Banks and mortgage institutions will soon be required to meet a core capital threshold of Ksh1 billion, gradually rising to Ksh10 billion by 2027, if a proposed law is passed as is.  

The Business Laws (Amendment) Bill, 2024—currently before the Senate—seeks to revise nine Acts of Parliament to enhance regulatory oversight, streamline operations, promote economic stability, and create a more business-friendly environment in Kenya.

The sweeping reforms will affect the Banking Act, Central Bank Act, Microfinance Act, Standards Act, Kenya Accreditation Service Act, Scrap Metal Act, Special Economic Zones Act, Kenya Industrial Research and Development Institute Act, and the National Electronic Single Window System Act.

Banking sector changes

One of the key proposed changes is under the Banking Act, where the amendments aim to bolster the resilience of the financial sector.

The bill proposes expanding the Central Bank’s regulatory mandate to include non-deposit-taking credit providers such as digital lenders, peer-to-peer platforms, and credit guarantee entities.  

Through this expansion, CBK will be empowered to license these players, oversee credit information sharing, and enforce consumer protection standards.

It also introduces stricter penalties for institutions that breach regulatory guidelines.

In a move to consolidate regulatory functions, oversight of non-deposit-taking microfinance businesses will shift from the Microfinance Act to the CBK Act.

This will be accompanied by new requirements around transparency, including full disclosure of credit costs and borrower rights.  

A phased increase in minimum core capital requirements is also proposed, intended to attract international investment while allowing local institutions time to adjust to the new landscape.

While moving the Bill during its second reading, Senate Majority Leader Aaron Cheruiyot said it also targets improved coordination between state agencies and a centralised facility where services are offered to investors in line with their mandates.

He said amendments to section 13 of the Investments Promotion Act would allow for the issuance of more permits to foreign investors and facilitators applying for investment certificates.

Jobs abroad

Citing a recent World Bank report, Cheruiyot argued that Kenya must undertake serious reforms to regain economic competitiveness.

He pointed to initiatives like the “Kazi Majuu” Programme and the efforts of the State Department of Diaspora Affairs, which have seen Kenyans abroad remit over a billion dollars annually—funds that are increasingly being used to establish businesses and drive domestic economic growth.

He challenged policymakers to double remittances to Ksh258.4 billion ($2 billion), describing it as real and attainable growth.

Drawing comparisons to the so-called Asian Tigers, he said countries like South Korea and Malaysia had surged ahead economically because of deliberate planning and policies that nurtured competitiveness and industrialisation from an early stage.

Kenya, he noted, spends close to Ksh500 billion annually on food imports such as rice, wheat, cooking oil, and sugar—mostly from countries that have successfully built competitive agricultural sectors by aligning with the needs of their private sectors.

He cited Pakistan, Malaysia, Russia, and Ukraine as key examples.

Cheruiyot emphasised that Kenya must craft legislation that meets the demands of the 21st century.

He said the country’s early promise in the Business Process Outsourcing (BPO) sector was derailed by adverse court decisions that scared away investors who had committed substantial capital.

To revive the sector, he said, Kenya must strengthen regulations around foreign direct investment, BPO, and IT services, all aimed at attracting reputable investors and spurring innovation.

Questions abound

“We are not proposing rocket science. We are simply asking what the Philippines did to build a BPO industry that employs 10 to 15 million people, or why India can employ four million while Kenya struggles to reach 100,000,” he said.

Tana River Senator Danson Mungatana underscored the importance of introducing government-issued certificates for facilitators of foreign investors.

He explained that many investors fall victim to fraudsters masquerading as legitimate facilitators, often losing significant sums of money before being ejected from the country.  

The proposed certificate system would ensure foreign investors only engage with accredited facilitators, adding a layer of protection for both investors and local stakeholders.

According to Mungatana, some fraudsters operate in collusion with corrupt officials, reinforcing the need for transparent and accountable systems to safeguard Kenya’s investment climate.