six mainstream institutions involved in microfinance, namely equity bank ltd, cooperative bank, k - rep bank, family bank and kenya commercial bank as well as the kenya post office savings bank ( kposb ). these models have had far reaching impact while influencing the microfinance practices and outreach modalities of similar microfinance institutions within the eastern african region. this steady growth in kenya ’ s microfinance portfolio indicates that prudentially regulated and supervised institutions are more able to mobilize savings on a viable and sustainable basis. this is to say, in other words, that appropriate and effective supervision with necessary and appropriate prudential rules provides a conducive and enabling environment for microfinance business to grow and thrive. this is also an indication that microfinance institutions that will opt to be licensed and regulated under the microfinance act will be in a better position with regard to improved efficiency, effectiveness ( increased outreach ) and long - term sustainability. this will further enable these institutions to establish sufficient and effective linkages to commercial banks and payment systems. ladies and gentlemen ; the central bank acknowledges that prudential regulation and supervision of microfinance institutions is not only intrusive, but has cost implications, not only to the regulator, but also for the regulated institutions. the regulation and supervision of institutions is anchored on a legal and regulatory framework that requires, first and foremost, the assessment of the adequacy of the institutions ’ capital to meet their business requirements to match their risk profiles and to protect the interests of their depositors. although prudential regulations, which subscribe minimum corporate governance standards, capital adequacy levels, liquidity requirements and adequate provisioning for loan losses etc, create a stringent regime, it is essentially necessary for deposit - taking microfinance institutions. this is to ensure the protection of their financial soundness in order to protect depositors'funds and uphold confidence in the financial system. the central bank also acknowledges that although prudential regulation is considered necessary when there are depositors to protect, it is not appropriate for credit - only mfis which fund themselves from donors ’ funds or commercial loans. the bank asserts that such mfis require relatively non - intrusive, non - prudential regulation, involving, for example, screening out unsuitable owners / managers or requiring transparent reporting and disclosures. to this end, the microfinance act, section 3 makes appropriate provisions for the deposit

njuguna ndung ’ u : legal frameworks for microfinance – a rush to regulate opening address of prof njuguna ndung ’ u, governor of the central bank of kenya, at the official opening of the kenya microfinance workshop, strathmore university, nairobi, 23 - 24 november 2007. * * * the honourable minister for finance, mr. amos kimunya the vice chancellor, strathmore university the chairperson, the association of microfinance institutions ( amfi ) the chief executive officer, amfi microfinance practitioners development partners distinguished guests and participants ladies and gentlemen it gives me great pleasure to be with you today during this very important microfinance conference and to make the opening address “ legal frameworks for microfinance : a rush to regulate ”. before i make my opening remarks, let me take this opportunity to thank the organizers and facilitators of this conference for inviting me to make the opening address on this pertinent topic. this microfinance conference comes at the right moment when the microfinance industry is awaiting the implementation of the microfinance act, 2006. the licensing, regulation and supervision of deposit - taking microfinance institutions under the microfinance act is expected to enhance the orderly growth and development of a sound, vibrant and stable microfinance industry in kenya. ladies and gentlemen ; a number of studies have shown that the provision of microfinance services in a long - term, sustainable and viable manner does have a positive impact, and in fact has changed the quality of life for millions of people in developing countries by allowing them to build income and assets, either by savings mobilization or the productive investment of loan capital. this helps them manage risk to increase production, cushion themselves in times of crisis, improve their welfare, upgrade their standard of living and improve the quality of their lives. the majority of the poor, low income households and mses, in kenya, just like in many developing countries, however, largely experience lack of access to financial services, including credit, savings, insurance, money transfers among others. according to a most recent survey on the access to financial services in kenya, finaccess study, whose findings were launched in january 2007, only 19 % of kenyans have access to formal financial services through commercial banks and postbank. an additional 8 % of kenyans are served by saccos and mfis, while 35 % depend primarily on informal financial services such as