Kenya: Microfinance firms want key changes to Act
August 16, 2012 by Microfinance Africa
By Joshua Masinde, Daily Nation
Microfinance institutions are pushing for amendments to the Microfinance Act to be regulated by the banking sector regulator, the Central Bank of Kenya.
This will pave the way for their inclusion in the national payments systems.
Under their umbrella body, the Association of Microfinance Institutions of Kenya (AMFI), the institutions also want amendments to the Microfinance Act 2006 that will allow them to share credit information, which will help reduce the risk of defaults arising from issuance of multiple loans to individuals by different institutions without keeping track of their credit history.
Speaking at a Nairobi hotel during a meeting with association members, AMFI chief executive Benjamin Nkungi said the changes will ensure that every new loan will be issued after the credit history of the customer has been shared out to reduce the risks of serial defaults.
He added that currently, there is a scramble for issuance of loans by microfinance institutions, a scenario that has given rise to offering of multiple loans to an individual by different institutions, raising the probability of defaults.
Also, they say, amendments allowing their participation in the National Payments System will enable them to contract agents, like is the case with commercial banks, and to operate current accounts and run foreign trade operations.
The amendments will also fast track the process of transforming themselves into deposit taking microfinance institutions to allow them to get savings from the public to boost their deposit base for onward lending.
Currently, there are about 61 microfinance institutions, but only six of them — Faulu, Kenya Women Finance Trust, SMEP, Rafiki, Remu and Uwezo — have transformed into DTMs.
Three others — Century Microfinance and Sumac, Uandi microfinance — have been issued with interim licences to operate as DTMs.
However, following amendments to the Central Bank Banking and Microfinance Acts through the Finance Bill 2012, the Credit Reference Bureau regulations are to be revised for inclusion of MFIs in the credit information sharing mechanism now in place for banks.
Century Microfinance chief executive officer Pauline Githugu said some of the urgent issues that need to be amended will be pushed through the Finance Bill 2012, which has already gone through the first reading in Parliament.
“Members will give their input on the suggested changes and lobby by way of amendment through the Finance Bill 2012,” she said.
The industry has about 4.5 million customers with an annual growth of approximately 10 per cent.
The issue of MFI clients taking multiple loans has been a high contributing factor to the high Portfolio At Risk (PAR) experienced in many MFI`s.. There has also been a tendency for clients to hop from one institution to the other arbitrarily. With the Credit Reference Bureau in place a client will borrow ridding on past borrowing history and that too from one institution. The beauty of this is that the history can be used in place of collateral in instances where the borrower does not have adequate security. The CRB has been long in waiting and it is apt that the bill goes through and we get to the business of setting one up.
Currently, there are about 61 microfinance institutions, but only six of them, have transformed into DTMs. That leaves 55 MF1s` that are not regulated and supervised. Take the SACCO`S scenario where we have over 4,000 SACCO`s. Out of these there are 256 that are registered and therefore regulated and supervised by SASRA. That meaning that 3,744 SACCO’S are not regulated or supervised. What are we saying here? That there is a significant number of financial institutions circulating billions of shillings without being supervised.
The Basel Committee on Banking Supervision (2010), released a set of 25 key
principles (guidelines) specialized for the supervision of MFIs. The report notes these institutions should be subject to regulation and supervision commensurate to the type and size of their transactions.
Kenya’s current Consumer Protection Bill needs to be fast-tracked & enacted, while the Bill for the regulation of the Non-deposit taking MFIs needs to be reviewed and prepared for publishing.Strengthening financial stability, supervisory and regulatory framework,
enhancing financial integrity in the non deposit taking institutions sector so as to ensure that the financial systems are safeguarded against money laundering and financing of terrorism and promoting Financial Inclusion for financial deepening and development in line with the aspirations under the Kenyan Vision 2030.
micro finance institutions should be supported as they make the impossible to be possible