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"id": 235930,
"url": "https://info.mzalendo.com/api/v0.1/hansard/entries/235930/?format=api",
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"type": "speech",
"speaker_name": "Mr. Kimunya",
"speaker_title": "The Minister for Finance",
"speaker": {
"id": 174,
"legal_name": "Amos Muhinga Kimunya",
"slug": "amos-kimunya"
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"content": "Mr. Temporary Deputy Speaker, Sir, microfinance business, which basically refers to the provision of financial services to the poor and the small and micro-enterprises, holds an enormous potential to alleviate poverty. Widespread experiences and research have shown that sound microfinance institutions are vital ingredients for economic growth and welfare improvement. The Government recognises that greater access to, and sustainable flow of financial services to the poor and the informal sector is critical to progress in poverty reduction. This Bill has been much anticipated and debated. There have been a lot of stakeholders' expectations and anticipation in developing it. Its primary objection is, basically, to make provision for licensing, regulating and supervising microfinance businesses. Mr. Temporary Deputy Speaker, Sir, the potential for using institutional credit and other financial services for poverty alleviation in Kenya is quite significant. About 60 per cent of our population or 18 million people are poor and mostly out of the scope of the formal banking services. It is estimated that there are close to 1.3 small and micro-enterprises, which combined, employ nearly 2.3 million persons or 20 per cent of the country's total employment. They contribute, in overall terms, 18 per cent of our Gross Domestic Product (GDP) and within the non- agricultural GDP, they contribute 25 per cent. Despite this important contribution, only 10 per cent of the small and microenterprise sector receives credit and other financial services from the formal sectors. Our microfinance institutions are registered under different Acts of Parliament. They are scattered over the Non-Governmental Organisations and Co-ordination Act, the Building Societies Act, the Trustees Act, the Societies Act, the Co-operatives Act, the Companies Act and the Banking Act. You will appreciate that with that kind of multiplicity in terms of registration systems, it is difficult to address the critical issues relating to ownership, governance, safety and stability of the microfinance institutions and, indeed, of the funds that they are holding on behalf of the public. Lack of appropriate legislation and regulatory oversight is the main impediment to the growth and development of the microfinance institutions in this country. Mr. Temporary Deputy Speaker, Sir, the proposed Bill aims at ensuring that licensed microfinance institutions comply with the requirements of financial sector soundness, safety and stability. The institutions to be regulated under this Bill shall provide savings, credit and other financial services to both the micro as well as the small and medium enterprises and to the low income households in both rural and urban areas. The Government has initiated reforms to include financial systems with multiple financial service providers that serve the entire population and not just a tiny minority. Microfinance is the provision of financial services to the low income households and micro-enterprises as an integral part of a competitive and diverse financial system that uses innovative delivery channels and methodologies to all segments of the society. Our low income households and micro-enterprises, including the small-holder farmers and women, need to access financial services and are willing to pay for affordable services. The Microfinance Bill will introduce new players in the deposit-taking intermediation process and 3516 PARLIAMENTARY DEBATES November 8, 2006 thereby introduce and increase competition in the industry. The legislation will also enable the licensed microfinance institutions to lower their cost of funds by accessing deposits which are considered to be a cheaper source of funding. Both the increased competition and the low cost of funds coupled with improved management and sound governance practices are expected to reduce the interest rates and make the credit affordable, especially to our rural poor, youth and women. Mr. Temporary Deputy Speaker, Sir, the Bill sets the minimum core-capital requirements at two different levels for the deposit-taking microfinance institutions. It sets the minimum capital requirement of, at least, Kshs60 million and Kshs20 million for another class of microfinance institutions, based on geographical or administrative criteria. The minimum capital is set again with the aim of encouraging a wider coverage and penetration to the low income households and more so, in the rural areas. It is important to note that what is considered as adequate capital to be held by a microfinance institution will be assessed relatively to the level of business that is likely to undertake in a viable and sustainable manner. There is, therefore, the minimum threshold below which it may not be viable to hold capital for a deposit-taking microfinance institution. The low income consumers of financial services and the unsophisticated customers who cannot monitor and evaluate the healthiness of their financial entities need to be protected from the predatory lenders and other unscrupulous practices or in terms of accidental failures of the financial institutions. The Microfinance Bill, just like the Banking Act is providing for depositors' savings protection scheme to the tune of Kshs100,000 per saver under the Deposit Protection Fund Board. This protection is not currently available under the microfinance practices that we have now. Furthermore, the Government, under the financial sector reforms, namely, the Financial and Legal Sector Technical Assistance Programme, is also in the process of developing a consumer protection legislation that will provide protection to consumers of all financial services which are provided by commercial banks, microfinance institutions, savings and credit co-operatives and higher purchase companies. Mr. Temporary Deputy Speaker, Sir, the Microfinance Bill will contribute to the provision of financial services to the low income households and our small and micro-enterprises. This will in turn help to build an inclusive financial system that serves a greater number of our population and in the process, spur economic growth and reduce poverty in our country. This Bill is coming at an opportune time when our economy is registering high and sustainable growth. Most of our people are yearning to be given the right environment and be empowered to undertake businesses within formal systems. We are seeing more people bringing their money from under their mattresses and putting it into the formal system. I believe that this Bill could not have come at a better time. I believe this House owes Kenyans a chance to better their lives and to give them a platform on which they can operate and access credit that can help build this country. I would like to urge the House to give Kenyan entrepreneurs, the small and micro-entrepreneurs, our women and youth, this boost that they require by passing this Bill in the shortest time possible. If we can even go to the Committee Stage today or tomorrow, we can have these people enjoying the benefits of a liberalised system. With that appeal to the hon. Members, I would like to move the Bill and request hon. Katuku to second it."
}