CBK issues rules for micro-finance agency operations

The Central Bank of Kenya has placed a high moral standard for businesses seeking to distribute financial products from deposit-taking microfinance institutions (DTMs).

The measures aimed at protecting customers will see the agents require references from the provincial administration, religious leaders and credit reference bureaus among other disclosures on behaviour and financial standing.

The Central Bank said the new guidelines would ensure that the agent “will not compromise safety, soundness and supervision of the DTM sector”.

The DTMs currently in operation include Faulu Kenya, Kenya Women Finance Trust, Uwezo and Small and Micro-Enterprise Programme.

The regulator said there were now nearly 9,000 agents for commercial banks who have handled it 5.92 million transactions valued at Sh28.7 billion.

“In order to enhance the inclusivity of the financial systems, the Central Bank is to extend the agency model to the microfinance sector.,” said a circular from Frederick Pere, the director of bank supervision. “The third parties to be contracted by the DTMs will be approved by the Central Bank of Kenya.”

The directive allows the institutions to appoint only the agents who have been running a commercial activity for at least a year and have a good credit record. The agent will also require secure premises and competent personnel.

According to the rules, the entities that will be eligible for appointment as agents include limited liability companies, sole proprietorship, partnerships, societies, co-operative societies, state corporations, trusts, public entities and any other entity which the Central Bank may prescribe.

Also to be provided are audited financial statements for corporate entities or certified financial affairs in the case of sole proprietors or partnerships for the past 12 months immediately preceding the date of suitability assessment.

Where it is a sole proprietor or a partnership, a certificate of good conduct or a letter of recommendation from the local chief, a registered religious leader or a regulated financial institution where the proposed agent holds an account.

Patrick Lumumba, a senior programmes officer at the Association of Microfinance Institutions, said many DTMs now have the option to convert their marketing offices and branches into agencies in line with the provisions.

“Some DTMs were opening high-tech banking offices or branches in order to increase their reach. They can now appoint new agents as well. We can say these rules have made things clearer,” said Mr Lumumba.

CBK first rolled out the agency model in the banking industry in 2010.

The rules say that a DTMs may require a director, shareholder, sole proprietor, partner, manager or any other officer or employee of an entity to be vetted if the vetting of that person is necessary for do the business.

“Prior to engaging an entity as an agent, an institution shall assess the moral, business and professional suitability of the sole proprietor or partners of an entity proposed to be appointed as an agent,” says the rules.