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- Is a bank inspector like a policeman?
Just as a policeman ensures the safety of the members of the public, a bank inspector's role is to ensure safety of depositor's funds held by the banks so as to ensure safety and soundness in the banking sector.
- How often are bank's inspected?
At least once every year however the frequency is determined by the risk assessment of the institution.
- How long do banks inspections take?
This is determined by the size and risk profile of the institution but on average it takes four weeks to inspect a bank.
- What kind of reports do bank inspectors produce and why are they not made public?
The bank inspectors produce various reports but fundamentally after each inspection a report is produced and is presented to the bank's Board of Directors and Senior Management. The reports are confidential due to the sensitivity of the banking industry. However, banks are required to disclose some of the findings in their published accounts.
- How long does it take to process a forex bureau licence?
Depending on your ability to fulfil the Central Bank's requirements detailed in the Forex Bureau Guidelines, it can take about 2 months.
- Is Central Bank of Kenya regulating on-line forex traders, forex brokers
and similar businesses?
No. Central Bank of Kenya regulates forex bureaus it has licensed, which have premises that have been approved by the Central Bank. A licensed foreign exchange bureau will have a current Central Bank's licence displayed in a prominent place, in its hall. Its business name should incorporate the words "Forex Bureau", "Foreign Exchange Bureau" or "Bureau De Change".
- What is the purpose of the non-interest bearing deposit by Forex Bureaus?
The non-interest bearing deposit can be forfeited by a licensed forex bureau in case of contravention of the regulation under which the license is issued or failure to pay penalty assessed.
- Do licensed foreign exchange bureaus accept deposits and/or grant loans?
Licensed foreign exchange bureaus do not accept deposits from the public. They are also prohibited from lending money.
- Does the Central Bank allow investors to open a forex bureau in Nairobi and a few branches, say in Mombasa and Busia Towns?
No, licensed Forex Bureaus are not allowed to have branches.
- Am I entitled to a receipt on every purchase or sale of foreign currency at a licensed forex bureau?
Yes, every transaction should be receipted, with the customer keeping a copy of the receipt that shows both the amount of foreign currency and its Kenya Shilling equivalent, for every purchase or sale of foreign currency.
- Should I identify myself when buying or selling foreign currency at a licensed forex bureau?
Yes, always carry with you your identification documents, and present them to the cashier, when requested to.
- Am I under any obligation to declare the source of the foreign currency that I sell to a licensed forex bureau?
Yes, you are required to declare the source of money you are exchanging at the forex bureau.
- Is it normal for a licensed forex bureau to issue me with a cheque when I sell foreign currency at the bureau's counters?
No, a forex bureau should give you Kenya Shillings in cash.
- Can I open a foreign exchange bureau anywhere in Kenya?
Yes, there are no restrictions, and thus you can open a forex bureau anywhere in Kenya.
- What is a Microfinance Institution (MFI)?
A microfinance institution (MFI) is an institution that offers financial services such as credit, savings, insurance, money transfer services to the poor, low income households and Small and Micro Enterprises (SMEs) who do not qualify for, and therefore lack access to, traditional formal financial institutions. The Central Bank has broadly categorised MFIs into credit non-deposit taking (credit-only) and deposit-taking microfinance institutions (see No.s 21 and 22 below).
- What is the importance of microfinance in the economy?
Microfinance is not the panacea to alleviating poverty; however, it is an important part of the solution. Microfinance provides a stable and sustainable source of income that enables clients to climb steadily out of poverty, while providing better living conditions and opportunities for their families.
- What is the distinct difference between non-deposit taking (credit-only) and deposit-taking microfinance institutions?
The distinction between the two is that deposit-taking microfinance institutions are licensed and regulated by the Central Bank of Kenya and are permitted to mobilize and intermediate (or lend) deposits from the general public. Non-deposit taking microfinance institutions, on their other hand, are not allowed to mobilise public funds and can only lend their own funds or borrowed funds.
- What is the difference between Microfinance Institutions and commercial
banks?
The major difference between commercial banks and deposit-taking microfinance
institutions is in terms of the product range they can offer and the minimum
regulatory requirements they have to comply with. Deposit-taking microfinance
institutions can engage in a limited range of products, while commercial banks
engage in a broader range of products. Regulated deposit taking MFIs are not
allowed to engage in:
- Issuing of third party cheques
- Opening current accounts
- Foreign trade operations
- Trust operations
- Investing in enterprise capital
- Wholesale or retail trade
- Underwriting or placement of securities
- Purchasing or otherwise acquiring land except for expansion of deposit-taking
business
- 21. Why do MFIs charge high interest rates?
MFIs charge higher interest rates than commercial banks to cover transactional
and credit delivery costs which are higher for small transactions. A KShs 100,000
loan, for example, requires the same personnel and resources as a KShs 2,000
loan thus increasing per unit transaction costs. Interest rates are also largely
influenced by the rates MFIs themselves pay for borrowing the funds that they
in turn lend to their clients. With the operationalisation of the Microfinance
Act and Regulations in Kenya on 2nd May 2008, it is expected that the interest
rates of regulated deposit-taking MFIs will reduce as they will now be able
to tap into alternative sources of financing e.g. mobilised savings, and capital
markets, among others
- How can potential or existing MFI clients differentiate between CBK licensed and unlicensed microfinance institutions?
Deposit-taking microfinance institutions that are licensed and regulated by
the central Bank of Kenya are required to use the term 'Deposit-taking Microfinance'
or its acronym 'DTM' in their business name and display the same in their places
of business. The Central Bank shall also publish the names of newly-licensed
deposit-taking microfinance institutions in the Kenya Gazette. Further, the
Central Bank shall annually publish the names of all licensed deposit-taking
microfinance institution in at least two newspapers. The public may also inquire
the same from the Central Bank or visit our website (www.centralbank.go.ke)
for information on the directory of licensed and regulated deposit-taking microfinance
institutions.
- What is Credit Information Sharing?
Credit information sharing is Banks and other credit providers sharing information about their borrowers with other credit providers.
- What information can credit providers share?
If borrowers have defaulted on a loan then the bank must share this with all other banks. This is called negative information. In Kenya the Banking (Credit Bureau) Regulations 2008 mandate that banks to share negative information about their borrowers with other banks. If borrowers have a loan and are paying regularly and are up to date, banks may share this information with other banks. This is called positive information. In Kenya the Banking (Credit Bureau) regulation leaves room for banks to report positive information.
- How do banks share information?
Banks give either negative only or negative and positive information to a Credit Bureau and update this information on a regular basis. In Kenya Banks are required to update the information on at least a monthly basis. Any Bank that provides information is free to request information from a credit bureau on a potential borrower.
- What is a Credit Reference Bureau?
A Credit Reference Bureau is a company that is licensed to collect information from a variety of sources and provide credit information on an individual upon request of an authorised user.
- Who is an Authorised user?
The law in Kenya allows only data furnishers (Banks only at present) to request a report and only on a borrower who has an active application for credit.
- How is the information used?
Information obtained from a credit bureau is used to assess the ability of the potential borrower to repay a new loan. "A potential borrower whose report shows he has a delinquent loan is likely to be denied new credit until the delinquency is removed."
If Positive data is exchanged with the bureau it will be possible for banks to determine
- Lower interest rates for better borrowers
- Appropriate new products customers can use
- How safe is information now that it will be stored outside of Banks?
The law requires that Credit Bureau's meet certain international data security standards in both the transmission and storage of information in their custody. Regular data security audits conducted under the auspices of the Central Bank of Kenya (CBK) will occur and the bureaus risk losing their licences.
Can credit consumers challenge erroneous information?
The law and regulations set out the procedures for dispute resolution. Any dispute not satisfactorily resolved within the stipulated time period will result in the disputed information being removed from the data base of all credit bureaus. -
What is the reason to share credit information?
Lack of information on borrowers results in two problems.
- Borrowers have more information about themselves than the lenders which
causes credit providers to severely restrict lending to only those customers
they know about (asymmetrical information).
- Lenders restrict lending by raising interest rates. These high interest
rates
attract only those who have no other option.
- Which institutions does the Central Bank of Kenya (CBK) regulate?
CBK regulates commercial banks, non bank financial institutions, mortgage finance companies, building societies, foreign exchange bureaus, deposit taking microfinance institutions and credit reference bureaus. Currently there are 43 commercial banks, 2 mortgage finance companies, 123 foreign exchange bureaus and 1 deposit taking microfinance institution.
Other regulated financial institutions are insurance companies (regulated by the Insurance Regulatory Authority), stock exchange, stock brokers, investment banks, investment advisers, fund managers and collective investment schemes (regulated by the Capital Markets Authority), savings and credit co-operatives (SACCOs) regulated by the Commissioner of Co-operatives and retirement benefit schemes (regulated by the Retirement Benefits Authority).
The Central Bank does not regulate institutions that do not take deposits from
the public and those that lend their own funds (Credit Only Institutions). - Can I use the word, ''bank'', ''finance'' or ''microfinance'' in my business and not be regulated by the Central Bank?
No you cannot. The words, ''bank'', ''finance'' or ''microfinance'' are protected and their use requires the approval of the Central Bank. Even derivatives of these words such as ''banking'' or ''financial'' are protected and their use requires the approval of the Central Bank.
You can however start a business using your own capital to lend to others, so long as you don't take deposits from the public. In this case, you would not require a license from the Central Bank. But ensure also that you do not use the protected words, ''bank'', ''finance'' or ''microfinance.''
- I invested my money in an investment (pyramid) scheme that has been closed; can the Central Bank compensate me for the funds placed with the scheme?
The Central Bank does not regulate pyramid schemes and cannot therefore compensate
you for your lost funds. Depositors in institutions regulated by the Central Bank
are protected by the Deposit Protection Fund (DPF). In case of the collapse of
a regulated institution, DPF pays each depositor a maximum of KShs. 100,000. It
is therefore important to ensure before you place your funds in any institution
or scheme, that it is regulated. A list of the institutions we regulate is available
on our website, www.centralbank.go.ke.
Remember, if the ''deal is too good to be true, it probably is''.
- How then can the public be protected or feel secure from the pyramid schemes?
The public needs to be aware that any one taking or mobilising deposits from the general public without a license from the Central Bank is committing an offence under the Banking Act and Microfinance Act. The general public is, therefore, strongly advised not to risk losing their money by depositing or placing it in unregulated entities like the pyramid schemes alleging to be legitimate investment vehicles or financial service providers.
- How do I lodge a complaint against a commercial bank, mortgage finance company, forex bureau, deposit taking microfinance institution or credit reference bureau?
You should first report the complaint to your bank, forex bureau, deposit taking MFI or credit reference bureau to ensure that appropriate action is taken as quickly as possible. The institution should get back to you preferably in writing on your complaint. However if you are not satisfied with how the institution has dealt with your complaint or no action is taken, you may contact the Central Bank at the following address with details of your complaint:-
Director, Bank Supervision
Central Bank of Kenya
P.O. Box 60000 00200 NAIROBI
Tel: 2863005
Email: fin@centralbank.go.ke
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