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PROMOTING FINANCIAL INCLUSIVENESS: THE KENYAN EXPERIENCE

PROMOTING FINANCIAL INCLUSIVENESS: THE KENYAN EXPERIENCE. PRESENTED AT THE THE 2 nd AFRACA CENTRAL BANKS FORUM HELD ON 23 rd – 25 th SEPTEMBER 2008 AT LUSAKA, ZAMBIA BY CENTRAL BANK OF KENYA. PRESENTATION LAYOUT. SELECTED SOCIO-ECONOMIC INDICATORS FINANCIAL SECTOR LANDSCAPE

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PROMOTING FINANCIAL INCLUSIVENESS: THE KENYAN EXPERIENCE

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  1. PROMOTING FINANCIAL INCLUSIVENESS:THE 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

  2. 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

  3. Area: 582,650 Sq KmPopulation: 37.2 million

  4. KENYA: SELECTED ECONOMIC INDICATORS Source: Economic Survey and Central Bank

  5. KENYA’S FINANCIAL SECTOR LANDSCAPE

  6. Republic of Kenya: Economic Survey, 2007 and Central Bank FINANCIAL SECTOR LANDSCAPE

  7. 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

  8. FINANCIAL SECTOR OUTREACH INDICATORS, DEC. 2007 Source: Central Bank of Kenya

  9. 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)

  10. 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

  11. 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

  12. 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)

  13. 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

  14. 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

  15. Enabling Policy Environment Macro-level:the enabling environment Meso-level: 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

  16. 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

  17. 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

  18. 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

  19. “ 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

  20. 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)

  21. 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

  22. 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

  23. THANK YOU • CONTACT • Ms. Rose Detho • Director, Bank Supervision Department • Central Bank of Kenya • P. O. Box 60000- 00200, Nairobi, Kenya. • E-Mail: fin@centralbank.go.ke • Tel: +254 020 2863005 • Fax: +254 020 2217940 • www.centralbank.go.ke

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