Njuguna Ndung'u: Financal services sector - steering the economy to
the next level
Remarks by Prof Njuguna Ndung'u, Governor of the Central Bank of Kenya, during the
4th Institute of Certified Public Accountants of Kenya (ICPAK) Financial Services Conference
"Financal services sector - steering the economy to the next level", Nairobi, 4 July 2012.
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Mr. Patrick Mtange, Chairman, Institute of Certified Public Accountants of Kenya;
Ms. Caroline Kigen, Chief Executive Officer, ICPAK;
Distinguished Guests;
Ladies and Gentlemen:
It gives me great pleasure to be here today to open this 4th Financial Services Conference.
Let me at the outset thank the Institute of Certified Public Accountants of Kenya for
organizing this forum and particularly for the choice of the theme "Financial Services
Sector: Steering the Economy to the Next Level ". At the Central Bank we work on the
subject at the policy level with patriotic interest.
Ladies and Gentlemen: For our country to develop and realize the aspirations of Vision
2030, the financial services sector must take the lead in steering the economy "to the next
level". Towards this goal, it is critical to keep in focus the vision for the financial sector as
contained in the Vision 2030 blueprint that is, to create a vibrant and globally competitive
financial sector.
Ladies and Gentlemen: In pursuit of this vision, the Central Bank in collaboration with the
government and market players continues to play a pro-active role in initiating the necessary
reforms geared towards creating an enabling environment. Significant progress has been
made on these initiatives but at the outset, we need to recognize that it is financial inclusion
that will provide the gateway. The progress made so far shows that financial inclusion is a
major public policy instrument. Several successes can be listed on this front:
I. Licensing of Deposit Taking Microfinance Institutions (DTMs)
Since 2008 when the DTMs regulatory framework became effective, 6 DTMs have been
licensed and two granted approval in principle. As at the end of May 2012, the 6 licensed
DTMs had 63 branches and 1.56 million deposit accounts with deposits worth over
Ksh.11.6 billion. They also had 495,840 loan accounts with an outstanding loan portfolio of
over Ksh.17.7 billion. This is significant progress given that banks in total only have
2.1 million loan accounts.
The DTMs provide an avenue of reaching out to the lower levels of the population given that
our markets are segmented, requiring different and more specialized actors in some
segments. DTMs can be community based or nationwide with different core capital
requirements of Ksh.30 million and Ksh.60 million, respectively.
II. Agency banking
Effective 2nd January 2012, DTMs were allowed to appoint third parties (agents) to offer
specified DTM services on their behalf. This followed the successful rollout of agent banking
by banks effective May 2010. So far eleven (11) banks have been granted approval to roll
out their agency networks. Eight (8) of these banks have appointed 11,176 agents, which
had executed over 18.6 million transactions valued at over Ksh.93.1 billion over the two year
period to May 2012.
III. Mobile phone financial services
There has been tremendous growth in Mobile phone financial services in the country.
Consequently, a number of institutions have initiated various innovations and new products
to conveniently serve their customers and reduce the long queues that were previously
experienced in banking halls. Mobile phone money transfer services have been a
phenomenal success and have put the country at the global centre stage of financial
inclusion and innovation.
In a country like ours with remote corners not served by financial institutions, Mobile
Financial Services has provided the answer. More importantly, our banks have easily
integrated into their financial services with these technological platforms. The up-scaled level
is now to use mobile phones to send money to savings accounts and credit provision through
the same channels. This is already taking place with M-Kesho type of products in the market.
IV. Credit information sharing
The Credit Information Sharing (CIS) mechanism for banking institutions has successfully
taken root with mandatory sharing of negative information on a monthly basis. All the
43 licensed commercial banks in Kenya and institutions under the Deposit Protection Fund
Board have been submitting negative credit information to the licensed Credit Reference
Bureaus (CRBs) within the required timeframes.
The Banking Act and the Central Bank of Kenya Act have now been amended to allow
institutions licensed under both the Banking Act and the Microfinance Act to share both
positive and negative credit information of their customers. This will go a long way in
enriching the CRBs database for the benefit of the entire banking sector and create
objectivity in reporting. Credit information sharing allows the market to build information
capital for the financial sector in Kenya. This will help build credit histories of borrowers and
support a change of collateral technology in use currently. Development of information
capital will remove information asymmetry that promotes moral hazard and adverse selection
consequences in the financial market.
V. East Africa community harmonization of legal and prudential supervisory
rules and practices
As part of the ongoing integration of the East African Community (EAC) member states, the
EAC Central Banks are in the process of harmonizing their supervisory prudential rules. This
will enhance the performance of Kenyan banks covering the EAC region.
The harmonization process has already identified the key aspects of divergence that require
harmonization. A draft convergence criteria based on international best practice as well as
feedback from players in the banking industries of member countries has been developed.
VI. Anti-money laundering framework
Following the operationalisation of the Proceeds of Crime and Anti-Money Laundering Act,
2009 effective 28th June 2010, the Financial Reporting Centre (FRC) was created on
12th April 2012. The Central Bank and the Ministry of Finance seconded staff to facilitate the
setting up of the FRC. The CBK has continued to undertake public sensitization on the AML
regulatory framework including the establishment of the FRC. This is to safeguard the
credibility of the financial sector as we push our financial inclusion agenda and goals forward.
Ladies and Gentlemen: In order for us to appreciate where we have came from; allow me to
mention some key indicators of financial performance:
Total Assets of banks have increased from Ksh.951 billion as at December 2007 to
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Ksh.2.12 trillion in April 2012, an increase of 123%.
 The loan portfolio in the same period has increased from Ksh.534 billion in
December 2007 to Ksh.1.26 trillion in April 2012, an increase of 136%
 Banks' branch network has increased from 740 to 1200 currently, while we also
have more than 10,000 Agents now in operation
 Mobile phone financial services have 19 million subscribers to date transacting an
average of Ksh.3.0 billion every day
 Increase in the number of bank deposit accounts from 4.7 million in 2007 to
14 million in April 2012, a phenomenal increase of almost 300%. While the deposit
values have grown from Ksh. 710 billion in 2007 to Ksh.1.6 trillion in April 2012, an
increase of 125%.
 Loan and Advances accounts have increased from 1.2 million in 2007 to 2.1 million
currently.
Ladies and Gentlemen: These statistics show a phenomenal growth in less than five years.
In 2010, the financial sector grew by 8.8% while the economy grew by 5.6%. In 2011, the
financial sector grew by 7.8% and the economy by 4.4%. This shows that the financial sector
is deepening and that its growth is pulling the national economic growth with it. As the
economy continues to recover and the government is rolling out infrastructure projects to
increase the capacity for future economic growth, the financial sector will thrive and must
stand ready to finance long-term projects to support this growth of the economy.
Indeed this impressive performance is an indication of our growing economy but also
supported by the prudent risk management and regulatory reforms that continue to be put in
place in line with best practice. As efforts progress towards a more developed financial
sector, there is need to ensure fairness and transparency. The public needs to be furnished
with reliable and adequate financial information.
While discharging your duties therefore, be it as accountants, auditors or advisers of financial
institutions, bear in mind that you play a critical role towards protecting and guiding the sector
in the development of our economy. The constitution has two important contributions on this:
the Competition Policy (that lowers unit cost) and Consumer Protection. These two important
aspects will drive a healthy balance for the sector and the consumers of financial services.
As ICPAK theme this year is in these lines, we consider you as partners in this important
journey.
Ladies and Gentlemen: The Central Bank in conjunction with Government and all other
stakeholders in the financial sector will continue the policy path of maintaining
macroeconomic stability for development and financial inclusion for financial deepening and
development even with frequent occurrences of economic shocks.
Ladies and Gentlemen: It is now my honor and privilege to declare this conference with a
very enviable theme officially open and to wish you fruitful deliberations.
Thank you