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"id": 235952,
"url": "https://info.mzalendo.com/api/v0.1/hansard/entries/235952/?format=api",
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"speaker_name": "Dr. Oburu",
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"speaker": {
"id": 194,
"legal_name": "Oburu Ngona Odinga",
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"content": "Mr. Temporary Deputy Sir, it will come. We have agreed that hon. Okemo will, indeed, present it on behalf of the Committee. This is a very important Bill because it is addressing an issue which major banks in this country have been unable to address. When the policy of liberalisation was introduced in this country, it was our expectation that banks would use the liberalised system of financing to spread their services to rural areas, which up to then had no access to financial institutions. We were expecting them to charge higher interest rates because of higher risks in those areas. But nobody in this country expected the major banks to shrink their services and close down their branches in rural areas. This has made financial services completely unavailable to the majority of Kenyans in our rural areas. What happened after liberalisation was that the major banks closed down their branches in rural areas, and wananchi were left without any access to financial services. This made it very difficult for small depositors to deposit their money in big banks. Such banks require high 3522 PARLIAMENTARY DEBATES November 8, 2006 minimum account levels, which are unaffordable by small savers, especially the teaching fraternity and those who earn small salaries in rural areas Mr. Temporary Deputy Speaker, Sir, it is very pathetic that the microfinance sector is operating without any regulatory framework. This has resulted in a situation where microfinance institutions give small savers and poor Kenyans money borrowed from major banks. When you deposit money with a microfinance institution, it has no right to give you the same amount of money. When you deposit money with them, they have to deposit that money with major banks. Then, they cannot withdraw that money to lend it to you, because there is no regulation which allows them to do that. They have to use that money which you deposit with them to secure an overdraft from major banks and then on-lend to small savers. This is the major reason why interest rates have been very high. Mr. Temporary Deputy Speaker, Sir, microfinance is important in the sense that it gives that poor woman in the village, who earns Kshs100 or Kshs50, a chance to save and get a loan of even Kshs1000. This is a lot of money to that woman in the village who wants to access credit. We cannot talk of poverty alleviation in this country if we do not seriously address the issue of microfinance. Countries like Bangladesh used microfinance to pull themselves out of poverty. It is, therefore, very important that we quickly adopt a regulatory framework which will allow wananchi to bank small amounts of money. This money should be saved and then lend to them at a low rate. Microfinance institutions will be able to do that because they will not be depending on overdrafts from established banks, where interest rates are very high. In this country we have had fraudsters, people who purport to be doing microfinance business. They collect money from rural areas. They pretend that they will double or triple the lending and then escape with people's money. Some of these institutions call themselves \"rural banks\", but in the actual sense they are not banks, because they are not regulated by the Central Bank of Kenya. Nobody knows what they do. Therefore, even if they escape with peoples money, it is not possible to follow them up. If you want to follow them, you do so just under the ordinary Penal Code. This particular Bill intends to regulate microfinance institutions to bring order into this sector. Those who will do this business will be required to set aside minimum capital, so that their credibility is established. In that way, those who will deposit money with them will know that these institutions are recognised by law and have some protection. It is also very pertinent that this particular Bill differentiates between those in urban areas and those in far-flung rural areas. The requirement for capital for somebody operating countrywide is going to be Kshs60 million. The requirement for those operating in rural areas is going to be Kshs20 million. This is comparable to what is in other countries which have established microfinance systems. It is comparable to what is in Nigeria and Bangladesh. Therefore, it is not something that is out of ordinary practice. It is something which is quite within the practices of countries which have established the microfinance system. The difference between a microfinance and the normal banking institution is that it is not allowed to accept third party cheques. They will also not be allowed to operate current accounts. They will not be allowed to trade in foreign currencies or finance foreign trade and so on. These services are not important to the ordinary Kenyan. Let the big banks do those things which microfinance institutions will not be allowed to do. Even though this Bill allows the major banks to also engage in microfinance activities if they want, I would really want to warn them not to ignore poor Kenyans in our rural areas. Now that parliament is enacting a law which will address the gap which they have deliberately created because of their greed for profits, I would like to urge them to refrain from getting into this field, because it is not their specialisation. They have been concentrating on big customers and have, in fact, closed most of their branches in rural areas. Microfinance institutions have come up to fill the November 8, 2006 PARLIAMENTARY DEBATES 3523 gap which was left by them. The big banks should not try to introduce too stiff a competition that would kill microfinance institutions and get them out of business. Once big banks are out of business, they are likely to come back and start practising the same old activities even after dealing a death blow to the microfinance institutions. This is something that is likely to happen because this Bill allows them to establish their own microfinance branches. Mr. Temporary Deputy Speaker, Sir, the issue of collateral is very important. Most of the big banks have very stringent conditions. They demand that customers provide collateral in form of title deeds and so on. This particular Bill allows groups to guarantee each other. One of the loopholes in this particular Bill is the definition of \"group\". It is, therefore, important that we know the meaning of a \"group\". In the rural areas, we have groups that are registered by the Department of Social Services. These groups are not recognised in law as corporate bodies which can sue and be sued. It will be difficult to sue groups because of this. Individuals in these groups will be borrowing money from microfinance institutions and the groups will guarantee them. However, it will not be possible to sue them as a group, but as individuals. So, it is important that we find a way of formalising groups so that they can be cohesive and properly tackled as groups and not as individuals. The size of a group is equally important. We know that in this country we have had very large groups. If you have a group of, say, 200 or 300 people, they normally work effectively. This is because such a large number of people creates a lot of inertia which in turn, brews a lot of conflict, and the group ends up breaking and creating enmity amongst its members. It is, therefore, important that we have some definition of the word \"group\". With regard to numbers, we are going to make our own recommendations when the Departmental Committee on Finance, Planning and Trade presents its Report here later on. Mr. Temporary Deputy Speaker, Sir, this Bill will go a long way in dealing with predatory lenders---"
}