MICROCAPITAL STORY: M-Banking 2009 Conference in Nairobi Showcases Promise to Enhance Kenya's Banking Regulations Towards Microfinance Institutions and Mobile Banking Technology

Speaking at a conference on mobile banking, Kenyan Finance Minister Uhuru Kenyatta announced proposed amendments to the Banking Act that would enable commercial banks to partner with non-banking agencies, such as microfinance institutions (MFIs), to reach Kenyans who could not previously access financial services. The Central Bank of Kenya (CBK) is also pushing for further policy guidelines that will enhance the regulatory framework of branchless banking and increase access to internet banking and mobile money transfer services.

Kenya, with a population of approximately 36 million, has only 6.3 million traditional branch-held bank accounts. While the number of accounts has grown markedly, tripling over the past three years, the high minimum amount need to open an account and fees charged for account maintenance have prevented the majority of Kenyans from gaining access to financial services. To fill this gap, internet banking and mobile money transfer services have grown quickly in Kenya, representing a more efficient, convenient and often cheaper option to traditional banking.

Speaking at the “M-Banking 2009: Balancing Regulation and Innovation” conference in Nairobi, Finance Minister Kenyatta recognized the potential of technology like mobile banking to promote economic growth and reduce poverty. He also emphasized, however, that branchless banking, and the financial sector as a whole, must be “founded on a sound legal and regulatory framework.” Read more about the challenges of regulating mobile transaction services, e-money, and other branchless banking technologies in this MicroCapital article.

The current Kenyan Banking Act limits the expansion of commercial banks to physical branches. According to the CBK, proposed amendments would enhance the regulatory framework for branchless banking by allowing commercial banks to use non-banking agents, such as MFIs, to offer their services to Kenyans who cannot afford bank accounts. The CBK has also proposed legislation to safeguard the integrity of electronic information and give recognition to electronic payments.

The CBK governor, Professor Njuguna Ndung’u, asked savings and credit cooperative societies and other MFIs engaged by the commercial banks to consider using mobile banking innovation to provide services at a cheaper rate. “Such agents could leverage on mobile banking technologies to cost-effectively provide services on behalf of the banks,” Prof. Ndung’u said. Read more about the CBK’s initial push for revised banking legislation in this MicroCapital story.

Already working towards this end, Safaricom announced a partnership earlier this month with the Small and Micro Enterprises Program (SMEP), an MFI in Kenya, giving SMEP’s 51,000 customers the option to use Safaricom’s M-PESA service to make their monthly repayments and savings contributions. “By embracing the transfer technology we are making our services easily accessible to the financially marginalised population in the country,” said Phyllis Mbungu, SMEP’s Chief Executive Officer.

The M-Banking 2009 Conference was held May 25-26 at the Kenya School of Monetary Studies in Nairobi, and was co-hosted by the Centre of Emerging Market Enterprises at the Fletcher School, Tufts University and the Kenya Monetary Studies in conjunction with the CBK. The two-day conference brought together bankers, regulators, players in the telecommunication industry, mobile phone service providers and policy makers, and aimed to ensure that banking and communications regulations do not stifle innovation.

The conference was also attended by Kenyan Vice President Kalonzo Musyoka, who said that a mobile banking system helps the government integrate more people into the formal banking sector, thus creating opportunities for economic activity. Of note, the Vice President commended the efforts of the CBK to bring MFIs into its regulatory framework, enhancing public confidence in the institution and its products. “It is my hope that mobile banking will be extensively adopted by microfinance institutions so as to improve the scope of services available.”

By Jaclyn Berfond, Research Assistant

Additional Resources:

Reuters: Kenya to enact laws regulating mobile phone banking by Dunncan Miriri

The Daily Nation: New law to make banking easier by Peter Leftiep

The Daily Nation: Kenya’s Central Bank to push for new banking rules by Joseph Bonyop

Kenya Broadcasting Corporation: Safaricom Signs Deal with SMEP by O’brien Kimani

Capital Business: Kalonzo looks to ICT to drive economy

MicroCapital Story: Challenges to Regulation of Mobile Transaction Services, E-Money, and other Branchless Banking Technologies

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