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Kenya: Micro-Finance Banks Face Higher Capital Buffer Rules

27.02.2018

 | Source:  All Africa

A new proposal backed by the Central Bank of Kenya recommends reviewing microfinance banks minimum capital requirements upwards

Micro-finance banks face additional capital requirements to provide a buffer against potential financial downturns in the first comprehensive review of the sector in years. A Central Bank of Kenya (CBK) backed inquiry has recommended that capital ratios of the micro-finance banks (MFBs) should be raised to a yet-to-be-established threshold.Currently, the CBK requires them to have a core capital of Sh60 million. "(The proposal is) to review minimum capital requirements upwards to ensure that applicants and licensed MFBs demonstrate resilience as evidenced in their capitalisation," says the CBK in a concept note calling for a comprehensive review of the micro-finance legal and regulatory framework. Micro-finance banks face additional capital requirements to provide a buffer against potential financial downturns in the first comprehensive review of the sector in years. A Central Bank of Kenya (CBK) backed inquiry has recommended that capital ratios of the micro-finance banks (MFBs) should be raised to a yet-to-be-established threshold. Currently, the CBK requires them to have a core capital of Sh60 million. "(The proposal is) to review minimum capital requirements upwards to ensure that applicants and licensed MFBs demonstrate resilience as evidenced in their capitalisation," says the CBK in a concept note calling for a comprehensive review of the micro-finance legal and regulatory framework. "The proposal is to have the minimum capital requirements for all microfinance banks increased for both existing MFBs and new entrants," adds the CBK. The current legislation recognises two categories of microfinance banks: nationwide and community types. But the study proposes to merge the two licences and do away with the categorisation and issue one licence for all MFBs. "This will address the need for resilient and viable business models, which ensure capital adequacy given the changes in the sector," says the CBK. The CBK also proposes a review of the shareholding limits and creation of non-operating holding companies and entrenchment of the vetting of significant shareholders into the Act. "This will boost corporate governance in the Microfinance industry," says the CBK. The regulator has invited comments from the public by the end of next month which will then be incorporated in the initial draft of the Microfinance (Amendment) Bill, 2018, and Regulations. There are 13 microfinance banks in the country. They include three tier-one microfinance banks (Kenya Women now Echo Network Africa, Faulu and Rafiki) which commanded an aggregate market share of 90 per cent as at the end of 2016. Three medium microfinance banks had a market share of 6.6 per cent (SMEP, Caritas and Sumac) and seven small microfinance banks (Remu, Uwezo, U&I, Century, Daraja, Choice) had a market share of 3.4 per cent. As at December 2016, the gross loan portfolio of the 13 MFIs's amounted to Sh48.7 billion while deposits amounted to Sh40.2 billion. The proposed regulations come at a challenging time for the banking sector, which suffered collapse of three lenders between 2015 and 2016. The panic over the collapse of Chase, Imperial and Dubai banks prompted concerns from Kenyan savers on whether their hard-earned cash was safe. Chase Bank (which is on course to be bought by Mauritian lender SBM Group) owns Rafiki, the second-largest deposit-taking microfinance.Rafiki was hit by a tide of withdrawals after news of Chase Bank closure forcing it to limit withdrawals.