The microfinance industry is poised for its most sweeping regulatory overhaul in two decades, with a new Microfinance Bill before the National Assembly proposing tighter oversight, stronger consumer protections and expanded powers for the Central Bank of Kenya (CBK).
Legislators say the reforms are necessary to modernise rules governing microfinance banks, which serve millions of small traders, entrepreneurs and low‑income earners often excluded from mainstream banking.
The Bill seeks to repeal and replace the Microfinance Act of 2006, arguing that the sector has evolved significantly and requires a framework capable of addressing new risks while safeguarding financial stability.
At the heart of the proposed law is a significant strengthening of regulatory authority. Part II bars any institution from conducting microfinance banking without a licence and grants the CBK powers to inspect premises suspected of operating illegally. The regulator would also gain broader authority to revoke licences, oversee ownership changes and supervise mergers, acquisitions and transfers of assets and liabilities.
The Bill introduces stricter minimum capital requirements, liquidity thresholds and risk‑management obligations, compelling institutions to put in place sound measures to protect depositors and investors. These provisions are designed to bolster resilience in a sector that has occasionally faced governance and operational challenges.
ALSO READ:
Jamii DT Sacco opens branch in Kisumu in its expansion strategy
Unlike earlier reforms that focused primarily on institutional stability, the new framework places consumers at the centre of regulation. It proposes protections against false advertising, tighter disclosure requirements on loans and limits on the interest recoverable from defaulted facilities. Misleading promotions would be criminalised, while non‑deposit‑taking entities would be prohibited from accepting deposits or cash collateral from the public.
Corporate governance is another major focus. The Bill seeks to separate ownership from management by barring significant shareholders from directly participating in the running of microfinance banks. It also introduces stricter requirements on board composition and directors’ duties, alongside restrictions on insider lending, dividend declarations and share transfers. Regulators say these measures align governance standards with those traditionally applied to larger commercial banks, aiming to minimise conflicts of interest and improve accountability.
If passed, the legislation would require institutions to provide CBK with online access to their systems, giving the regulator extensive authority to monitor compliance and enforce standards across the sector. MPs argue that such measures are critical to creating a safe and sound environment for microfinance banks to meet the evolving needs of consumers.
By Masaki Enock
Get more stories from our website: Sacco Review.
For comments and clarifications, write to: Saccoreview@
Kindly follow us via our social media pages on Facebook: Sacco Review Newspaper for timely updates
Stay ahead of the pack! Grab the latest Sacco Review newspaper!
