Microfinance Act

The Act may be cited as the Microfinance Act.

Defines an institution’s place of business as premises or a structure owned or occupied by a third party and used under an agreement between the institution and the third party for deposit-taking microfinance business.

Section 3 applies to deposit-taking and non-deposit-taking microfinance businesses, allows prescribing conduct and exemptions for non-deposit-taking businesses, and bars exemptions where a non-deposit-taking business has annual revenue exceeding five hundred thousand shillings; it also lists certain excluded institutions.

The Central Bank may restrict a licence where revocation is not justified, and such restriction is to be in accordance with subsection (2).

Only companies registered under the Companies Act whose main objective is deposit-taking business, or wholly-owned subsidiaries of banks or financial institutions with that objective, may carry out deposit-taking microfinance business if they are licensed under this Act; duly approved agencies conducting deposit-taking on behalf of an institution are not subject to that requirement; the institution is liable for agency acts; contravention is an offence with a fine up to one hundred thousand shillings or imprisonment up to three years, or both.

Only a company registered under the Companies Act whose main objective is to carry out non-deposit-taking microfinance business and licensed under this Act may carry out non-deposit-taking microfinance business; contravention is an offence with specified penalties.

An application for a licence to carry out deposit-taking or non-deposit-taking microfinance business must be made to the Central Bank in the prescribed form.

The Central Bank must consider licence applications under section 5 and may grant licences if requirements are met and the prescribed fee is paid; it may also endorse and vary licence conditions, and may renew licences subject to subsection (4) and payment of the prescribed fee.

The Cabinet Secretary may prescribe categories of deposit-taking business.

The Central Bank may, under a warrant issued by the High Court, enter premises and examine the books, accounts or records of any person believed to be carrying out deposit-taking business contrary to this Act.

The Central Bank must publish in the Gazette the names of institutions whose licences have been revoked within seven days of revocation.

An institution must maintain the minimum capital requirements set out in the Schedule.

Institutions must hold minimum liquid assets as prescribed by the Central Bank; failure to comply can trigger a daily penalty interest charge up to 1% of the deficiency when called upon by the Central Bank.

A person must not open a branch or place of business outside Kenya, or open or close a branch or place of business in Kenya, without the prior approval of the Central Bank.

The section states that a person who contravenes the section commits an offence and is liable on conviction to a fine not exceeding one hundred thousand shillings, or to imprisonment for a term not exceeding three years, or to both.

No institution may pay dividends or make other distributions to shareholders until its capitalized expenditure is written off and provisions for bad and doubtful debts are made in accordance with subsection (2).

Anyone may apply to an institution or non-deposit-taking microfinance business for a loan or credit facility; applicants must provide evidence of their ability to repay.

Institutions are prohibited from granting loans or credit facilities that exceed specified limits of their core capital and from granting such facilities secured by shares of their deposit-taking business; contravention is an offence punishable by a fine not exceeding fifty thousand shillings, or imprisonment up to two years, or both.

Institutions are prohibited from granting loans or credit facilities to associates or staff beyond limits prescribed by the Central Bank; contravention is an offence punishable by a fine up to 100,000 shillings or imprisonment up to three years, or both.

Limits shareholdings in an institution (max 25%), restricts transfers over 10% without Central Bank approval, requires disclosure of ultimate beneficial owners, and makes contravention an offence with specified penalties.

Institutions must be managed by a Board of Directors of at least five Directors; the Board must elect a non‑executive Chairperson and may delegate powers in writing.

Directors are disqualified if they are a minor or are under a legal disability.

Persons who continue to act as officers after being disqualified commit an offence; the section lists grounds for disqualification including undischarged bankruptcy, entering into a composition or scheme of arrangement with creditors, conviction for fraud or dishonesty, or removal from office.

The Central Bank may assess persons managing or controlling institutions for professional and moral suitability; if satisfied it must certify in writing, and those not certified are disqualified and cease to hold office.

An institution's financial year is the twelve-month period ending on 31 December each year.

Accounts and entries kept by an institution must be recorded in English and using the system of numerals employed in government accounts; accounts must show a true and fair state of affairs and explain transactions and financial positions to enable the Central Bank to determine whether the institution has complied with the Act.

Accounts must be denominated in shillings.

Section 26 requires submission of an audited balance sheet, audited profit and loss account and a copy of the auditor’s report; contravention is an offence.

Require disclosure of persons who hold more than twenty-five per cent of the total shares of the institution.

Every institution must appoint an internal auditor; the internal auditor must report to the Board of Directors; a person may not be appointed unless they hold specified professional qualifications and relevant microfinance experience.

Institutions must annually appoint an external auditor qualified under section 30 and approved by the Central Bank; the auditor must audit accounts, report to the Central Bank and Board, and submit an audit report not less than four months after year end; institutions may not change auditors without Central Bank approval; the Central Bank may hold trilateral meetings and may remove and replace auditors for non-compliance.

States that a person "is qualified as an auditor under the Companies Act ( Cap. 486 )".

Institutions must display their last audited financial statements year-round in each office and branch, and must publish the balance sheet and profit and loss account in a national newspaper within four months after each financial year; non-compliance may attract a prescribed penalty of not less than 100,000 shillings payable to the Central Bank.

Requires amendment of the audited accounts to comply with the Act.

Central Bank must collect data and may require institutions to submit returns or furnish information; Cabinet Secretary may require information from the Central Bank or institutions.

Section 34 sets rules on publishing and sharing information: the Cabinet Secretary may publish information furnished under the Act; persons who obtain information through performing duties generally must not disclose it; specified bodies must exchange loan-performance information as regulated; the Central Bank may disclose information to specified authorities (including cross‑border where reciprocal arrangements exist).

The Central Bank may (and must if directed by the Cabinet Secretary) order inspections; when an inspection occurs the institution, its agencies and their officers and employees must produce requested books, records and information within a specified period; failure to do so is an offence.

The Central Bank may require an institution to provide periodic reports about its business operations in a form the Central Bank prescribes.

Allows restriction, suspension or prohibition of an institution's payment of dividends.

The Central Bank must regulate, supervise and enforce anti-money laundering, terrorism financing and proliferation financing compliance for reporting institutions; it has specific supervisory powers including vetting key persons, inspections, surveillance, requiring documents, imposing sanctions, issuing rules and sharing information.

Certain persons (institutions, directors, officers, employers, agents or any other person) must not violate or fail to comply with the Proceeds of Crime and Anti-Money Laundering Act or related instruments; penalties include up to five million shillings for legal persons, up to one million shillings for natural persons, and additional penalties up to one hundred thousand shillings per day while the non-compliance continues.

The Central Bank must issue a notice specifying defaults and require remedial action before intervening in an institution's affairs; a person appointed to manage an institution shall hold office for no more than six months (subject to possible extension by the High Court).

If an institution is insolvent, the Central Bank may appoint the Deposit Protection Fund Board as liquidator; the Board is subject to High Court supervision; no receiver or manager may be appointed without prior High Court approval; the High Court must not grant that approval unless the Central Bank certifies it will not exercise its powers.

All institutions must contribute to the Deposit Protection Fund; the Board prescribes amounts and timing and may increase contributions if an institution's affairs are detrimental; late or non-contributing institutions must pay penalty interest up to one-half per cent of the unpaid amount per day; the Board must publish an annual list of protected institutions in the Gazette.

The Deposit Protection Fund Board must determine protected deposit amounts by order in the Gazette; customers may lodge claims on institution insolvency; the Board may require proof, decline payments in certain cases, require the Central Bank to inspect, and is entitled to recover amounts from institutions or liquidators.

The Deposit Protection Fund Board is entitled to receive notices/documents sent to a creditor, and its authorized representative is entitled to attend meetings of the institution's creditors.

A liquidator may assign an institution's or a customer's assets or liabilities to third parties for the benefit of the institution's creditors and depositors.

The Cabinet Secretary may, by notice in the Gazette, declare a non-public-holiday day to be a holiday for all institutions or a particular institution, and those institutions shall remain closed on that day.

Section 44 authorises the High Court to order that an institution be prohibited from carrying on business or that the commencement or continuance of actions or proceedings against the institution be stayed for a specified period on terms the Court considers reasonable, and the Court may extend that stay up to a total of six months; an order under subsection (1)(a) causes a licence granted under the Act to be deemed suspended.

Only licensed persons may use the term "deposit-taking microfinance business"; companies registered as microfinance banks must stop using "microfinance bank" in their name if they do not obtain a licence within one year; contravention is an offence.

Officers or employees must take all reasonable steps to secure the institution's compliance with this Act.

A person who commits an offence under this Act for which no penalty is stipulated shall be liable, on conviction, to a fine not exceeding one hundred thousand shillings, or to imprisonment for a term not exceeding one year, or to both.

All persons subject to this Act are entitled to enjoy all rights and fundamental freedoms in the Constitution, except where limited by Article 24, this Act or any other Act.

The statutory right to privacy is limited as specified, allowing searches, seizures, disclosure of certain private information, and interference with communications where provided for.

The Central Bank may make regulations with the approval of the Cabinet Secretary; the Cabinet Secretary may make regulations on the Central Bank's recommendation and may prescribe penalties (limits specified) for failure to comply with Central Bank directions.

The Central Bank may direct an institution at any time to withdraw, amend or refrain from issuing any document covered by subsection (1).

Non-deposit-taking microfinance businesses must comply with Article 31 and the Data Protection Act when lending and recovering debts, and must not collect interest or charges unless those are prescribed in an agreement with the borrower.

Persons who were conducting non-deposit-taking microfinance business before commencement must apply for a licence within six months; applicants may continue operating pending determination subject to the Act, Regulations and conditions from the Central Bank; existing licences prior to commencement continue until expiry; contravening this section is an offence punishable by up to 5 years imprisonment or a fine of Kenya Shillings Two million or both.