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

, to deal with structural binding constraints that prevent the cost of credit to re - align itself with available incentives, market conditions as well as returns on investment. 5. ladies and gentlemen : allow me now to briefly focus on the performance of the banking sector. in 2009, the kenyan banking sector has continued to exhibit resilience in the midst of the global financial turbulences. the performance posted by banks and mortgage finance companies in the first three quarters of 2009 surpassed expectations as exhibited by the following indicators as at the end of september 2009 : • the sector ’ s assets increased by 11 percent from ksh. 1. 18 trillion in september 2008 to ksh. 1. 31 trillion at the end of september 2009 as banks continued to expand their lending portfolio. • deposits increased from ksh. 895 billion in september 2008 to ksh. 1 trillion on the back of deposit mobilization and expansion of branch networks by banks. • the total capital to total risk weighted assets ratio stood at 20 percent which was above the statutory minimum of 12 percent. this is an indicator that the sector has a reasonable cushion against periodic shocks. • the sector ’ s average liquidity at end of september 2009 was 40. 8 percent well above the statutory minimum of 20 percent. • the profit before tax for the banking sector increased by 7 percent from ksh. 34. 68 billion for the period ended 30 september 2008 to ksh. 36. 95 billion for a similar period in 2009. this reflects the increased business from expansion and diversification drives by banks. • the number of branches stood at 918, an increase of 130 branches from the corresponding period in 2008. 6. ladies and gentlemen : it is worth noting that in the year, significant steps were made in operationalising a credit information sharing mechanism for the banking sector. the banking ( credit reference bureau ), 2008 regulations became operational in february 2009. the regulations empower the central bank to license and supervise credit reference bureaus ( crbs ). the bureaus will collate credit information from banks that will facilitate credit risk decisions. this is the most significant step towards building information capital. it will allow us to influence the collateral technology in use currently. the licensed credit reference bureaus will join the family of financial sector actors. 7. ladies and gentlemen : the national payments system sits at the centre of the financial system. it is imperative that payments systems are secure and efficient. the central bank continues with its initiatives to modernize the national payments system. accordingly,