East African Community partner states working together to streamline regulations on microfinance

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The five countries that make the East African Community (EAC) are working together to improve business environment for the microfinance institutions (MFIs).

Through the Central Banks of Uganda, Tanzania, Kenya, Rwanda and Burundi, the countries are seeking ways to create common regulations that would enable them to offer services in the entire region.

“It is noteworthy that as part of harmonization initiatives under the East African Community (EAC), we are engaging with the sister central banks of on ways of enhancing and harmonizing the microfinance legal and regulatory framework in the EAC,” says Prof Njuguna Ndung’u Central Bank of Kenya (CBK) governor.

 

 

Though details are still scanty on the initiatives, the already signed EAC Common Market Protocol that comes into effect in July this year is putting pressure on institutions and agencies to cooperate to enable smooth implementation of the ambitious programme.

Several commercial banks that include Kenya Commercial Bank, CFCStanbic and Equity Bank have presence in the regional market but no microfinance Institution (MFI) is currently operating beyond the borders.

Kenya has a well developed MFI sector but lack of a legal framework had denied them the much-needed credibility as well as the ability to take deposits from their clients.

However, the enactment of the MFI Act that put them under the direct supervision of the CBK now gives them an opportunity to eye the regional market under the protocol.

The protocol that was signed in November last year in Arusha, Tanzania allows free movement of goods, services and labour across the region, creating further room for local companies to expand.

Already CBK has licensed Faulu Kenya to conduct nationwide deposit taking microfinance business while another one has qualified for a similar license.

“The Kenya Women Finance Trust Deposit Taking Microfinance Limited (KWFT DTM) has been granted an approval in principle,” said Ndung’u.

“It will be granted a license once a few pre- licensing requirements are fulfilled. Eight other license applications are at various stages of review and appraisal by the Central Bank.”

He said since 2008 the Bank has also approved thirty-three business names which is the first step in the licensing process.

The Microfinance Act that empowered the CBK to license and supervises deposit taking microfinance institutions was operationalised in May 2008.

The Act creates nationwide and community based MFIs with the former expected to maintain a minimum capital of Sh60 million (USD 0.8m) and can roll out their operations across the country.

The community based institutions’ minimum capital requirement is Sh20 million (USD 0.3m) and are expected to operate in defined administrative/geographical areas.

 

 

 

 

 

 

 

 

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