Stiff competition in banking sector as new laws beckon

By Nicholas  Waitathu

Commercial banks face stiff competition from Deposit Taking Microfinances (DTMs) as a Parliamentary Departmental Committee concludes sessions with members of the public.

The committee had been seeking views from the public on amending the Microfinance Act to widen microfinance institutions area of operation.

Micro finance Act

The amendment Bill will come for the second reading immediately Parliament resumes after recess next month. The Parliament departmental committee on Finance, Planning and Trade chaired by Ainamoi MP Benjamin Langat has prepared amendments to the Microfinance Act 2006.

The amendments would allow DTMs to enjoy more functions, for example, issuing of third party cheques, operating current accounts and foreign trade operations. 

Further, the amendment seeks to delete all references in the Act to the words deposit taking microfinance institution and substituting it with the words ‘Microfinance Bank.’

Once amended, the Act will allow DTMs to offer full financial services and products thus being regulated the same way commercial banks are.

According to Langat the Microfinance (Amendment) Bill, 2013 further seeks to allow the DTMs to subcontract agency services similar to the practice in the banking system.

The legislator states that the Bill would allow greater sharing of information on performing and non-performing loans and protect regulatory institutions such as the Central Bank of Kenya (CBK) and deposit protection fund from liability if such intuitions share information in good faith with other authorised institutions.   “The Bill expands and strengthens the regulatory authority of CBK to intervene in the affairs of the institutions or initiate prompt corrective action if the institutions do not carry out their activities according to prudential guidelines,” Langat added

He said it also allows CBK’s intervention where the interest of depositors and creditors is under threat.

The Bill went through the first reading and was referred to the departmental committee on finance, planning and trade on June 26.  Since then the committee has been engaging the stakeholders on the Bill, which they concluded last week. 

CBK since 2009 has licensed nine DTMs, which include Kenya Women Finance Trust (KWFT), Faulu Kenya, Smep, Remu, Rafiki, Century, DTM -U&I Deposit Taking Microfinance Limited and Sumac and one community-based DTM–Uwezo. 

Customer Deposits

CBK Governor Prof Njuguna Ndung’u in 2013 first quarterly report indicated that DTMs for a period of four years have registered impressive returns in terms of customer deposits mobilisation and advancing out of loans.

For example, Bank Supervision Annual Report 2012 compiled by CBK says the DTM’s customer deposits increased by 54 per cent from Sh10 billion in 2011 to Sh15.4 billion in 2012. 

It indicates that customers with accounts in banks currently stands at 18 million up from two million in 2003.