Njuguna Ndung'u: Strategies to increase the popularity of microcredits
Introductory remarks by Prof Njuguna Ndung'u, Governor of the Central Bank of Kenya,
during the official opening of the Africa-Middle East Microcredit Summit, Nairobi, 7 April 2010.
* * *
Your Excellency Hon. Mwai Kibaki, President and Commander-In-Chief of the Armed
Forces of the Republic of Kenya;
Your Majesty Queen Sofia Margret Victoria Frederica of Spain;
Your Royal Highness Princess Maxima of the Netherlands;
Hon. Uhuru Kenyatta, Deputy Prime Minister and Minister for Finance of the Republic
of Kenya;
Prof. Muhammad Yunus, Nobel Peace Laureate and Managing Director of Grameen
Bank;
Mr. Sam Daley-Harris, Director Microcredit Summit Campaign;
Mrs. Lydia Koros, Chairperson, Association of Microfinance Institutions;
Delegates, Distinguished Guests and Participants;
Ladies and Gentlemen:
The Central Bank of Kenya is happy to be part of this very important Summit. So let me
extend a warm welcome to all the delegates who have come to this Summit. It is indeed an
honour for Kenya to host the 14th Africa-Middle East Microcredit Summit. The Summit will
focus on strategies for ensuring that the vast majority of the world's poorest households can
access markets for affordable credit.
This Summit comes at an opportune time when the microfinance industry in Kenya is
experiencing rapid changes and legislative support following the enactment of the
Microfinance Act, 2006 which became operational in May 2008. The major challenge prior to
the enactment of the Act had been lack of a specific legal and regulatory framework as well
as appropriate regulatory oversight to guide the specific operations of deposit taking
microfinance business in Kenya.
I should also point out that it was the microfinance practitioners who helped to initiate the
process of developing Kenya's microfinance legal and regulatory framework through a
consultative process.
Your Excellency; The MFI sector is now transforming to deposit taking institutions. The
Central Bank of Kenya has so far issued two licences to Faulu Kenya DTM and Kenya
Women Finance Trust DTM to conduct nationwide deposit taking microfinance business.
Further, a total of eight applications for deposit taking microfinance licences have been
received and are in different stages of review and appraisal. The Central Bank has also
approved 34 business names, which is the first step in the licensing process of DTMs.
While considerable progress has been made in licensing two DTMs, the Central Bank is
concerned at the slow uptake of this new avenue for Microfinance Institutions to be
mainstreamed into the financial sector. We are therefore engaging the microfinance industry
through its umbrella body the Association of Microfinance Institutions (AMFI). This
engagement aims at identifying the bottlenecks for Microfinance Institutions some of which
include:

Costs associated with roll out of branch networks and ICT infrastructure.

Restructuring of shareholding of Microfinance Institutions to comply with
shareholding restrictions specified in the Microfinance Act. The Act restricts
shareholding by an individual or entity to 25% of the institution's share capital.

MFIs are constituted in various forms including Non Governmental Organisations
and Trusts. Under the Act, transforming MFIs are required to be incorporated as
limited liability companies registered under the Companies Act. The incorporation
process takes considerable time and expense and may deter some MFIs from
applying for a DTM license.

Anecdotal evidence also seems to suggest a "wait and see" approach by a number
of potential deposit taking MFIs as they assess the experience and performance of
the pioneer regulated DTMs. The Central Bank would like to take upon itself the task
of dislodging the "waiting option" from this sector of the market.
The Central Bank of Kenya is currently drawing up proposals for review of the microfinance
legal and regulatory framework. I should stress that the Bank will continue to consult with
market players as this process moves forward. We therefore, look forward to drawing
valuable lessons from this Summit to enhance Kenya's microfinance legal and regulatory
framework.
We stand ready to advice, cultivate partnership and only regulate when rules are flouted.
With these few remarks, Ladies and Gentlemen, it is now my honour to welcome the
Deputy Prime Minister and Minister for Finance, Hon. Uhuru Kenyatta to make some remarks
to this Summit and to invite His Excellency the President of the Republic of Kenya to officially
open the Africa-Middle East Microcredit Summit.
Thank you.