CENTRAL BANK OF KENYA
Remarks by
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Hotel Intercontinental, Nairobi
October 6, 2011

Mr. Ives Terracol, Regional Director, Agence Française de
Développment;
Mr. Chuck Waterfield, Chief Executive Officer, MicroFinance
Transparency;
Distinguished Guests;
Ladies and Gentlemen:
It gives me great pleasure to be with you this morning during this important
African Microfinance Pricing Transparency Leadership Forum. Before I make
my opening remarks, let me take this opportunity to thank the organizers of
this conference, MicroFinance Transparency, for inviting me to share some
thoughts on this pertinent topic. I would also like to extend a warm welcome
to all the participants who have travelled from other countries to Kenya and to
say ‘Karibu Sana’. I hope you will take some time to enjoy our beautiful
country with its rich culture and diverse tourist attractions.
Ladies and Gentlemen, financial inclusion has been recognized now in
development debates and action across the globe. This is more so in
developing and emerging economies, which record the highest poverty levels
and constitute majority of the world’s unbanked population. The drive to
enhance financial inclusion is thus critical given that increasing evidence
shows that it is key in reducing the economic vulnerability of households,
promoting economic growth, alleviating poverty and sustainably improving
the quality of peoples’ lives.
The push for financial inclusion is entrenched in Government of Kenya’s
Development Blueprint, Vision 2030 and lies at the core of the Central Bank of
Kenya’s strategic actions towards implementing this Vision. It is in this regard
that the Central Bank, together with market players, has embraced several
initiatives and reforms aimed at enhancing the level of financial inclusion.
These include licensing of deposit taking microfinance institutions (DTMs)
and credit reference bureaus (CRBs); introduction of shariah compliant
banking products, mobile phone money transfer services and the agency
banking model. These measures and new institutions help in completing the
financial infrastructure picture in Kenya that reflects its market structures as
well.

Ladies and Gentlemen, in effect, we have seen a significant decline of
barriers to entry into the financial sector, increased infrastructure distribution
and innovative instruments targeting the lower segments of the population.
These have resulted in tremendous increases in the levels, reach and depth of
access to financial services. To highlight a few, bank accounts have grown from
2.5 million to over 14 million in just over 5 years, while mobile money transfer
services have led to over 15 million Kenyans being integrated into the financial
system. The regulated microfinance industry has also grown tremendously
with the licensing of six Deposit Taking Microfinance institutions with 57
branches, 1.5 million deposit accounts valued at Ksh.9 billion and 0.53 million
loan accounts with an outstanding loan portfolio of Ksh.15 billion.
Despite these remarkable developments in the Kenyan financial sector, we are
cognisant of the fact that there still remains great need within the Kenyan
market for appropriate and more affordable financial services. Given that this
situation is not unique to Kenya, but applies to most, if not all, African nations
represented in this Forum, it is imperative that improving access to financial
services remains key in our development agenda. We need to solve costs,
barriers to entry, physical distance and market concentration problems.
Ladies and Gentlemen, as we undertake to enhance access to financial
services as regulators and policy makers, we must ensure that financial
services are provided a competitive market environment. Let us learn from
developments in the microfinance sectors in parts of Bosnia and India, that
recently experienced crises. The challenges in these countries were instigated
by issues such as multiple lending and client over-indebtedness, aggressive
competition, erosion of credit quality standards, a lack of transparency in
pricing, a weak credit information sharing framework and inadequate
regulation. Beyond these challenges, currently the broader issue of
transparent and responsible pricing is becoming a concern for the global
microfinance industry. Price is an incentive.
Transparent and responsible pricing is essential for stimulating growth,
efficiency and effectiveness of the financial sector. It is indeed a key ingredient

for incentivising innovation, enhancing informed decision-making by
consumers and fostering the development of healthy, vibrant and competitive
markets. Transparency in pricing is critical because consumers have the right
to know the exact price of products in the market. Conversely, nontransparent (or opaque) pricing, prevents consumers from making informed
decisions about borrowing. This ultimately reduces the ability of financial
institutions to compete effectively, free market forces to operate properly and
the financial sector to develop efficiently and sustainably.
Policies to entrench relevant consumer protection measures, including
transparency and truth-in-lending regulations combined with the promotion
of competition and efficiency among credit providers, can go a long way
toward expanding the reach of sustainable finance, particularly credit, while
safeguarding consumer interests. We, as policymakers and regulators,
therefore, have to take up the responsibility of stimulating competition in
financial institutions and promoting innovation aimed at improving efficiency
and lowering prices. We must, however, also endeavour to put in place
consumer protection measures to ensure our consumers are not exploited.
Financial institutions, on the other hand, should seek to maintain
transparency regarding interest rates charged on the borrowers. Further they
should adopt new technology to increase productivity and efficiency in their
operations to reduce these rates.
It is imperative that concerted efforts be put into educating financial clients.
When clients are financially informed they are empowered to demand safe,
cost-efficient and quality financial services at fair prices. This makes it
necessary for service providers to competitively innovate products suitable for
their customers’ needs and pockets.
Ladies and Gentlemen: the push to enhance consumer protection is also
entrenched in Kenya’s Vision 2030 strategy which aims at improving
transparency and increasing competition in the financial sector to benefit
customers and the overall economy. The Kenyan constitution also has specific

provisions on consumer rights. In this regard, the Central Bank has initiated a
number of reforms and initiatives including the amendment of the Banking
Act and Prudential Guidelines, publication of information on charges and
lending rates and the conducting of a series of studies and surveys to foster
competition in the banking sector and develop a disclosure regime for
consumer interest rates. To complement these efforts, the Bank also actively
participates in financial education campaigns to aid consumers in making
better and informed financial decisions. In particular, the Bank is a pivotal
member of a public private partnership whose aim is to champion the
development of a national strategy for Financial Education and Consumer
Protection in Kenya.
Effective consumer protection and financial literacy, especially with regards to
price disclosure, are key in ensuring that lenders behave responsibly and
ethically; and consumers, especially the poor, gain the capacity to use this
information to make informed decisions about financial services in order to
enhance their economic wellbeing. Ladies and Gentlemen, the practice of
price transparency ultimately contributes to the health and vibrancy of our
financial markets, and enhances the extension of access to, and use of,
appropriate financial products and services.
As I conclude, Ladies and Gentlemen, I express my confidence that this
workshop will present an invaluable platform for African leaders in the
microfinance industry and financial sector to share their experiences on
pricing transparency in the various jurisdictions represented here. It will also
present us with an opportunity to acquaint ourselves with the global best
practices on the same. We should remember that PRICE is an incentive and
can be a disincentive – it has to be appropriate. With these few remarks, I now
declare this workshop officially open and take this opportunity to wish you
fruitful deliberations.
Thank you