CENTRAL BANK OF KENYA
Remarks by
PROF. NJUGUNA NDUNG’U
GOVERNOR
CCOONNVVEENNIINNGG OONN LLOONNGG--TTEERRMM SSUUSSTTAAIINNAABBLLEE
Norfolk Hotel, Nairobi
Tuesday, 10th February 2015

Dr. Achim Steiner, Executive Director, UNEP;
Mr. Manuel Moses, Regional Head, IFC Africa;
CEOs and Senior Executives of financial institutions in Kenya;
Distinguished Guests;
Ladies and Gentlemen:
I am pleased to join Dr. Steiner in welcoming you to this
important forum on long-term sustainable finance in Kenya. Let
me at the outset appreciate my co-hosts, Dr. Steiner, Mr. Manuel
Moses and their teams at UNEP and IFC for arranging this
meeting.
Ladies and Gentlemen: No business can pride itself as being
successful if it does not consider the environmental and social
impact of its activities. Sustainability has therefore assumed
increasing importance in modern-day business. Businesses
prosper as the society and the environment they operate in
sustains their activities. Similarly, as countries strive to attain
and sustain economic growth, real per capita growth and
development, they have to embrace effective sustainable finance
policies. The environment for financial sustainability is thus
crucial for sustainable development.
Ladies and Gentlemen: Allow me to briefly highlight some of the
actions that CBK has taken in recent years to promote sustainable
finance in Kenya.

First, stability of domestic prices creates an environment of
certainty. The market formulates long term solutions based on
this certainty. When there is uncertainty, the market develops a
waiting option and slows down economic activity. A waiting
option is not sustainable.
Ladies and Gentlemen: Second, we can only talk about financial
sustainability when the financial markets are accessible.
Financial inclusion will lead to financial development and open
discussions about policies for financial sustainability.
Several initiatives in Kenya for financial inclusion include:
introduction of mobile phone financial services,
introduction of the Agency Banking Model and Currency
Centres to lower the cost of doing business for banks,
licensing of microfinance banks, which target lower-income
segments, and expanding institutional branch network
countrywide,
allowing banks to introduce Shariah compliant (or
participatory) banking products, and
the Credit Information Sharing mechanism to build
Information Capital to solve information asymmetry problems
in the financial sector. But also a mechanism that can develop
templates for ratings either for individuals or projects – where
sustainability can be an indicator.

The evidence so far indicates that these reforms and initiatives
have had an appreciable impact in expanding financial access.
The level of Kenyans accessing formal financial services has
increased from 26% in 2006 to 67% in 2013. Conversely the
proportion of the adult population totally excluded from
financial services has declined progressively from 38.4% in 2006
to 32.7% in 2009 and 25.4% in 2013, according to the National
Financial Access (FinAccess) Surveys. Further, according to
Geospatial Surveys conducted in 2013, Kenya was ranked ahead
of peer countries, Tanzania, Uganda and Nigeria. Most
fundamentally, 76.7% of Kenyans live within 5 kilometres of a
financial services touch point compared to 47.3%, 42.7% and
35.1% for Nigeria, Uganda and Tanzania respectively.
Ladies and Gentlemen: Third, the CBK mandate of financial
stability where the overarching goal is to promote existence of
strong banks. Without strong banks, we cannot talk about long
term and sustainable finance. In this regard, CBK has adopted a
flexible risk management framework for the banking sector,
which can accommodate, among other areas, the management of
environmental and societal concerns. CBK has also embraced the
Financial Stability Board’s Principles for Effective Compensation
by requiring banks to link staff compensation to the long term
outcomes of risks taken today. The design of compensation for
banks is important to deter short term taking of risks that are not
supportive of the institutions long term sustainability. Short term
risk taking that was compensated with hefty bonuses and pay

packages was one of the main contributors to the global financial
crisis whose epicentre was in Europe and USA.
As Kenya and other East African Community (EAC) member
states progress towards a monetary union, the Partner States
Central Banks have adopted a common approach in
strengthening their banking sector legal and regulatory
frameworks. In this regard, CBK and the other EAC Central Banks
have adopted the international best practices such as the Basel
Capital Accords and financial stability standards as promulgated
by the global standard setting bodies (Basel Committee on
Banking Supervision and Financial Stability Board).
Ladies and Gentlemen: Fourth, since 2009, the Kenya
Government through the CBK as its fiscal agent has issued 7
long-term infrastructure bonds. Proceeds have been used to fund
sustainable infrastructural solutions including clean and
renewable energy plants, like the geo-thermal power generation.
The deployment of these funds towards eco-friendly projects
serves as a benchmark for private sector institutions in their
project appraisal and implementation decisions. The success
registered in the issuance of government infrastructure bonds has
acted as a benchmark for corporates to emulate. For instance, the
Kenya Energy Generation Company Ltd (KenGen) has followed

the Government’s path to issue a long-term infrastructure bond to
support its renewable energy generation projects.
Ladies and Gentlemen: Finally, for sustainability to be realized,
the financial sector will require a longer time horizon in its
investment decisions, through more effective partnerships with
project promoters, value addition and greater efficiency in project
operation. There are many unexploited business opportunities
that financial institutions can tap into and advance sustainable
finance. This is mainly through product development for
financing of solar energy, low cost housing, organic farming,
recycling and waste management.
With the Government having put in place a Public Private
Partnership framework, financial institutions should seize the
opportunity by participating in public private partnership
projects by investing in “green bonds” for financing
infrastructure development such as geothermal and wind energy.
However, it should be appreciated that financial institutions still
require support in terms of product development, structuring and
risk management. That is why the coming together of UNEP and
IFC to encourage sustainable finance in Kenya is a move worthy
of praise.
Ladies and Gentlemen: As I conclude, let me emphasize that
sustainable development is quite important in this region. The
sustainable development agenda therefore constitutes both a

challenge and an opportunity for the financial sector. I urge you
all, as players in the sector, to take up this challenge by joining
hands with the Government and other players to realize the
agenda. The Central Bank will keenly listen to the proceedings
today to identify specific policy options, regulatory barriers and
other opportunities it can use to promote and enhance
sustainable finance in Kenya.
With these remarks, Ladies and Gentlemen, I look forward to
fruitful deliberations.
Thank You.