The Central Bank of Kenya headquarters in Nairobi. New Bill will compel CBK to lend overnight loans to microfinance firms. Photo/FILE
What you need to know:
Deposit taking micro-finance institutions (DTMs) will also be allowed to engage in foreign exchange business and re-named micro-finance banks as part of far-reaching changes to the Micro Finance Amendment Act, the Banking Act, CBK Act and the Deposit Insurance Act set to be discussed by Parliament.
The microfinance institutions argue that bank agents have been given a wider mandate than themselves despite the fact that they are directly regulated by CBK and are seeking to expand their menu of services.
The central bank will be compelled to lend overnight loans to microfinance firms if a Bill currently before Parliament is passed into law, effectively putting the lenders in the class of sensitive institutions whose liquidity is closely monitored by the regulator.
If passed into law, the new regulation will open the door for admission of micro-lenders to the clearing house.
Deposit taking micro-finance institutions (DTMs) will also be allowed to engage in foreign exchange business and re-named micro-finance banks as part of far-reaching changes to the Micro Finance Amendment Act, the Banking Act, CBK Act and the Deposit Insurance Act set to be discussed by Parliament.
“The bank may grant loans or advances for fixed periods not exceeding six months to specified banks and specified microfinance banks which pledge treasury bills or other government securities specified by the bank,” reads part of the proposed amendments to the Central Bank Act.
Only commercial banks are currently allowed by law to borrow overnight loans from CBK to balance their books as per daily liquidity requirements set by the regulator.
An amendment to the Central Bank Act states that the regulator may provide any additional services it considers desirable including facilities for clearing financial instruments to institutions operating in Kenya.
“Because we are not allowed to issue third party cheques we are supporting the business of other banks rather than our own; so we want to be admitted into the clearing house,” said Association of Microfinance Institutions chief executive Benjamin Nkungi in an interview.
Wider mandate
The microfinance institutions argue that bank agents have been given a wider mandate than themselves despite the fact that they are directly regulated by CBK and are seeking to expand their menu of services.
CBK has in the past said its electronic payment system is robust enough to host more institutions.
Deposit taking-microfinance institutions have in the past complained that the name was misguiding and a mouthful, curtailing their marketing efforts. They argue that the name insinuates that the institutions only accept deposits from the public but do not issue loans which is not the case.
There are nine licensed DTMs in the country, hosting 1,895,026 deposit accounts as at end of September.
The microfinance institutions have gathered Sh22.6 billion in savings from the public and have loaned out Sh25.5 billion.
Customer savings are a cheaper source of funds for lending for the microfinanciers who had previously relied on borrowings from international development partners and local banks to lend to their clients.
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