All Microfinance Institutions to be Regulated by CBK in Newly Passed Law

President William Ruto on Wednesday, December 11, signed the Business Laws (Amendment) Bill 2024 into Law. This is one of seven bills he assented to at State House, Nairobi on Wednesday, December 11.

The law also amends the Central Bank Act, Cap. 491 to replace "digital lenders" with "non-deposit-taking credit providers" to expand the regulatory framework to include non-deposit-taking credit providers that are largely unregulated; and to create a licensing and supervision structure for non-deposit-taking credit providers to ensure financial stability and protect consumers.

Additionally, it will now modernize and codify new financial mechanisms, such as peer-to-peer lending frameworks and "buy now, pay later" agreements to guarantee consumer protection, a move aimed at promoting transparency and accountability, improving public confidence and enhancing consumer protection. 

The new law effectively means all microfinance institutions will now be regulated by the CBK. Previously, only deposit-taking microfinance banks have been regulated while those in the lending sector have largely been regulated. The lending microfinance have come under criticism on claims of predatory lending and issuance of loans under unclear terms - a situation the new law seeks to remedy. 

Other bills signed into law include the Kenya Revenue Authority (Amendment) Bill 2024, the Kenya Roads (Amendment) Bill 2024), the Ethics and Anti-Corruption Commission (Amendment) Bill 2024), the Statutory Instruments (Amendment) Bill 2023, the Tax Procedures (Amendment) Bill 2024 and the Tax Laws (Amendment) Bill 2024.

“The signing of seven parliamentary Bills will accelerate the achievement of our Bottom-Up Economic Transformation Agenda. It will also enhance our country’s global competitiveness,” the Head of State revealed on his social media handles.

The Business Laws (Amendment) Bill (National Assembly Bill No. 49 of 2024) amended a number of business-related Acts of Parliament, including the Banking Act, Cap 488; Central Bank of Kenya Act, Cap 491; Microfinance Act, Cap 493C; Standards Act, Cap 496; Kenya Accreditation Service Act, Cap 496A; Scrap Metal Act, Cap 503; Kenya Industrial Research and Development Institute Act, Cap 511; Special Economic Zones Act, Cap 517A; and the National Electronic Single Window System Act, Cap 485D.

The new law now amends the Banking Act, Cap. 488 to increase the core capital requirements for banks and mortgage financing institutions in a planned and steady manner, eventually reaching a minimum of Ksh10 billion by 2029. 

Additionally, it grants the Central Bank of Kenya the authority to impose sanctions on organizations or individuals who fail to comply with the prudential guidelines of up to a maximum fine of Ksh20 million, or three times the financial gain from the breach, whichever is higher.

“These amendments shall promote financial stability and protect depositors from systemic risks by ensuring banks adhere to adequate core capital requirements,” a brief on the law reads in part.

The law also amends the Microfinance Act, Cap. 493C to require non-deposit-taking microfinance institutions to operate with ethics and transparency by mandating them to follow explicit reporting and governance procedures.

“Additionally, the amendments introduce important consumer protection provisions that obligate non-deposit-taking microfinance institutions to, among other things, disclose credit conditions in a clear and accurate manner and ensure that debt collection is carried out within legally acceptable bounds,” adds the brief.

The amendments also strengthen the protection of personal information in the digital economy by requiring corporate operations to comply with the Data Protection Act and ensuring that consumer data is treated with the highest standards of privacy and security.

In terms of ensuring manufactured goods meet the prescribed Kenyan standards, the law has amended the Standards Act, Cap 496 to empower the Kenya Bureau of Standards (KEBS) to establish laboratories to provide testing and measurement services and calibration services 

Furthermore, KEBS will also be allowed to appoint inspection bodies to undertake pre-export verification of the conformity of goods to Kenyan standards.

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The Bill also makes consequential amendments to the Companies Act, Cap. 486 and the Business Registration Service Act, Cap. 4998 mandating the Registrar of Companies and Director-General, respectively, to submit information on incorporated or registered businesses that seek to undertake manufacturing for purposes of compliance with the provisions of the Standards Act, Cap. 496.

Perhaps the most interesting bit is that the law now promotes the ease of doing business in Kenya through amending the Kenya Accreditation Service Act, Cap 496A to provide for mandatory accreditation of conformity assessment bodies by the Kenya Accreditation Service.

“Further, the Bill amends the Special Economic Zones Act, Cap 517A to empower the Cabinet Secretary to set the minimum amount to be invested in a special economic zone; and to provide for a one-stop shop where enterprises can channel all their applications, for ease of doing business,” adds the brief.

“In addition, the amendments permit public entities to conduct business in special economic zones and grant certainty to investors on the ten-year period of tax incentives. The Bill also amends the National Electronic Single Window System Act, Cap 485D to levy nominal fees for services rendered by the Kenya Trade Network Agency and delegate legislative power to the Cabinet Secretary to make Regulations to prescribe the said fees, set conditions for any exemption or reduction of the fees.”

The Business Laws bill also amends the Kenya Industrial Research and Development Institute Act, Cap 496, to include a new function of facilitating certain rights holders (patent holders, industrial design rights holders, and utility models rights holders) to exploit any invention or innovation commercially.

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