SPEECH BY JACINTA MWATELA, THE DEPUTY GOVERNOR OF THE
CENTRAL BANK OF KENYA, DURING THE STAKEHOLDERS FORUM ON
THE DEPOSIT-TAKING MICROFINANCE REGULATIONS ISSUED UNDER
THE MICROFINANCE ACT HELD ON 12TH MAY 2008 AT THE KENYA
SCHOOL OF MONETARY STUDIES, NAIROBI
The Chairperson, the Association of Microfinance Institutions (AMFI);
The Chief Executive Officer, AMFI;
Microfinance Practitioners;
Development Partners;
Distinguished Guests and Participants;
Ladies and Gentlemen;
It gives me great pleasure to be with you this morning during this important
stakeholders’ forum on the Deposit-Taking Microfinance Regulations, 2008
issued under the Microfinance Act, 2006 (Act No. 19 of 2006). These
Regulations set the stage for the implementation of the Microfinance Act
and is expected to usher in a new dawn in the development of the
microfinance industry in Kenya as an integral part of the financial system.
Let me also take this opportunity to thank the Association of Microfinance
Institutions (AMFI), all industry players and stakeholders for their
collaboration, input and patience. I am aware that the delay in the
completion of the drafting of the regulations and the appointment of the
commencement date of the Microfinance Act has caused concern in the
industry. The work on the regulations has been a considerable one and the
challenges mammoth. However, good things, they say, come to those who
wait. I therefore congratulate AMFI and the entire microfinance fraternity for
keeping the faith and staying the course and urge them to continue to be
patient as the appointment of the commencement date and regulations are
with the Attorney General’s Chambers for gazettement. This will be out
shortly.
Ladies and Gentlemen; as you are aware the legal, regulatory and
supervisory regime, spelt out under the Act and Regulations, will allow

regulated deposit-taking microfinance institutions to offer a variety of
financial services and products including savings mobilization, credit facilities
and domestic money transfer, among others to Kenyans. I expect that many
microfinance institutions and potential investors will take the opportunity to
establish deposit-taking business in order to enhance access to financial
services and products by Kenyans. According to the Finaccess study
conducted in 2006, about 38 per cent of adult Kenyans are un-served by our
financial system indicating a huge market potential for the microfinance
industry. The study shows that only 19 per cent of Kenyans are served by
formal financial sector, namely commercial banks and the Kenya Post Office
Savings Bank, while 8 per cent are served by semi-formal financial service
providers such as microfinance institutions (MFIs) and Savings and Credit Cooperatives societies (SACCOs) and the remaining 35 per cent are served by
informal financial service providers ranging from Accumulating and Rotating
Savings and Credit Associations (ASCAs and ROSCAs) to shopkeepers and
money lenders. This indicates a big gap in access to financial services by
Kenyans that I expect deposit-taking microfinance institutions (MFIs) to play
a major role in filling it by expanding access. Given this scenario the
microfinance deposit taking institutions will be playing a major role in
narrowing the service gap.
Ladies and Gentlemen; the former UN Secretary-General, Kofi Annan stated
that “Sustainable access to microfinance helps alleviate poverty by generating
income and wealth, creating jobs, allowing children to go to school, enabling
families to obtain health care and empowering people to make the choices
that best serve their needs. ...The great challenge before us is to address the
constraints that exclude people from full participation in the financial sector.”
I couldn’t agree more and this is the challenge before us. A financial system
that serves only a minority of a country’s people is biased and unacceptable.
All inclusive financial system that provides access for the majority is the
central goal of the development of our financial system as envisaged by
Vision 2030. The government, as envisaged in Vision 2030, will strengthen
alternative financial service providers including MFIs and SACCOs, among
others, to play a major role in savings mobilization and wealth creation, thus
contributing to poverty reduction and economic growth.

Ladies and Gentlemen; We expect that when the Act and regulations are
fully implemented, it will bring, in the not too distant future, a new breed of
microfinance institutions, the deposit-taking MFIs, which will enable these
institutions to mobilise savings from the general public. Thus, the Act and
regulations will set in a new era in the growth and development of the
microfinance industry by integrating the industry to the formal financial
sector, thereby promoting competition, efficiency and access. Through this,
we expect the microfinance industry to play a pivotal role in deepening
financial markets by expanding access of affordable, appropriate and
innovative financial services and products to majority of Kenyans. These
include cellular phone banking, alternative, low cost outlets e.g. agencies,
and mobile banking, among others.
Ladies and Gentlemen; once the Act is fully implemented, it will promote an
orderly growth and development of a sound and stable microfinance
industry. The regime will also embrace microfinance industry corporate
governance, accountability and transparency, performance standards and
benchmarking, deposit protection, efficiency and effectiveness, among
others.
As you are aware that the policy underpinning the regime is based on a three
tiered approach to regulation and supervision of the microfinance industry,
with the deposit-taking MFIs and non-deposit taking MFIs falling under the
Act. Informal microfinance institutions will remain unregulated. The deposittaking MFIs are categorized into two: the community MFIs and the
nationwide MFIs with a minimum capital requirement of KSh.20 and KSh.60
million, respectively. The nationwide MFIs will operate countrywide, while the
community MFIs will operate with one Governemnt Administrative District or
Division if operating in a City.
Ladies and Gentlemen; let me also urge the industry to move fast and
develop a self-regulatory mechanism in addition to the current regime
provided under the Act and regulations to provide for a self-regulating
mechanism including a code of conduct, oversight, disciplinary and dispute
resolution mechanism, and minimum reporting and performance standards.
This should cover all practicing microfinance practitioners – ranging from
deposit-taking MFIs, non-deposit taking MFIs and informal microfinance
entities.

You will note that in the recent past, the Central Bank of Kenya made press
statements in the print media warning the public on the illegal operations of
pyramid schemes in Kenya. The building of an all inclusive financial system
including the strengthening of alternative financial service providers and
public education and awareness campaign is expected to stem off the
mushrooming of pyramid schemes and similar schemes. The Central Bank of
Kenya will continue to educate the public and will publish licensed deposittaking MFIs in the Kenya Gazette and once in a year print media with
national circulation. Any one taking-deposit from the public without a license
from the Central Bank will be committing an offence under the Banking Act
and Microfinance Act except those exempted under the respective
legislations. I, therefore, strongly advise the general public not to risk losing
money by depositing or placing the same in unregulated institutions like the
pyramid schemes.
Ladies and Gentlemen; let me highlight some key silent regulatory and
supervisory requirements for deposit-taking MFIs which include licensing
requirements; corporate governance; performance and accounting standards;
accountability and transparency; deposit protection; dissolution mechanisms
and supervision by the Central Bank. The legislation further specifies limits on
lending to ensure that MFIs retain their core business of extending services
to the poor, low-income households and SMEs as their core market
segments and minimize dealings with insiders.
Ladies and Gentlemen; I expect institutions to use innovative delivery
channels and methodologies and reduce entry barriers resulting in increased
efficiency and competition, hence reduction in costs and increased access in
the near future. The ability to create new innovations and harness their
potential will directly impact our market share and prosperity. Through new
ideas, best practices, innovative delivery channels and approaches, we can
stimulate new thinking and, critically, new action. Unleashing home-grown
capital can create a pool of resources for local entrepreneurs to set up small
business and diversify their economic base. Microfinance, a new pillar of
development, is yet another instrument to unleash the ideas and energies of
local entrepreneurs with a potential to grow, to forge linkages with other
businesses that will drive national savings and investments.

Ladies and Gentlemen; the Central Bank, on its part, will continue to ensure
macroeconomic stability and to provide an enabling regulatory environment
for the financial sector growth and development. The supervisory and
regulatory capacity of the Central Bank of Kenya is strong and is continually
being enhanced to cope with market dynamics and new skills and
knowledge. We continue to be grateful to the development partners who
have collaborated with us in building adequate skills and capacity in the field
of microfinance. We shall also continue to work closely with the Government
ministries and microfinance practitioners in the development of the industry.
Ladies and Gentlemen; we all would like to thank the Attorney General’s
Chambers and the Treasury who have tirelessly worked hard hand in hand
with the Central Bank team in the preparation of the regulations and look
forward to a speedy gazettement of the same to effect the Act into
operation.
Before I conclude, Ladies and Gentlemen, let me once again take this
opportunity to assure the AMFI, microfinance industry players and key
stakeholders of the Central Bank’s continued commitment, collaboration and
partnership in the development of the industry.
Finally, it is my pleasure to now declare the Forum on the Deposit-taking
Microfinance Regulations 2008 officially opened and wish you fruitful
deliberations.
Thank you.
CENTRAL BANK OF KENYA
12TH MAY 2008