of minimum balances has supported financial reach. banks have taken their services to the customers due to increasing competition and improvements in the delivery channels. banks are opening and re - opening branches in areas with none or few branches. efficiency is achieved when there are strong institutions with requisite capacity to satisfy market needs while complying with statutory and prudential requirements. ladies and gentlemen : one of the main challenges of monetary policy has been the presence of currency outside banks. in march 2008, it was ksh. 9 billion above the central bank target. however, in march 2010 it was ksh. 4. 9 billion below cbk target as a result of banks increased coverage of rural and low income areas. ladies and gentlemen ; financial sector reforms are far from being accomplished. given the changing dynamics of the economy and its growing complexities, the financial industry has to remain responsive and supportive of the broader economic ambitions and agenda. all the major players and stakeholders in the banking system will have to strive for continuity, broadening and deepening of reforms ; build and sustain the already implemented reforms and fill the remaining gaps. the growing competition along with increasingly diversified services both across the regions and sectors, as well as improved access to customer - base on the back of progressive reliance on technology, are the harbingers of the changing and efficient intermediation role of banks in the days ahead. the central bank is committed to reforms in the banking industry towards enhanced competitiveness. in line with this, the central bank has earmarked amendments to the banking act and microfinance act going forward. the amendments to the banking act and microfinance act are expected to further enhance efficiency and competitiveness of our financial sector. cbk in collaboration with the government and the market players will enhance its efforts in addressing other structural rigidities that contribute to market inefficiencies to take stock of developments as well as other emerging constraints. before i conclude, ladies and gentlemen, let me once again take this opportunity to reiterate the critical role of the financial sector in africa ’ s economic development. this potential can only be realized when african policymakers implement reforms to remove binding constraints in the sector. i am sure that in this gathering we have the capacity to identify those constraints to unleash africa ’ s potential. finally, i do hope that you will find time in your busy schedules to enjoy our world renown beaches. i wish you fruitful deliberations. thank you!

us here in kenya, we remain committed to fostering a stable market - based financial system as mandated by law. an efficient financial system collects and collates deposits from micro - savers and channels them to investors. this is the intermediation process. this process allows economic agents to evaluate the risks and prices in the market and align their investment portfolio and investment gestation. the kenyan case is both interesting as well as a policy strategy. it reflects a case of segmented markets. but the cost of credit and interest rates spread remains high. the spread is a major challenge in the banking sector because it acts as an impediment to expansion of credit and development of financial intermediation and signals inefficiency in the sector. the challenge for a policymaker is to develop a financial sector that answers to the challenges of the economy. in order to address market inefficiencies, the central bank and other stakeholders have undertaken significant reforms for the banking sector. these reforms include the operationalisation of the credit reference bureaus, payment systems improvements, opening of new currency centres, automation of trading system for treasury bonds, and the activation of horizontal repos. i will spend the next few minutes to highlight these initiatives. operationalisation of credit referencing mechanism : the banking ( credit reference bureau ) regulations were operationalised on 2nd february 2009. this will facilitate the sharing of credit information by institutions licensed under the banking act. this link will allow the industry to build information capital that is critical in the credit market. it will also enhance access to credit by smes and individuals that have been constrained by lack of physical collateral. further, the banking sector will be able to address the problem of non - performing loans at the origination point as credit history of applicants will be taken into account during the credit appraisal process. licensing of deposit taking microfinance institutions : the microfinance act was operationalised effective may 2008. currently, one institution has been licensed and eight applications for license are being processed. with the unique business models of microfinance institutions mainly targeted at the lower end of the market, bringing them under the purview of the central bank will not only give them a legal basis in dealing with depositors but will also boost access to formal financial services by the populace. deposit taking microfinance institutions are free to be community - based or nationwide. the national payments system sits at the centre of the financial system. it is imperative that payments systems are secure and efficient.