PROMOTING FINANCIAL INCLUSIVENESS: THE KENYAN EXPERIENCE

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PROMOTING FINANCIAL INCLUSIVENESSTHE KENYAN
EXPERIENCE

• PRESENTED AT THE
• THE 2nd AFRACA CENTRAL BANKS FORUM
• HELD ON
• 23rd 25th SEPTEMBER 2008
• AT
• LUSAKA, ZAMBIA
• BY
• CENTRAL BANK OF KENYA

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PRESENTATION LAYOUT

• SELECTED SOCIO-ECONOMIC INDICATORS
• FINANCIAL SECTOR LANDSCAPE
• ACCESS (OUTREACH) INDICATORS
• FINANCIAL SECTOR POLICY AND DEVELOPMENT
• ENABLING ENVIRONMENT AND INCLUSIVITY
• PROMOTING ACCESS AND EFFICIENCY

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Area 582,650 Sq KmPopulation 37.2 million
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KENYA SELECTED ECONOMIC INDICATORS
Source Economic Survey and Central Bank
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KENYAS FINANCIAL SECTOR LANDSCAPE
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Republic of Kenya Economic Survey, 2007 and
Central Bank
FINANCIAL SECTOR LANDSCAPE
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FINANCIAL SECTOR LEGISLATION

• Legal Framework
• Banking Act
• Microfinance Act
• Co-operative Societies Act
• Capital Markets Act
• Retirement Benefits Act
• Insurance Act
• Building Societies Act
• Hire Purchase Act, among others
• Microfinance is practice by persons of various
  institutional forms mainly companies, societies
  and co-operatives

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FINANCIAL SECTOR OUTREACH INDICATORS, DEC. 2007
Source Central Bank of Kenya
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MICROFINANCE INDUSTRY

• Diverse institutional forms offering a variety of
  financial services and products to low-income
  households and SMEs using innovative delivery
  channels
• The umbrella body (AMFI) has 35 member
  institutions
• Out of these, 26, 2, 4, 2 and 1 are retailers,
  wholesalers, banks, DFIs and insurance company,
  respectively
• AMFI members by December 2007, collectively had
  841 outlets, 2,073,363 and 493, 682 active savers
  and borrowers with KSh.16.589 billion loans (US
  260 million) disbursed and outstanding loan
  portfolio of KSh.16,007 billion (US 250
  million)

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SAVINGS AND CREDIT CO-OPERATIVE SOCIETIES
SACCOS (CREDIT UNIONS)

• Over 5,122 registered SACCOs and about 3,900
  active SACCOs
• SACCOs assets is estimated at over KSh.167 bn.
  (US 2.2 bn.)
• Types of SACCOs Salary based, jua kali,
  transport, community based, rural and traders
  common bond SACCOs
• Savings amounted to about KSh.160bn (US 2.46bn)
  or 35 of the national savings and loans
  outstanding amounted to about KSh.110 bn. (US
  1.7bn)
• 3.3 million ( approx. 11) of the adult Kenyan
  population are members of a SACCO
• SACCO Societies Bill, 2008 awaiting enactment by
  Parliament

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INFORMAL MICROFINANCE

• A number of poor and low-income households and
  MSEs depend on informal microfinance providers of
  different institutional forms
• The informal segment of the Microfinance
  landscape is dominated by numerous Rotating and
  Accumulating Savings and Credit Associations
  (ROSCAs and ASCAs), money lenders, etc.
• ASCAs and ROSCAs as user-owned and managed models
  that offer additional features that appeal to the
  community
• The number and size of this informal microfinance
  market is yet to be ascertained

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Financial Access Strand
Financially Included - 62
Banked 19
Financially Excluded
38
19
8
35
0
10
20
30
40
50
60
70
80
90
100
Unbanked No formal or informal financial products
used
Informal ASCA (Accumulating Savings and Credit
Associations) and ROSCAs
Formal Regulated banks, building societies or
Kenya Post Office Savings Bank
Formal Other SACCOs and MFIs (microfinance
institutions)
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FACTORS LIMITING ACCESS

• The main reasons advanced for low usage of formal
  financial services include
• Low Incomes
• About 50 are classified as poor have no
  incomes worth banking
• Cost of financial services
• Access barriers (opening/minimum balances)
• High transaction costs (account operating cost,
  physical time)
• Availability of informal (cheaper) alternatives
• Shopkeepers/suppliers credit
• Friends/family saving, credit, insurance,
  remittances
• Matatus/buses remittances
• Unavailability of financial services in some
  regions e.g. North Eastern region

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FINANCIAL SECTOR DEVELOPMENT VISION 2030

• According to the Government, the Financial Sector
  Development is based on three key pillars-
• Ensure STABILITY Through policy and
  infrastructure development
• Foster EFFICIENCY By encouraging increased
  competition and technological development (Least
  cost)
• Promote ACCESS By providing an enabling
  environment for enhance outreach

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Enabling Policy Environment

Macro-level the enabling environment Meso-lev
el industry/sector supports Micro-level
retail providers TRANSACTIONS e.g. banks,
MFIs,insurers CLIENTS e.g. credit
reference, business services, research e.g.
policy, legislation, regulation, supervision


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MACRO - POLICIES TO IMPROVE INCLUSIVENESS

• Policy level - Vision for the financial sector
• Kenya Vision 2030
• Different types of institutions to serve
  different market segments
• Enabling Legal, Regulatory and Supervisory
  Framework
• Review of the Banking Act
• Enactment of the Microfinance Act
• SACCO Societies Bill, 2008
• National Payments Bill, 2008
• Credit Reference Bureau Regulations
• Improve Lending Environment
• Macro-economic framework
• Commercial justice system
• Appropriate regulation for business (e.g. licence
  and permits)
• Consumer protection and rights
• Branchless Banking (Mobile banking and agency)
• Money transfer e.g. M-PESA and Sokotele

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SPECIFIC POLICIES FOR THE MICROFINANCE INDUSTRY

• Human resource development
• Organisational framework for skills development
• Curriculum development and professional
  qualifications
• Training, recruitment
• Specialist business services
• Credit reference services, bad debt recovery and
  workout, legal services
• Auditing, ratings
• Information and communications technology systems
  development
• Market research, product development, management
  consultancy
• Market linkages
• Financial market integration investment,
  re-financing and liquidity mgmt
• Business linkages for service delivery e.g.
  insurance, money transmission
• Sector information and knowledge generation
• Market information
• Research and innovations

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POLICIES TO DEVELOP INDIVIDUAL INSTITUTIONS

• institutional diversity to address diverse
  markets is allowed
• from ROSCAs and through
• SACCOs and MFIs to.
• banks, pensions and capital market institutions
• Improved payment systems
• Building core financial capital of institutions
• Investing in institutionally embedded capacity
  and infrastructure
• Supporting innovations in product development and
  delivery channels
• Lower capital requirements
• Building basic industry capacity and entry
• Demonstration effect of profitability of untapped
  market segments
• Encourage competition and efficiency

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THE POLICY ON REGULATION AND SUPERVISION OF
MFIs IN KENYA

• A Tiered approach to regulation supervision
• Tier 1 ROSCAs and ASCAs No regulation
• Tier 2 Credit-only/ Non Deposit-taking MFIs
  MOF or Self-regulated by umbrella body
• Tier 3 Deposit-taking MFIs Regulated and
  supervised by CBK)
• The Microfinance Act covers
• Deposit-Taking MFIs (to be regulated by CBK)
  KSh.60M (US 860,000) and KSh.20M (US 300,000)
• Credit-Only MFIs - the Minister to prescribe
  regulations to regulate their conduct
• SACCO Societies Bill, 2008 Covers both SACCOs
  with Back Office Service Activities and/or Front
  Office Service Activities

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EMERGING KEY POLICY ISSUES AND PROGRAMS 2012

• Kenya aims to be a regional financial hub
• Consolidation of the banking industry
• Strengthening quasi-banking institutions mainly
  SACCOs and MFIs Legal and regulatory frameworks
• Increased access to financial services (outreach)
• Enhance stability and efficiency
• Development of an efficient national payment
  system
• Consumer protection and rights including credit
  reporting system (credit reference bureaus)

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PROMOTING ACCESS ACROSS DIFFERENT SEGMENTS OF THE
POPULATION

• Branch network expansion (Coverage)
• Use of technology ATMs, E-banking, M-PESA and
  Sokotele
• Agency arrangement such as supermarkets
• Strenthening of alternative financial service
  providers targeting different population segments
  banks, microfinance institutions, SACCOs and
  informal providers
• Enabling environment and suitable legal,
  regulatory and supervisory framework
  Microfinance Act and SACCO Societies Bill, 2008
• National Payment System (NPS) money transfer,
  payments and sttlement (National Payments Systems
  Bill)
• Consumer Protection and Credit Reporting Systems

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• Infrastructure development
• Population density
• Urbanisation
• Climatic zones and agricultural activities
• Socio-cultural factors

• INNOVATIONS
• Agency arrangement
• Technology driven delivery channels

• M-PESA by Safaricom
• Sokotele by Zain

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• THANK YOU

CONTACT Ms. Rose Detho Director, Bank Supervision
Department Central Bank of Kenya P. O. Box
60000- 00200, Nairobi, Kenya. E-Mail
fin_at_centralbank.go.ke Tel [phone] Fax
254 020 2217940 www.centralbank.go.ke