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Kenya: New Rules Could Harm Microfinance
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by levmyshkin | April 20, 2007 at 11:30 am
857 views | 10 Recommendations | 1 comment
I'm a big proponent of the microfinance movement. However, when commercial lenders start tampering with the framework I think it's bad news for the poorest of the poor.
Disclaimer: I'm not a macroeconomics major. However, when commercial banks begin restricting microlenders, I see it as a non-too-subtle bid to limit funds to those in need.
If the heavy hitters continue to slowly eek conscessions out of microlenders using their capital and political sway, it'll effectively break the back of the entire movement by making it impossible to start small, which is what the movement is all about.
Large institutions have the luxury of large capital and a lot of time; and with that comes the ability to deal microfinance death by a thousand cuts.
And why wouldn't the entrenched players be running scared? Microlenders are a huge threat to the traditional framework: it's showing the world you don't have to have a lot of money to make a big difference.
As this article illustrates, a process very similar to the above scenario is taking place.
Kaburu Mugambi
Nairobi
Central Bank of Kenya has defended the proposed rules to regulate microfinance institutions which have been criticised as being too costly for the very firms it is meant to aid.
Microfinance institutions have until the end of June to comply with the new rules released by the Central Bank (CBK) on ownership and minimum capital, among other requirements, before they are licensed.
The rules provide information and guidance on the conditions that applicants have to fulfil to obtain a licence and accept deposits.
They require licensed institutions to maintain at all times a minimum core capital of at least Sh60 million.
Smaller microfinance institutions operating within a district or town will be required to retain capital of at least Sh20 million. CBK governor Njuguna Ndung'u acknowledged that the regulation and compliance comes with a cost, but added that such regulation was necessary for ensuring the safety and soundness of microfinance institutions.
"While it can be argued that these costs could result in more expensive financial products, the Central Bank, in developing these regulations, has specifically endeavoured to ensure that the cost to borrowers is significantly reduced through positive externalities by reducing risks," Prof Ndung'u said yesterday.
Some of the institutions say the rules may kill the business in rural areas, because the higher capital requirement makes them exclusive. They add that the requirement of a minimum capital was an attempt to create a second level of commercial banks.
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Most RecentMost Recommended Comments (1)
at 11:58 on April 20th, 2007
Great find, great commentary.
Good stuff.
at 03:04 on April 21st, 2007
I watched a program on TV last night about micro lenders. It seems restrictive rules will do more harm than good.
No doubt the system is open to corruption and some rules are needed, but the impact of a $50-100 loan for an Indian, African or Asian woman can be tremendous.