| dc.description.abstract | The main objective of this research study is to identify and analyse the characteristics of
Micro-finance Institutions (MFls) operating in Kenya so as to assess the suitability of a
regulatory framework, and the form that it can take. In order to meet this objective, the
information sought for the study was collected through the use of a questionnaire,
administered to a _sample of 50 micro-finance institutions in Kenya. Out of this sample,
30 respondents (60%), completed the questionnaires and have provided the information
used in this report.
The research study has found out that 37% of the organizations interviewed were
registered as limited cornparues while 43% were registered as non-governmental
organizations, dispelling the fear that private comparues cannot mobilize funds, from
donor agencies for charitable work. Although the eight different Acts under which the
MFIs are registered have facilitated innovation and flexibility in performance, all the
respondents agreed that there is an urgent need for regulation of the sector. The actual
form of regulation needed is still however, controversial with the majority (50%) of the
respondents preferring to be regulated by the Association of Micro-finance Institutions.
The Kenyan MFls' characteristics are similar to those of similar institutions in other
countries i.e. the existence of MFI investors with non commercial interest, dependent on
donor funding and the client groups with highly concentrated portfolios. These
characteristics, though call for a different form of regulation from that applied to
traditional banks, have partly been a hindrance to the regulatory process. The study found
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that the dominant characteristics that hinder regulation are targeting low-income asset
less clients/MSEs, extending unsecured loans based on group guarantees and
capitalization by donors. The issue of which particular characteristics do support
regulation can only be examined on the basis of the type of regulation being pursued as
organizations to be regulated by the CBK will have to fulfil different conditions from
those being regulated through a third party or ANIFI.
To take deposits, MFls are required to satisfy capital adequacy, asset and management
quality, earning and liquidity requirements otherwise known as CAMEL. Forty three
percent (43%) of the respondents interviewed have never heard of the CAMEL tool, yet
those who have were reluctant to suggest possible levels for the 5 components of the
CAMEL tool.
The study has identified six regulatory groupings and has separated institutions that
operate more like rotating savings and credit societies and/or that are basically projects
managed by registered churches as Type I MFls requiring no formal regulation. MF
GOs at infancy stage or old ones still heavily dependent on donor funding are
categorised as Type II MFls requiring self-regulation. Type III Organizations are those
with credit only operations and forced deposit operations to be regulated by ANIFI or a
licensed third party organization. Type IV MFls representing Deposit taking MFls to be
regulated by the Central Bank. Type V MFls represents savings and credit co-operative
societies undertaking MF business to be regulated by the Department of Co-operatives
and finally, Type VI composed of commercial banks will be regulated by the Central
Bank.
It is not certain how many of the MFIs wishing to take deposits will meet the
requirements that may be imposed by the CBK. Ten percent (10%) of the respondents
chose to go for deposit taking and hence be subject to CBK regulation. However, given
the limited human, technical and financial resources, the CBK may need to establish
which and how many MFIs it can effectively supervise, or the number that they wish to
encourage to be regulated. | en |
