: i am happy to assure the microfinance industry that the central bank will continue to initiate key reforms and structural changes that are necessary in the sector ’ s legal, regulatory and supervisory frameworks. as you are aware, key among these legislative changes was the specific amendment to the microfinance act in january 2011 that introduced agency definition. the amendment anchored agency business in the law and, the central bank is in the process of designing guidelines to facilitate the contracting of agents to provide financial services on behalf of deposit taking microfinance institutions. the move will undoubtedly allow microfinance institutions to leverage on additional cost effective distribution channels to offer financial services. this initiative is informed by the need to leapfrog access to financial services to kenya ’ s bankable who remain totally outside the orbit of these services at affordable cost. ladies and gentlemen : another remarkable initiative in the pipeline is in the area of credit information sharing ( cis ) for microfinance institutions. as you are aware, the cis mechanism is already in place for commercial banks. the central bank is currently working on modalities of incorporating the deposit taking microfinance institutions into the cis mechanism. indeed, it is the government ’ s intention to create a framework whereby all financial institutions such as banks, deposit - taking microfinance institutions, sacco ’ s and other licensed credit providers will have access to and exchange credit information across the board. it is hoped that the merging of credit information from these various players will provide for a stronger credit market that will improve the pool of credible borrowers, decrease defaults, reduce credit costs and ultimately result in a stable financial sector. before i conclude, ladies and gentlemen, i would like to once again congratulate smep dtm for its achievement as a deposit taking microfinance institution. on its part, the central bank would like to assure smep and the industry and all the stakeholders of its continued support in the development of the microfinance industry and look forward to working collaboratively with the market to increase access to financial services in the country. the central bank is out to create strong financial institutions. indeed, the new constitution has provided us the wonderful space to create strong institutions. strong institutions both from the regulator and the regulated will support the market, define appropriate incentives ( and for a regulator, define appropriate penalties as well ) to encourage prudent behavior in the market. that is the way we can develop and deepen the financial market. with those few remarks, ladies and

kenyan banking sector registered an increase in asset base largely supported by growth in deposits. assets increased by 20. 8 percent to stand at ksh. 1. 5 trillion while deposits increased by 22. 8 percent to ksh. 1. 1 trillion. this growth is by and large attributed to the growth of our economy that increases opportunities for investment and demand for credit. the central bank is pleased to note that the banking sector has put up strategies that support and stimulate the economy and responded positively to the successive reduction of the central bank rate and cash reserve ratio. while it is noteworthy and encouraging for banks to post healthy profits, this should also go in tandem with the reduction of lending rates to stimulate private sector borrowing and financing of investments, working capital as well as reducing the risks of default. at this juncture i want to register my compliments to fina bank for having reduced its base lending rate to 14. 75 percent. i am sure there is room to do more. the continued lowering of base lending rates by commercial banks will not only stimulate our economy but also reduce non - performing loans in the industry. however, lending rates reduces the risk of default. ladies and gentlemen, the central bank will endeavour to pursue prudent policies that foster financial stability, increase financial inclusion and improve financial efficiency. let me at this juncture highlight two policy issues that are at the heart of the of financial inclusion ; agent banking model : an amendment to the banking act through the finance act 2009 has enabled the banking industry embrace agent banking. agent banking will permit banks to contract third parties to provide certain banking services on their behalf without having to put up brick and mortar. this model will therefore increase financial inclusion to the majority of the unbanked kenyans at an affordable cost to both the bank and the customer. the central bank is pleased by the level of interest and financial innovation the model has generated. credit reference bureaus : to ensure the growth of credit lending at affordable and sustainable rates, the central bank has licensed the first credit reference bureau ( crb ) and a few more are in the pipeline. a robust credit information apparatus will enable the banking industry share critical customer information that will lead to lowering the credit risk in the industry and hence the lowering of lending rates in the banking industry. this policy aims at building information capital that will allow the credit market to function properly and efficiently and change the collateral technology and reduce the cost of collateralization. the central bank of kenya will continue to pursue policies that drive financial