Patrick Njoroge: Developing robust and sustainable strategies for
microfinance in Kenya
Opening remarks by Dr Patrick Njoroge, Governor of the Central Bank of Kenya, at the
Microfinance Training Course for Policy and Development 2016, organised by the Alliance
Forum Foundation, held at the Kenya School of Monetary Studies, Nairobi, 24 February 2016.
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Distinguished Guests;
Ladies and Gentlemen:
On behalf of the Central Bank of Kenya, let me join my colleagues in welcoming you to this
workshop aimed at developing a strategy to enhance financial inclusion in the COMESA
region. The strategy will be underpinned by an enabling regulatory and supervisory framework
for Microfinance Institutions. I understand that the strategy is based on the draft proceedings
of Microfinance Training Course for Policy and Development, which was held in December
2014 in Lusaka. At the outset, let me commend the COMESA Monetary Institute, the African
Development Bank and the Alliance Forum Foundation, for the work done so far.
Establishing a financially inclusive ecosystem that does not marginalize people on the basis of
income or geographical location has become a policy concern for many countries in the world,
including COMESA member countries. Financial inclusion has gained traction over the recent
years as a priority area for policymakers and regulators within the financial services sector.
The various initiatives that have been undertaken by different stakeholders, to enhance access
and usage of formal financial services, have led to a significant reduction in the global
population that is financially excluded. The Global Findex Report (2014), spearheaded by the
World Bank, estimates that between 2011 and 2014, the number of adults without a bank
account dropped by 20 percent, to 2 billion. The enhanced access is attributed largely to a
significant growth in account penetration and innovations in technology, especially mobile
money and agency banking. However, it is time now to shift the focus away from access and
towards quality breadth of services.
In Kenya, the outcomes of the various initiatives, some of which will be highlighted in this
workshop, have been remarkable. Noteworthy progress includes, the increase in the banked
population from 24 percent to 67 percent between 2006 and 2013 as highlighted by the
FinAccess Surveys conducted by FSD Kenya between 2006 and 2013. A Geospatial Survey
that was conducted in 2013 also estimates that 76.7 percent of the Kenyan population is within
a 5km radius of a financial access point. However, despite the noticeable progress in recent
years, 25 percent of the Kenyan population still remains unbanked.
The existence of national strategies that promote financial inclusion are critical to enhancing
access to a diverse range of financial products to the unbanked in Kenya, the mandate of the
Government to enhance the deepening of financial markets by fostering access, efficiency and
stability is captured under Kenya's Vision 2030.
The Central Bank's approach to achieving its role under Vision 2030, is centered on the
promotion of an enabling legal and regulatory framework that fosters the development of a
diverse range of financial service providers, while guaranteeing its dual mandate of financial
stability and financial integrity. Central to this objective has been the licensing and regulation
of microfinance banks. The first microfinance bank in Kenya was licensed in May, 2009. This
paved the way for 11 other microfinance banks which have been licenced to date.
The 12 licenced microfinance banks have made a significant contribution to financial inclusion
in Kenya. This is evidenced by the number of active deposit and loan accounts as at December
2015 which was 931,585 and 342,481 respectively. In value terms, this represented
Ksh.40.5 billion in deposits and Ksh.46.9 billion in advances. Further, Microfinance Banks had
a footprint of 109 branches and 1,154 agents as at December 2015.
While commendable achievements have been made in the past 6 years, the microfinance
sector in Kenya still has considerable opportunities and challenges that institutions need to
tackle in order to realize their full potential. Key amongst these challenges include the high
cost of credit, inadequate products and services, and weak consumer protection frameworks.
Microfinance institutions must be willing to make a difference if the full benefits of microfinance
and financial inclusion are to be realized. Microfinance institutions must be prepared to employ
innovative delivery channels to reduce their operational costs, and thereby enhance their reach
and efficiency. An essential element in this process is recognizing the characteristics of the
customers of these institutions and tailoring lending mechanisms to meet their situations.
Policymakers, on their part, should support the development of appropriate support
infrastructure to facilitate the last mile delivery of suitable financial services. Therefore, the
development of proportionate, risk-based, regulations by policymakers is critical to
guaranteeing the development of a dynamic, robust and sustainable microfinance framework
for a country.
The starting point towards this collaborative structure is a consultative process to developing
a forward-looking framework for regulation and supervision of microfinance institutions.
Developing laws and regulations that facilitate financial inclusion and the involvement of
diverse institutions in the microfinance sector will go a long way to enhance provision of
diversified microfinance services in a sustainable basis for the economically active poor and
low income households.
As I conclude, my expectation is that the ideas to be presented and discussed over the next
few days will form the basis for development of robust and sustainable national strategies for
microfinance. I hope that by the end of this workshop, you will have come up with a Model
COMESA Strategy for Microfinance Regulation and Supervision that will enhance financial
inclusion in the region.
Such a model strategy will not only provide a yardstick for microfinance regulation and
supervision but will also go a long way in the harmonization and convergence of these
practices, and ultimately contribute to monetary integration in the COMESA region. You have
an opportunity to share experiences and assess a range of novel policy interventions that allow
the unlocking of the benefits of financial services innovations.
I wish you fruitful deliberations over the next few days and I look forward to the outcomes of
your deliberations.
Thank you.