MICROCAPITAL STORY: Kenya’s Central Bank Reviews Legislation to Promote Banking in Rural Areas, Including Mobile Banking

The Central Bank of Kenya (CBK) vowed to review bank branch requirements so that banking services can further penetrate rural areas. In addition, CBK Governor, Professor Njuguna Ndung’u, said the revised rules should facilitate the establishment of branchless banking. Branchless banking involves banking services without a physical facility, including mobile vans providing banking and telephone-based services.

During a branch opening in Mombasa, the Governor stated “We will be reviewing our prudential requirements for bank branch premises to ensure they play a facilitative role in extending banks’ outreach.” Furthermore, the CBK wants to ensure that the rules do not unnecessarily add to the cost of doing business.

The CBK has established stringent regulations for financial institutions intending to take deposits. The rules are supposed to protect depositors; however, the high compliance cost has impeded penetration to remote areas. Currently, the CBK must approve the adequacy of all branches’ premises, insurances, alarm systems, and security standards. Banks must also have detailed operations manual for all branches.

In 2007, the Consultative Group to Assist the Poor (CGAP) published a report, calling Kenya a world leader in fostering mobile phone banking and other branchless banking services. MicroCapital reviewed the CGAP report and can be found here.

In addition, the Governor discussed the need for regulations to remain relevant, particularly considering the developments in information technology and electronic banking. These technologies include Automate Teller Machines (ATMs), mobile banking, and money transfers via mobile phones.

In fact, the mobile phone company Safaricom offers an M-Pesa money transfer service, which recently formed agreements with several banks. Also, many banks have partnered with Pesa Point, an independent ATM backbone provider with 120 locations in Kenya.

Professor Ndung’u believes that savings from these new developments should be returned to clients via lower bank charges, fees, and lending rates. The Governor foresees branchless banking becoming a strategic alliance between banks and non-financial players with extensive networks like those offered by mobile telephone companies.

The CBK also looks to revise other financial sector legislation by June. Other changes will likely include an anti money-laundering Act and a Companies Act which will allow shareholders to participate online at companies’ annual general meetings.

by Jennifer Lee

Additional Resources:

Business Daily: “CBK set to allow mobile banking in rural areas”, by Washington Gikunju, April 1, 2008.

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