive finance, we must continue to encourage strong and
efficient financial institutions as a safeguard to ensure
continued stability of the financial system. In cognizance of
this, the Central Bank of Kenya, jointly with other players, has
undertaken several initiatives and reforms aimed at boosting
overall inclusion. These include: licensing of deposit taking
microfinance institutions (DTMs) and credit reference bureaus
(CRBs); and the introduction of shariah compliant banking,
mobile phone money transfer services and the agency banking
model. I am happy that the DTMs have demanded to be part of
information sharing to support the build up of information
capital.
These initiatives and reforms have led to the significant decline
of barriers to entry into the financial sector, increased financial
infrastructure and its distribution and innovative instruments
targeting the lower segments of the population. Owing to the
above, there have been notable improvements in the levels,

reach and depth of access to financial services especially
among the lower population segments. Not only have deposit
accounts grown tremendously from 2.5 million to over 14
million in just over 5 years, but over 15 million Kenyans have
been integrated into the financial system due to the use of
mobile money transfer services.
To single out microfinance, the regulated microfinance
industry in Kenya has grown tremendously with the licensing
of six licensed DTMs with 55 branches, boasting of 1.52 million
deposit accounts valued at KSh. 9.9 billion (USD 99 million)
and 0.52 loan accounts with an outstanding loan portfolio of
KSh. 15.7 billion (USD 157 million) as at the end of September
2011.
Ladies and Gentlemen, while this growth is commendable
getting to this point was not without challenges. Prior to the
operationalisation of the Microfinance Act, 2006 and
Regulations in 2008, the microfinance industry in Kenya was
highly segmented. During this time, microfinance business was
carried out under nine different Acts of Parliament. Due to
this, the industry faced a number of challenges; the major ones
being the lack of a specific legal and regulatory framework and
appropriate regulatory oversight for microfinance business in
Kenya. This had a bearing on a number of other constraints
faced by the industry including weak corporate governance and
internal controls, unhealthy competition, multi-lending, low
scale and outreach, unfavourable image and public confidence

and the lack of industry performance standards and
accountability. The Act and Regulations therefore came at a
critical time to reduce these constraints, while harnessing
emerging innovations and stimulating the development of the
sector.
Ladies and Gentlemen; the benefits of an adequate
regulatory environment are well appreciated and prudential
regulation for microfinance institutions has successfully been
introduced in all member countries of the EAC. The regulation
of the microfinance industry in Kenya, as is the case in the EAC
member countries, is expected to promote innovation, growth
and development of the industry, set prudential standards,
create an enabling environment and act as a road map and
catalyst towards achieving the desired objectives of increased
outreach and sustainability of MFIs.
To further ensure an effective regulatory framework for the
microfinance sector is in place, emphasis should be given
towards the implementation of better regulation as opposed to
more regulation. Better regulation is characterised by a
regulatory framework with ability to:
readily identify weaknesses and emerging
vulnerabilities;
analyse risks;
provide appropriate incentives to induce prudent
behaviour in the market place; and

encourage innovations and strong institutions to
develop.
The efficiency through which these roles are performed
depends very much on the sector and the regulatory
technology in place. This clearly spells out the need for
regulators to broaden their mandate and play a key role as
partners, agents, promoters and advisers to the market to
enhance financial sector development and financial inclusion.
Ladies and Gentlemen, Let us seek to be the best
supervisors we can be and continually improve the regulatory
environment in order to enhance safe innovative solutions to
expand financial inclusion through appropriate policies,
regulation and supervision. Through this we expect that our
growing microfinance industries will develop into integral
parts of our financial systems and will play a pivotal role in
deepening financial markets by expanding access of affordable
financial services and products to majority of our populaces.
As I conclude, I wish to encourage you all to actively
participate during this important training workshop. Your
input and suggestions will enable us to grow the EAC
supervisory skills and capacity to enviable heights and put us
at the frontier of microfinance and financial inclusion best
practice. With these few remarks, Ladies and Gentlemen, I
now declare this workshop officially open and take this
opportunity to wish you fruitful deliberations.

Thank you!