Financial Sector Deepening (FSD) Kenya, a trust fund that seeks to develop the capacity of the financial services industry in Kenya, recently released the results of a study on the effects of regulations imposed by the Central Bank of Kenya (CBK), the country’s central banking authority, on licensed microfinance institutions (MFIs) that aim to convert into deposit-taking institutions. According to the study, “Transforming Microfinance in Kenya,” current CBK requirements for a microlender to convert into a deposit-taking institution are costly, including the installation of security systems, establishing higher quality technology infrastructure and recruiting staff with prior banking experience. The study recommends a review of risks for deposit-taking microlenders to assist in the consideration of less stringent requirements.
Benjamin Nkungi, chief executive officer of the Kenyan Associate of Microfinance Institutions (AMFI), reportedly agrees with the recommendations of the study. He allegedly stated that those MFIs that have converted into deposit-taking institutions since the new regulations were put in place in 2008 have reported drops in profit during the next year of operation, largely due to the high costs of converting. Kenya Women Finance Trust (KWFT), one such MFI, reported a decrease in earnings from KES 676 million (USD 8.1 million) to KES 321 million (USD 3.86 million) during its first year as a deposit-taking institution.
By Charlotte Newman, Research Associate
About Financial Sector Deepening Kenya
Financial Sector Deepening Kenya (FSD Kenya) is a trust founded in 2005 that seeks to develop the capacity of the financial services industry in Kenya by working directly with financial institutions, service providers and support institutions. FSD Kenya operates independently under two supervising entities, KPMG Kenya, the Kenyan subsidiary of the global professional services firm KPMG, and FSD Kenya’s programme investment committee. FSD Kenya’s budget is unknown.
About Central Bank of Kenya
Established in 1966, the Central Bank of Kenya is the country’s central banking authority. CBK enacted a Microfinance Act in 2008 to pave the way for the licensing of deposit-taking microfinance institutions (DTMs). Professor Njuguna Ndung’u was appointed Governor of Central Bank in March 2007 and continues to serve in that capacity as of April 2012.
Sources and Additional Resources:
Businesss Daily: “Stringent Rules Push Microfinance Firms Into Losses,” http://www.businessdailyafrica.com/Stringent+rules+push+microfinance+firms+into+losses+/-/539552/1387622/-/qvc098/-/
Financial Sector Deepening Kenya: “Transforming Microfinance In Kenya: The Experience of Faulu Kenya and Kenya Women Finance Trust,” http://www.fsdkenya.org/pdf_documents/12-03-06_Faulu_KWFT_study.pdf
MicroCapital.org story, January 10, 2012, “MICROCAPITAL BRIEF: Central Bank of Kenya to Allow Deposit-Taking Microfinance Institutions (DTMs) to Use Agents to Provide Financial Services,” https://www.microcapital.org/microcapital-brief-central-bank-of-kenya-to-allow-deposit-taking-microfinance-institutions-dtms-to-use-agents-to-provide-financial-services/
MicroCapital.org story, June 21, 2011, “MICROCAPITAL BRIEF: Financial Sector Deepening, Microfinance Opportunities Announce ‘Financial Diaries’ Research Indicating M-Pesa Users Better Prepared for Health Emergencies, Most E-Money Transfers Are Among Family, Friends,” https://www.microcapital.org/microcapital-brief-financial-sector-deepening-microfinance-opportunities-announce-%E2%80%9Cfinancial-diaries%E2%80%9D-research-indicating-m-pesa-users-better-prepared-for-health-emergencies-most-e/
MicroCapital Universe Profile: Financial Sector Deepening Kenya
https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Financial+Sector+Deepening+Kenya+%28FSD+Kenya%29
MicroCapital Universe Profile: Central Bank of Kenya
https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Central+Bank+of+Kenya+%28CBK%29
MicroCapital Universe Profile: Kenya Women Finance Trust (KWFT)
https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Kenya+Women+Finance+Trust+%28KWFT%29
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