MICROCAPITAL STORY: Kenyan Microfinance Trade Association Puzzled as Only Two MFIs Participate in New “Friendly” Regulation

The Kenyan government passed an Act allowing microfinance institutions (MFIs) to take deposits for the first time, but MFIs have been slow to register under the Act to provide this service, The Daily Nation reported on October 11. The Microfinance Act 2006 became operational on May 2, 2008, yet only two MFIs have since registered under the Act. The Association of Microfinance Institutions of Kenya (AMFI) regards this Act as a platform that will allow MFIs to retain clients instead of acting as a “conveyor belt” for customers on their way to larger commercial banks.

The Kenya Women Finance Trust is one of the two MFIs that have applied for the deposit-taking license, and views the license as an opportunity to meet all of their financial needs. The AMFI is confident that it will see more of its members applying in the near future, and the Central Bank of Kenya, the banking industry regulator, has recently approved 20 more business names.

The Microfinance Act addresses licensing provisions, minimum capital requirements and minimum liquid assets, submission of accounts to the Central Bank, supervision by the Central Bank, and limits on loan and credit facilities. It also seeks to protect depositors by requiring that deposit-taking MFIs contribute to the deposit protection fund. The reasons for so few applications have not been publicly stated and there does not appear any element of the Act that is glaringly prohibitive, although there may be more obvious operational challenges on the ground, such as the minimum capital requirement of KSH 60 million (USD 793 thousand) which must be maintained by deposit-taking MFIs at all times. There does not seem to have been an investigation into possible reasons that MFIs have not registered, although a study by the United Nations Capital Development Fund (UNCDF) in 2003 predicted that it would not be easy for MFIs to meet the supervision standards of the Act as it stood at that date.

The Association of Microfinance Institutions of Kenya (AMFI) is a member Institution and trade association established in 1999 under the societies Act by leading Microfinance Institutions in Kenya. It was originally funded by USAID, but it is unclear whether this funding continued after the initial three year period. Its purpose is to build capacity of the microfinance industry in Kenya. AMFI presently has 36 member institutions which provide financial services to more than 2,000,000 low to middle income families throughout Kenya.

By Lori Curtis, Research Assistant

Additional Resources:

Association of Microfinance Institutions in Kenya: Homepage

The Daily Nation: “Microfinance firms yet to take advantage of friendly law

Microfinance Gateway: “Microfinance Act 2006

United Nations Capital Development Fund: “UNCDF Microfinance Programme Impact Assessment 2003

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