New Central Bank deposit rules catch micro-lenders flat-footed

AMFI chief executive Benjamin Nkungi. Mr Nkungi, told the Nation on phone that the directive was a bit of an ambush on operators, who were expecting the rule at a much later date when they would have mobilised sufficient deposits.  

In Summary

• Amfi chief executive Benjamin Nkungi, told the Nation on phone that the directive was a bit of an ambush on operators, who were expecting the rule at a much later date when they would have mobilised sufficient deposits.

By JOSHUA MASINDE
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Microfinance institutions say they were surprised by a government move requiring them to deposit a portion of their cash with the Central Bank of Kenya.

 

In a Gazette notice on Friday July 25, National Treasury Cabinet Secretary Henry Rotich directed them to comply with the cash reserve ratio rule as required by the Central Bank of Kenya Act, in a move meant to level the playing field for the sector.

Microfinance banks must now deposit an amount equivalent to the cash reserve ratio of 5.25 per cent with the Central Bank in a month. Currently, only commercial institutions are required to obey that rule.

“The Cabinet Secretary for the National Treasury prescribes for purposes of section 38 (of the Central Bank of Kenya Act) the microfinance banks … to be subject to the cash reserve ratio,” Mr Rotich said in the Gazette notice.

Commercial banks are required to keep cash reserve ratio on a monthly average of 5.25 per cent in the 30 day maintenance cycle from 15th through 14th of every month but subject to a daily minimum of 3 per cent.

An ambush
The directive affects nine microfinance banks that are regulated by the CBK. They include Faulu, Rafiki, U&I, Remu, SMEP, Uwezo, Century, Sumac and Kenya microfinance banks.
The Association of Microfinance Institutions (Amfi), a lobby group for the sector, said it did not anticipate such a directive so soon and was, therefore, caught by surprise.

Amfi chief executive Benjamin Nkungi, told the Nation on phone that the directive was a bit of an ambush on operators, who were expecting the rule at a much later date when they would have mobilised sufficient deposits.

“We were aware of this requirement but we didn’t expect it would come too soon. It has taken away some of the deposits that could otherwise be lent to customers. Some clients may miss out on loans that could have been issued out from the deposits that must now be kept at the Central Bank,” said Mr Nkungi.

“We still have relatively low amounts of deposits compared to say, banks, because we haven’t been able to attract sufficient deposits from the market,” he said.

The deposits that microfinance banks held amounted to Sh30.7 billion as of June this year. They will, however, now part with Sh1.6 billion or higher on monthly basis. 

According to Central Bank’s latest banking sector performance report for the second quarter of 2014, the deposit base for the nine microfinance banks stood at Sh30.7 billion, representing a growth of 10.4 per cent from Sh27.8 billion in March 2014.