SOME OBSERVED CHALLENGES TO THE GAZETTED MICRO-FINANCE BILL

Kenya Gazette Supplement No.53 (Bills No.22)

A micro-finance bill for debate in parliament has been gazetted for the public to have their input. Going by the recent belated complaints about the CDF Act, it is of importance for Kenyans to air their views about such bills before they are passed into law by parliament. The recent sexual offences bill was good in the sense that it made many Kenyans air their views and became more involved. Now there is the micro-finance bill which might seem dry, but going by the recent awareness of investments in stock markets at NSE, one would expect a lot of debate on this subject as well.

To start the debate, it is important to recognize that some people in this country have lost a lot of money in the so called dubious, bogus and unregistered deposit taking institutions that alleged to be operating as micro-finance in the past.

Now the questions that every mwanchi should ask:
#· Will this proposed micro-finance bill address those issues where poor people lost their money?
#· Will there be protection under the CBK deposit protection fund?
#· Will the owners be vetted by the CBK?
#· If the deposit taker is not regulated, will the poor savers be protected and if so then up to how much?
#· Presently some banks that are well connected can repulse supervision and we have seen some of late. How safe will the small poor depositors funds be assisted?

As we ponder on the queries and comb through the bill, one gets the impression that it is just a cut and paste of the banking Act Cap 488. It has similar headings like those in the banking Act, like conditions on licensing, prohibited business, reserves, accounts and audit, information on reporting requirements, inspection and control of institutions, deposit protection fund etc. One noticeable difference between the bill and the banking act is that this bill has some mention of corporate governance. Otherwise the whole document seems to be cut and paste from the banking Act Cap 488.

The bill has not come up with regulatory guidelines that address the poor, who usually operate in some informal conditions. For example most poor people find it expensive to register businesses under the companies Act Cap 486, but do so by registering business names which, is cheaper and easier. But this Bill states in section 4. That "No person shall carry out any deposit taking microfinance business - - unless such a person is-
1. a company registered under Companies Act whose main objective is to carry our such business; or
2. a wholly-owned subsidiary of a bank or a financial institution whose main objective is to carry out such business; and
3. holds a valid license issued under this act"

The above conditions show that the microfinance bill is not for small group of savers or the informal sector.

Further take note that the problems of Cap 486 need to be seen and addressed in light of the recent Uchumi debacle. This Act and the Bankruptcy Act need to be revised.

These conditions do cut off the poor abinitio. The aspect of group saving and group lending is not considered. The requirements so indicated are not different from those of the current Act, save for mention of the word "microfinance".

Another section of the proposed bill, which is worth mentioning is the section 19(1). It states that 'Subject to ' "..no person shall hold more than twenty-five percent of the shares of an institution." Based on this, what stops the multinational banks from setting up their branches countrywide and owning 24.99% and calling all of them microfinance branches? Furthermore, rich, unscrupulous individuals in this country would do the same; call themselves microfinance, collect deposits from the public and then close shop(subject to them owning only 24.99% and then gets a microfinance license).

Globally, the genesis of microfinance was to help the poor. As the wave started in Bangladesh under the thoughts of Yunis Ali, it spread to the formation of Grameen bank, the susu collections in Ghana, the Merry Go Round in Kenya etc and the rest of the world. It was akin to the Millennium Development Villages ideas as started by Jeffrey Sachs and others.

Studies under both instances mentioned above have taken upon themselves to show that the extreme poor can get out of poverty if shown the ladder to wealth. The active poor are affected by life threatening needs like those of sickness, paying school fees for their many children, paying dowry, problems of natural calamities of floods, drought, hunger, epidemic etc. By the use of microfinance, the poor can be made to save, borrow, have insurance and become less hopeless in life.

Banks in the past were expensive and were out of reach for the poor.

But now, the challenge to this Act is that the banks in Kenya are now more affordable to the poor. Their opening amounts and balances rates have declined.

Their charges are now competitive. They advertise daily and give incentives too those who open accounts. In Kenya now the ATMs are many countrywide. By use of technology the customers can get services from any branch of their bank in the county... There are also third parties which are not banks like Pesa Point and are now providing cash disbursement for banks etc. The credit card business for cash disbursement is also wide.

On lending, the banks now give unsecured loans which were not done before. The poor had no collateral against which they would borrow but now banks give loans without security.

In short, this microfinance bill has been overtaken by marketing environmental issues, technology and globalization and its enactment might not add value to the active poor and extreme poor in Kenya.

Felix O.Okatch

Multilateral trade expert
Tel: 254-20-551310
Cell phone: 0721-735489
E-mail: felixokatch At yaHoo DOt com