Written by Morris Aron
Investors of a collapsed pyramid scheme at a meeting to air their grievances: The new laws will weed out illegal operators.
May 13, 2008: A legislation meant to rein in pyramid schemes passed last year is likely to come into operation next month.
Deputy CBK governor Jacinta Mwatela said the Micro- Finance Act and Regulations would have come into effect this month, but there were delays at the Government Printer.
The regulations have to be published in the Kenya Gazette, the legal government record, before they can be enforced. The gazette serves as a public notice on legal developments.
“The effective date for the new rules and regulations aimed at accommodating micro-finance institutions into the mainstream financial sector will be pushed forward until the laws are officially gazetted,” said Mwatela.
Once gazetted, the laws specify terms for regulated deposit taking micro -finance institutions to offer a variety of financial services and products, including savings mobilisation, credit facilities and domestic money transfers.
The regulations are expected to increase the number of Kenyans with access to banking facilities and the formal financial market by weeding out illegal operators who last year conned Kenyans out of billions of shillings.
According to the proposed regulations, Micro-Finance Institutions (MFIs) will be required to maintain a liquidity ratio of 20 per cent of all their liabilities. The regulations also require MFIs with offices throughout the country to have a capital base of Sh60 million while those confined to a community will have Sh20 million. The institutions will be expected to seek the approval of the Finance minister for any acquisition of more than 25 per cent of their shares.
Sale of more than 10 per cent of the shares will, however, be possible with the CBK approval. A key aspect of the new regulations is the provision for external auditing of the MFIs. The auditors will be required to communicate any evidence of irregularities or illegal acts by any officer of the institution.
Under the guidelines, MFIs will also be required to make disclosures like those currently obtaining for banks . Loans will be classified as normal, under watch, sub-standard and doubtful depending on the anticipated level of default. The provisions for bad debts attached to the four categories are one per cent, five per cent, 25 per cent, 75 per cent and 100 per cent.
The regulations also forbid MFIs from offering certain financial services such as operating current accounts, foreign exchange trading, investing in enterprise capital, wholesale or retail trade, underwriting or placement of shares.
According to a Finance access survey done in 2006, only 19 per cent of Kenyans are served by commercial banks and Kenya Post Office Savings Bank.