njuguna s ndung ’ u : collaboration among domestic financial sector regulators opening remarks by prof njuguna s ndung ’ u, governor of the central bank of kenya, at the 3rd joint cma / cbk / rba / ira board members seminar, mombasa, 25 march 2010. * * * board members ; colleagues ; ladies and gentlemen : 1. i am delighted and honoured to be here this evening at the commencement of this important retreat. 2. to start with, let me extend my congratulations to the board members and management of insurance regulatory authority ( ira ) for hosting the 3rd joint retreat for board members of domestic financial sector regulators. 3. allow me to take this opportunity and touch briefly on the achievements of cbk since we last met in naivasha in july 2009. 4. the monetary policy committee ( mpc ) for instance, has since september 2009 been implementing decisions aimed at signaling to the market the need to expand credit to the private sector at affordable interest rates. in an effort to make credit cost effective we have several policy initiatives : agent banking : central bank has been pursuing a policy of broadening financial inclusion to the majority of kenyans at lower costs through innovations. to this end, the finance act, 2009 amended the banking act to enable banks to use third party agents. this will enable them to leverage on additional cost effective distribution channels to offer financial services. similarly, the model will enable banks to enhance delivery of financial services by use of third parties that include some of the entities that are regulated by the other domestic regulators. credit reference bureau : to improve the living standards of the majority of kenyans, higher economic growth is required. economic growth cannot be achieved without enhanced private sector lending. in this regard and to ensure access to credit at affordable rates, a robust credit information mechanism is key. to this end, cbk licensed the first ever credit reference bureau which has already commenced operations. it is our hope that this move will positively alter the kenyan banking sector landscape and facilitate the lowering of the cost of credit. it is our belief that the experience from the banking sector credit information sharing initiative will sooner rather than later be expanded to include other lenders and utility service providers to hasten the elimination of information asymmetry and hence promote efficiency in the market. cost of collateral : institutions have on several occasions cited the cost of collateral as one of the major components contributing to high interest rates. to gain an understanding of the underlying factors in the

i have alluded to in my remarks in the recent past at other fora. the use of agents by banks should lower service delivery costs as they do not have to put up “ brick and mortar ” structures to expand their footprint across the country. it is the central banks ’ expectation that savings from such innovations will be passed on to customers in the form of lower charges and lending rates. as i draw to a close, i wish to briefly dwell on credit products. competition in the recent years coupled with aggressive marketing has increased personal loans by banks. as we have seen from the survey presentation this morning, the cost of credit is not just the lending rate but also includes other costs such as commitment fees, negotiation fees, legal, valuation and insurance fees. the challenge that we must then face is disclosure to consumers of the total effective cost of loans. in this regard, i would urge kba to require in its ’ code of conduct that banks disclose the total all inclusive “ annual percentage rate ” of credit facilities to enable customers make informed choices and avoid “ debt overloads ”. the recent years have produced results that we will quote for many years to come : a ) lowering barriers to entry : threshold of minimum balance, loan requirements, etc, improves access to financial services. b ) lowering transactions costs attracts potential micro - savers to banks. c ) banks can make profits in downstream activities. let me end by reiterating that the central bank remains committed to continued consumer education and sensitization on banking products and services in conjunction with banks, the media and other like minded players. we are convinced that this will bring on board more kenyans into the formal financial sector, uplifting their well being and enabling them to participate in and benefit from our national development aspirations. i thank you all once again for honouring our invitation and it is now my pleasant duty and honour to officially launch the survey on bank charges and lending rates. thank you.