Kenya: CBK set to allow mobile banking in rural areas

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Apr 2008
Kenya, April, 01 2008 - The Central Bank has pledged to review its requirements for bank branch premises to allow further penetration of banking services in the rural areas.

The CBK Governor, Prof Njuguna Ndung’u, says the regulator would relax its rules  to facilitate the establishment of “branchless banking”.

Branchless banking entails the provision of banking services in an area without necessarily putting up physical banking facilities. This will take the form of mobile vans taking banking services to remote areas and telephone based solutions.

Central Bank has stringent prudential guidelines that impose detailed specifications for financial institutions intending to open deposit-taking banking facilities anywhere in the country.

Although most of these requirements are meant to protect depositors’ money, the attendant high compliance costs have been cited as an impediment to the penetration of banking services in remote areas and have forced most banks to shun locations perceived to have low potential to repay the bankers’ investments.

All bank branches must get Central Bank’s approval with regard to adequacy of its premises, insurances, alarm systems and must meet specified minimum security standards.

Prof Ndung’u, however, says CBK will  review some of these regulations to ensure the rules are not unduly stringent and do not add, unnecessarily, to the cost of doing business.

“We will be reviewing our prudential requirements for bank branch premises to ensure they play a facilitative role in extending banks’ outreach,”  the Governor said during the opening of a new NIC Bank branch in Mombasa recently.

He said the regulatory requirements must remain relevant to industry dynamics and overall economic objectives. Some of the amendments have been necessitated by advancements in information technology that have seen the emergence of electronic banking and other services that, to a large extent, have not been accommodated in existing statutes.

An example of such technology- enabled services including Automated Teller Machines (ATMs), mobile banking which is already being offered by banks such as Equity and the mobile phone company Safaricom’s M-Pesa money transfer service have proved to be popular alternative media  for sending money locally.

These advancements could now necessitate the revision of some of the prudential guidelines that still require banks to maintain detailed operational manuals for all its branches.

Prof Ndung’u says the savings accrued from branchless banking should then be passed on to banking clients in form of lower bank charges, fees and lending rates. He says branchless banking could take the form of strategic alliances between banks and other financial and non-financial players, with extensive networks and the tapping of technology enabling services such as those offered by mobile telephony companies.

Safaricom has recently entered into agreements with several banks that have a wide reach to facilitate its M-Pesa services.

Most banks have also entered into partnerships with Pesa Poipeant, an independent ATM backbone provider that has increased their penetration even into areas that such banks do not have physical facilities. The technology enabled services have however seen the emergence of “technology fraudsters” who can only be reigned in by new laws.

But the review of bank branch prudential guidelines is just one in a host of other financial sector legislations lined up in the current financial year and which are likely to be introduced through the finance minister’s budget in June.

Finance minister Amos Kimunya announced last Friday  that the Companies Act would also be reviewed to allow for online participation of shareholders at annual general meetings.

Mr Kimunya said with at least one million investors expected to apply for the Safaricom shares, the physical attendance of the company’s annual general meeting (AGM) could prove to be a logistical nightmare and hence the need for an urgent appeal of the law.

“We will amend the law to allow for online participation in time for Safaricom’s first AGM,” said Mr Kimunya.

Energy generating company KenGen, with up to 200,000 shareholders in its register, has faced similar logistical nightmares since going public in 2006 and has been forced to hold its AGMs at the Kasarani stadium.

The company has also decried the huge printing costs incurred in printing and sending of shareholder notices, annual accounts and other statutory information. Another legislation that appears to be long overdue is the anti money-laundering Act that is expected to provide a legal framework for countering the now internationally recognised financial crime.

 

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