Regulation and Supervision of Microfinance Institutions in Kenya

Publication Date: Mar 2005
Published by: Microfinance Regulation and Supervision Resource Center
Document Type: Paper (PDF)

View this Document (38 KB)   Email this Document

How does the proposed Microfinance Bill intend to improve regulation and supervision of microfinance in Kenya?

This paper discusses the various aspects of regulation and supervision of microfinance institutions (MFIs) in Kenya. It discusses:

• The Government proposed “Deposit Taking Microfinance Bill”, which aims at ensuring that licensed MFIs contribute to poverty alleviation, and at the same time, comply with the requirements of financial sector safety and soundness.
• The need for the enactment of a microfinance legislation that clearly defines the roles to be played by the Government, the Central Bank of Kenya and microfinance practitioners, something that the proposed bill aims to do.

The paper states that regulation and supervision is expected to:

• Improve quality;
• Broaden the funding base for MFIs eligible to mobilize deposits;
• Initiate the process of integrating MFIs into the formal financial system;
• Enable authorities to define procedures for their operations;
• Create an environment for fair competition and efficiency.

The paper states that the proposed bill will specify three different tiers of MFIs and the regulatory and supervisory authorities:

• First tier – formally constituted deposit taking MFIs will be regulated by the Central Bank of Kenya.
• Second tier – formally constituted credit only MFIs will be regulated and supervised by the envisaged microfinance unit in the Ministry of Finance.
• Third tier – informally constituted MFIs will not be supervised by an external agency of the government; the paper advises associated donors, commercial banks and governmental agencies to make informed decisions about them.

The paper concludes by discussing current developments regarding the proposed Microfinance Bill.