CENTRAL BANK OF KENYA
INTERNATIONAL MONEY TRANSFER AND CROSS BORDER PAYMENT
CONFERENCE (IMTC)
Crowne Plaza Hotel, Nairobi
Remarks by Dr. Patrick Njoroge
Governor of the Central Bank of Kenya
September 21, 2017
As Prepared for Delivery
Good morning, ladies and gentlemen! It is a great pleasure for me to join you at this
conference. Let me begin by thanking the conference organizers for the invitation, and
for giving me the opportunity to interact with the distinguished participants. We feel
particularly privileged to host this inaugural IMTC Africa Conference in Nairobi. It is
equally significant for the East African region, which increasingly is viewed as an
attractive destination for business and investments. This conference therefore provides
an excellent opportunity to reflect on the important topics of remittances and crossborder payments, the challenges and opportunities that lie ahead.
The beginnings of our banking system is intertwined with remittances and cross
border payments. The first bank in Kenya was established in 1896, to facilitate
sending money home by Indian workers that were building the railway through
Kenya, and also to support trade in the Europe-South Africa-India axis. A lot has
changed since then. A hundred years ago, remittances depended on the movement of a
written instruction over sea and land. It could take months and the transaction faced
many perils. Today, transfers are virtually instantaneous and current protocols ensure
certainty of the transfer. Customers’ interest in a secure and inexpensive remittance
channel remain unchanged.
The importance of cross border payments cannot be overemphasized. Remittance
flows to developing countries amounted to US$429 billion in 2016, more than twice
the amount of foreign aid that these countries received, and have become an important

source of foreign exchange.1 Similarly, remittance to Sub-Saharan Africa (SSA)
amounted to US$33 billion in 2016. These remittances are a critical source of income
for many households and provide a highly beneficial insurance function.
Innovations in digital financial services have been transforming the remittance
industry. For Kenya, prior to 2013 when Money Remittance Regulations were issued,
remittance flows were largely through informal channels as banks were deemed
prohibitively expensive. Since then domestic money transfer products such as M-Pesa
have evolved to become convenient and reliable platforms which with the expansion
of mobile phone technology are now available to large segments of the population.
For instance, Kenya has a mobile phone penetration rate of 89 percent compared to
the Sub-Sahara Africa average of 43 percent, and 85 percent of all financial
transactions are conducted through the mobile transfer platforms though they
comprise only 9 percent of the total value. These providers are now broadening the
channels of international money transfers, and the Central Bank of Kenya (CBK) has
approved their partnering with various international money transfer institutions.
Nevertheless, there are some issues of concern alongside these positive developments.
These need to be kept in mind and addressed in a concerted manner, and I offer some
reflections on a few of them.
First, the cost of remittances remains very high, at an estimated 7.32 percent
globally and 9.42 percent for SSA, and needs to be lowered quickly.2 These costs
are charged largely by the originating institutions in countries where the traditional
structures and institutions such as banks remain dominant. However, the ease and
cost of remittance transfers also has a significant impact on the welfare of the
many households that rely on these flows. The regionalization of money
remittance services and modernization of cross border payment platforms would
certainly facilitate a lowering of the cost of remittances. Nevertheless, it is
imperative that innovative ways be found to further lower these cost towards the
Sustainable Development Goal (SDG) target of 3 percent. Therefore the
fundamental question is what will each agent along the transfer chain do so as to
reduce the overall cost to the consumer and how will innovations assist in this
process?
1 World Bank Group, Migration and Remittances: Recent Developments and Outlook, April 2017
2 World Bank Group, Remittance Prices Worldwide, June 2017

Second, the Anti-Money Laundering and Combating the Financing of Terrorism
(AML/CFT) framework needs to be improved continuously. This would ensure the
adoption of best practices and, inter alia, lead to compliance with the AML/CFT
requirements and the fostering of an enabling environment for remittances. On the
other hand, if progress in this area is not forthcoming, those jurisdictions would
face the prospect of de-risking—a termination of their correspondent banking
relationships, a withdrawal of foreign banks, or the imposition of other restrictions
due to the perceived risks to money laundering and terrorism financing.
In many ways de-risking has been attributed to the misapplication of AML/CFT
measures and to address this concern the Financial Action Task Force (FATF), the
international standard setter, has advocated that countries fully implement a riskbased approach to combating money laundering and terrorism financing. To this
end, the CBK has adopted a Risk-Based Supervisory Framework for AML/CFT.
This framework complements the existing framework on prudential supervision
and legal compliance with special attention directed to anti-money laundering and
combating financing of terrorism. Nevertheless, all agents have a responsibility in
reducing AML/CFT risks and building a robust framework for cross-border
payments.
Third, financial sector regulators need to remain vigilant on potential risks, while
safeguarding an effective processing of payments and ensuring that a consumerfocused environment is maintained. As a regulator, financial stability continues to
be our primary objective, regardless of the transaction channels that are deployed.
However, cyber security and data privacy continue to pose the greatest concerns in
terms of the efficacy of regulatory protections, and further concerted work is called
for. There is certainly a lot of room for peer learning.
These are the issues that will likely come up in your discussions, and I hope a way
forward will be found. I look forward to interesting and lively interactions, but more
importantly, to learning from your diverse experiences in this area.
Once again, I am grateful for this opportunity to engage with you. Thank you for your
attention!