Answer to Question #190306 in Finance for joshua muendo

Question #190306

1.Discuss the content of microfinance act of 2006

2.Discuss the legal and regulatory environment for MFIs in Kenya.


1
Expert's answer
2021-05-11T14:20:36-0400

1.

Microfinance was launched in Kenya on Dec. 30, 2006. It lays out all of the licensing, supervision, and governance standards that must be met in order for microfinance institutions to be properly established.

 

Specifically, there are various issues that are covered by this actas mentioned below:

Provisions for licensing and Requirements for conducting microfinance deposit-taking enterprise; request, approval, extension, revocation, and restriction of licenses

The Central Bank will, at whatever time and if ordered by the Minister, order an examination of the institution as well as its agencies to be conducted out by any person authorized in writing by the Central Bank.

Deposit security, Central Bank liquidation of the institution, and the Board's insolvency rights

No person shall, but with the prior approval of the Central Bank, pass or transfer more than 10% of the shares of the company. The central bank shall be given the form defined in the application for a license to carry out a deposit-taking enterprise. 

For a duration of not more than one year, a license can be restricted by putting a restriction on the license term or any other provisions that may be required for the Central Bank to safeguard depositors.

No single borrower or affiliate end-user shall have a loan or credit arrangement if the loan or credit arrangement as a whole reaches its core capital ceiling as defined by the Central Bank.



2.

Regulating and legal environment of MFIs in Kenya.

MFBs and credit-only MFIs fall into two groups. CBK is in charge of MFB regulation. The Microfinance Act of 2006, as well as the Microfinance (Deposit-Taking Institutions) Regulations of 2008, provide the legal, regulatory, and supervisory structure for Kenya's microfinance industry. 

The Microfinance Act's main goal is to use licensing and supervision to control the establishment, industry, and operations of microfinance institutions in Kenya.

The Act allows microfinance banks to collect savings from the general public, fostering competitiveness, productivity, and access. Microfinance banks play a critical role in deepening financial markets and increasing access to financial services and goods for Kenyans.

Credit-only MFI regulations apply to Kenya's largest microfinance institutions. The Microfinance Act of 2006 requires the minister of finance to issue regulations for this group, but it remains unregulated.

The regulations have been drafted by AMFIK, and negotiations are ongoing. Once adopted, the regulations aim to foster a large and viable credit-only microfinance industry in Kenya, boost economic growth, and reduce poverty in both rural and urban areas.


Transparency: 

The microfinance Act, as well as the new credit-only legislation, require all MFIs to publish and present financial statements and books of account, pricing, and any other fees that a client needs to be aware of. The Consumer Protection Act of 2012, in general, provides for this.

It also has mechanisms for resolving disputes. The Microfinance Act, as well as existing credit-only legislation, allow for this.

Regulation and supervision of the microfinance sector are expected to result in high-quality growth, a broader funding base, increased outreach, innovation and high-quality goods, and competition, as well as the beginning of the process of incorporating unregulated institutions into formal financial structures.


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