CENTRAL BANK OF KENYA
Address by
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Windsor Golf & Country Club
Wednesday, December 1, 2010

Mr. Jim Wolfensohn, Senior Advisor, Citigroup;
Mr. Jay Collins, Public Sector Head-Citigroup;
Mr. Jean-Claude Massangu-Mulongo, Governor of the Central Bank of
the Democratic Republic of Congo;
Mr. Ade Ayeyemi, Outgoing Chief Executive, Citibank, Kenya;
Mr. Daniel Connelly, Incoming Chief Executive, Citibank, Kenya;
Distinguished Guests;
Ladies and Gentlemen:
1. It is my pleasure to be here today at this mobile phone policy forum to offer my
thoughts on this recent development in Kenya and Africa. Let me at the outset
thank the United States Department of State, the GSMA and Citibank for
organizing this mobile policy forum in Nairobi.
2. Ladies and Gentlemen, I am informed that the objective of this forum is to act
as a catalyst to expedite mobile commerce implementation in Africa as well as to
share best practices and experience. The choice of hosting this forum in Kenya is
indeed appropriate as mobile phones have had a profound impact on Kenyan
households in transferring money and providing the link to bank accounts. This
is where our drive to financial inclusion has succeeded.
3. As you may be aware, more than 80 percent of households in Africa do not have
access to financial services and expanding basic financial services has the
potential to lift the majority of the population out of poverty and build better
lives. I am sure, we all agree that one of the primary impediments to providing
financial services to the poor through commercial bank branches is the high cost
inherent in these traditional banking methods, but critically also banks have been
left behind stuck with high entry barriers of minimum balances and ledger fees,
until the MFI models came along. But further developments in the emerging
technologies such as mobile phones have further enabled financial services to be
provided on a timely basis and at an affordable price so as to reach the financially
excluded households; this has solved the cost problem as well as the physical
distance constraints.

4. Ladies and Gentlemen, In Kenya, the commitment to the financial inclusion
agenda is reflected by the following policy initiatives that the Central Bank of
Kenya has undertaken:-
(a) The pilot test and launch of the first mobile phone product in March 2007. To
the market amazement, it was simple and effective.
(b) The product’s origin was a pilot test in 2004/5 for repayments of loans for
borrowers of a microfinance institution using mobile phones and the network
of mobile airtime agents. The success of the pilot demonstrated how the
mobile phone could be used to reduce barriers to entry that deter financial
inclusion.
(c) Second, the framework for supervision and regulation of deposit taking
microfinance became operational in 2008 to enable the provision of safe and
reliable microfinance services. The Central Bank has so far licensed three
Deposit Taking Microfinance institutions with over 30 branches to serve low
income segments in rural and peri urban areas.
(d) Third, the Central Bank has recently amended the Bank’s delivery channels
regulatory framework to ensure widespread access to financial services by
allowing for agent banking. The rollout of the agent banking model seeks to
address the challenges of high transaction costs arising from the lack of
proximity of financial services and rolling out brick and mortar branches
where they may not be economic to do so. So far over 8,000 agents of
commercial banks have been approved by the Bank.
(e) Fourth, the Central Bank has also continued to facilitate an environment that
allows for a diverse range of financial services providers to thrive and
compete. In this regard, it has provided space for innovation by mobile
financial services that have resulted in over 15 million subscribers being
integrated to the financial system. The increased usage of mobile phone
banking services has increased the access of financial services in remote areas.
(f) Finally, the Central Bank has supported the development of the financial
infrastructure to facilitate the operations of commercial banks. A hurdle to
accessing finance in Kenya has been the lack of credit history. The information
asymmetry problem provides us with a difficult and cumbersome collateral
process. In this regard, the rollout of the credit information sharing
mechanism in July, 2010 seeks to build information capital and reduce

information asymmetry thus promoting access to credit. So far, commercial
banks have accessed over 150,000 credit reports from the licensed credit
reference bureau. We do hope that it is now possible to change the collateral
technology now in use.
5. Ladies and Gentlemen, The Central Bank’s objective of supporting the
development of mobile money in Kenya is guided by its mandate to promote and
oversee the development of a safe, sound and efficient payment system. In this
regard, the Bank has drafted a National Payment System Bill that provides for
designation of payment instruments. The Bill provides for the issuance of specific
directives regarding payment systems and also empowers the Central Bank to
undertake oversight and intervene in the interest of the public. The Bill is
expected to enter the parliamentary process and be enacted in 2011.
6. The Central Bank of Kenya has so far focused on better regulation, knowing the
legal hundles when we transcend between banking regulations and payment
regulations. Without such widespread use of agents, it is unlikely that mobile
payments would be as pervasive as they are today. The agents play two essential
functions which are to open e-money accounts and exchange e-money for cash
and vice versa. Currently, no regulation applies to the operation of these agents
as opposed to the guidelines allowing banks to appoint agents for deposit taking.
Going forward, the key consideration to reviewing the current regulatory
framework will be based on understanding of the relative risks that the different
agents pose so as to ensure a level playing field and foster financial inclusion.
For CBK, better regulation as opposed to move regulation means creating space
for innovation but also being ready and with adequate instruments to deal with
the systems vulnerabilities.
7. The Central Bank’s policy therefore for the oversight of payment systems will be
to follow internationally agreed good practices and standards. However, I must
be quick to point out that there are presently few recognised practices and
standards in regulating mobile phone payment services. The Central Bank has so
far followed a test and learn approach with respect to mobile phone payments.
However, in the face of the ongoing dynamic change and innovations, the Central
Bank will consult widely with stakeholders in the development of new regulations
and guidelines to oversee the payment system and instruments once the Bill is
passed in Parliament.

8. Ladies and Gentlemen, let me conclude my remarks by recognising the
importance of the contribution of human capital development to the financial
services industry which is dynamic, complex and characterised by rapid product
innovation to gain and maintain market niches. To excel and produce results in
this challenging environment, the key actors in the financial services arena will
have to build and factor best practices and ensure that new technologies do not
create opportunities for abuse. I wish to therefore specifically recognise the
efforts of the organisers of this forum in taking a proactive role to facilitate
knowledge sharing so as to enhance the development of mobile money transfer in
Africa.
Thank you.