CENTRAL BANK OF KENYA
Speech by
PROF. NJUGUNA NDUNG’U
GOVERNOR
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Kenya School of Monetary Studies, Nairobi
May 25th, 2009

Governor’s Speech at the Mobile Banking Conference 2009, May 25, 2009
Hon. Uhuru Kenyatta, Deputy Prime Minister and Minister for Finance;
Distinguished Faculty Members from the Fletcher School, Tufts
University;
Executive Director, Kenya School of Monetary Studies;
Distinguished Guests;
Ladies and Gentlemen:
It is my great pleasure to warmly welcome you all to the Official Opening
Ceremony of the Kenya School of Monetary Studies/Fletcher School Mobile
Banking Conference 2009. I thank all those present here today for accepting our
invitation. Allow me in particular to thank the Honorable Deputy Prime Minister
and Minister for Finance for agreeing to preside over the official opening
ceremony.
On the same note, I take this opportunity to thank my colleagues at the Kenya
School of Monetary Studies, the Central Bank of Kenya, and of course the
Fletcher School (Tufts University). In addition, I thank all the resource persons for
the extensive collaborative initiatives towards this historical event. The focus of
this Conference is on the emerging and important issue of branchless banking and
more specifically on the theme of balancing innovation and regulation. But even
more importantly, it is an indirect challenge for regulators to come together as the
market innovates and rules are modified.
The Conference brings together bankers, regulators, industry practitioners,
telecommunication players, researchers, academics, policy makers and the media
to discuss this critical agenda. The expected outcomes from this Conference are
policy responses for both the public and private sectors geared towards providing
safe, efficient, affordable and accessible financial services through branchless
banking models.

Governor’s Speech at the Mobile Banking Conference 2009, May 25, 2009
Honorable Deputy Prime Minister and Minister for Finance: We have in
the recent past witnessed a phenomenal growth in the use of mobile phones for
money transfer, a banking service. We have also seen that mobile phone money
transfer networks can only work with a banking platform. For this reason, a
number of banks in Kenya have added mobile banking to their delivery channels.
This is an important development for our financial sector for the following key
reasons:-
• First, it offers convenient access to financial services to all current and
prospective customers of banks with access to mobile phones. With customers’
affinity for mobile phones, they are able to access banking services on a 24-7
basis for services that range from basic funds transfer to settlement of financial
obligations.
• Second, Banking the unbanked - The proportion of Kenya’s population
with bank accounts stands at 6.4 million. The number of mobile phone
subscribers on the other hand has risen to over 11 million and continues to
grow. This is a clear indication that a more elaborate structure of mobile
banking has the potential to reduce the number of unbanked Kenyans.
• Third, cost effective delivery through agency platforms.
• Finally, we note that mobile phone money transfer is not an alternative bank
account, but a service for money transfer. This Conference can add value in
mobile banking innovation where accounts in different branches and banks
use mobile phones for transactions.
Ladies and Gentlemen: The Central Bank welcomes these innovations by the
Banking sector and other financial service providers. It is the responsibility of the
Central Bank to ensure that these services are provided in a safe and efficient
manner by commercial banks. Towards this end, the Bank reviews these banking
products before their introduction to ensure they comply with the existing
prudential and statutory banking sector requirements. In particular, the Central
Bank’s review process focuses on:-

Governor’s Speech at the Mobile Banking Conference 2009, May 25, 2009
• Adherence to Risk Management Guidelines issued by the Central Bank that
require banks to identify, measure, and mitigate the risks they face in their
operations. For mobile banking solutions, just like other solutions, banks must
demonstrate that they will adequately mitigate the operational frauds,
continuity of business information security and reputational risks that are
inherent in these solutions.
• With regard to Anti-Money Laundering, these solutions are subject to
Prudential Guidelines that detail minimum, “Know Your Customer (KYC)”
requirements that banking institutions should adhere to. The overarching
objective of the KYC guideline is to ensure that our banking system is not used
for money laundering purposes.
Ladies and Gentlemen: After the launch of mobile banking solutions, the
Central Bank continues to monitor them in order to ensure their safety through
ongoing onsite and offsite surveillance. In a nutshell, there is an existing
supervisory framework to ensure the safety of mobile banking solutions offered by
banks. This framework will continue to be reviewed in line with the dynamics in
the mobile banking space. Other regulators also come in to support CBK, like the
Communication Commission of Kenya that licenses mobile phone money transfer
services.
Honorable Deputy Prime Minister and Minister for Finance: Kenya has
also seen the successful launch of mobile phone money transfer services
spearheaded by telecommunication players such as Safaricom, and others have
joined in this lucrative business. It is important to note that the Central Bank
continues to engage these players through frequent evaluations for purposes of
safety and efficiency. The evaluation focuses on liquidity management, settlement
risks, system reliability, system audit trail, anti-money laundering and consumer
protection issues. In addition, it is equally important to note that safe and efficient

Governor’s Speech at the Mobile Banking Conference 2009, May 25, 2009
payment systems are essential for the proper functioning of the financial market
and are necessary for the implementation of monetary policy.
More importantly, allow me to underscore that the funds underlying these
emerging mobile phone money transfer services are ultimately held by a
commercial bank under specified conditions that is within the purview of the
Central Bank. Going forward, we will continue to work with other players to put in
place an enabling legal and regulatory environment to catalyze mobile banking.
Specific initiatives in this regard include:-
• The National Payments System Bill which will strengthen the oversight
mandate of the Central Bank over the payments, clearing and settlement
system.
• The Proceeds of Crime and Anti-Money Laundering Bill, 2008 that will
strengthen the anti-money laundering legal and regulatory framework.
• The Banking Act to enable banks use non-bank agents such as SACCOs to
extend their outreach. Such agents could leverage on mobile banking
technologies to cost effectively provide services on behalf of the banks.
Honorable Deputy Prime Minister and Minister for Finance: Given this
innovation and its attendant challenges, the Central Bank, as will be demonstrated
in this workshop, aims at encouraging dialogue between different market players
across Kenya and within the region. This dialogue takes cognizance of a dynamic
market environment, paying special attention to innovation that may have
significant macroeconomic benefits to all. We are therefore keen to draw on the
policy debate arising from this Conference to move financial services in Kenya to
new frontiers.
This Conference is benefiting from the regional role of The Kenya School of
Monetary Studies as a premier capacity building institution. KSMS is a training
and a research centre. Through this collaboration with Fletcher School (Tufts
University), the Kenya School of Monetary Studies has brought together

Governor’s Speech at the Mobile Banking Conference 2009, May 25, 2009
participants from many countries to share experiences with a view to developing
best practices for the integrated global markets. The proposals from this
Conference must of course straddle the delicate balance between innovation and
regulation to always ensure that public interest is upheld and financial stability is
maintained.
With these remarks, Ladies and Gentlemen, I wish you all fruitful discussions
and hope that this Conference will serve as the beginning of long-term
collaboration in M-banking to provide solutions to challenges facing not only
Kenya, but also other African countries.
It is now my pleasant and honorable duty to welcome Honorable Uhuru Kenyatta,
the Deputy Prime Minister and Minister for Finance to officially open the
Conference.
Honorable Minister, you have the floor.