Economy

Owners of 10pc stake in microfinance banks face first CBK vetting

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Bernard Kiragu, Managing Partner at Scribes Services. FILE PHOTO | NMG

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Summary

  • Investors holding at least 10 percent stake will be regarded as significant shareholders.
  • This marks the first time the regulator has defined a significant owner of microfinance banks, and an upgrade of the current law that only limits individual ownership at 25 percent.
  • For banks, any person holding five percent or more of the share capital is regarded as significant shareholder.

The Central Bank of Kenya (CBK) will start vetting shareholders in microfinance banks owning at least a 10 percent stake, if proposed regulations seeking to boost governance are adopted.

The CBK says in the draft Microfinance Bill, 2019 that people holding at least 10 percent stake will be regarded as significant shareholders.

This marks the first time the regulator has defined a significant owner of microfinance banks, and an upgrade of the current law that only limits individual ownership at 25 percent.

For banks, any person holding five percent or more of the share capital is regarded as significant shareholder and is vetted by the CBK before being allowed to hold such stake.

“No person shall become a significant shareholder except with the prior written approval of the Central Bank,” says CBK in the draft currently undergoing public scrutiny.

“The Central Bank may require an institution to submit to it on a periodic basis, a list of current shareholders of the institution showing shares held on own account, by nominees and the individual ultimate beneficiaries of shares held by nominees or corporate shareholders.”

Experts reckon that it’s critical for CBK to vouch for the fitness and character of owners of microfinance banks given they now control deposits in excess of Sh40 billion.

“Such holders influence the leadership and it is paramount that the regulator is aware of their character to ensure that all stakeholders’ interests, depositors in particular are safeguarded,” said Bernard Kiragu, Managing Partner at Scribes Services — a corporate governance consultancy firm.