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Remarks by Prof Njuguna Ndung'u, Governor of the Central Bank of Kenya, at the launch of the First Community Bank's Mutual Fund, Nairobi, 6 March 2012.
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Njuguna Ndung’u: Shariah-compliant banking and finance in Kenya Remarks by Prof Njuguna Ndung’u, Governor of the Central Bank of Kenya, at the launch of the First Community Bank’s Mutual Fund, Nairobi, 6 March 2012. * * * Ms. Stella Kilonzo, Chief Executive, Capital Markets Authority; Mr. Steve Mainda, Chairman, Insurance Regulatory Authority; Mr. Hassan Varvani, Chairman, First Community Bank Ltd; Mr. Abdullatif Essajee, Managing Director, First Community Bank Ltd; Mr. Nathif Adam, Director, First Community Bank Capital; All the Excellencies here present; Board Members of First Community Bank Ltd here present; Distinguished Guests; Ladies and Gentlemen: I am delighted to be with you this evening at the launch of First Community Bank’s Shariahcompliant mutual fund and to celebrate the success of Islamic Finance. Allow me at the outset to compliment the Board and Management of First Community Bank Ltd for growing the bank from a start-up operation in April 2008, to an institution now boasting of deposits amounting to Ksh.7.3 billion and assets of Ksh.8.4 billion as at 31st January 2012. Indeed, First Community Bank Ltd pioneered the establishment of Shariah-compliant banking in Kenya and I am happy to note that the bank has continued to keep up the momentum by introducing a range of innovative Shariah-compliant products. These products will go a long way in deepening Kenya’s financial sector. We can now boast of having a full-fledged Shariah-compliant financial infrastructure, thanks to the effort of Nathif Adam. Ladies and Gentlemen: Kenya has not been left behind in the world-wide phenomenal growth of Shariah-compliant finance and banking and huge gains have been made since its inception. Today, we have two banks that exclusively offer Shariah-compliant products and who collectively, command a market share of 1% of the banking sector assets, in less than 4 years of operations. Having noted the growing interest in Shariah-compliant finance, some of the conventional banks have also created specific windows and divisions to enable them offer Shariah-compliant products to their customers. I am encouraged to note that other institutions have now stepped in to offer Shariahcompliant financial services beyond banking. Takaful Insurance of Africa has been licensed by the Insurance Regulatory Authority to offer Shariah-compliant insurance services. Although the concept of “Takaful” has been in existence in the global arena for several decades, this product is now being offered for the very first time by an entity incorporated and licensed in Kenya. Ladies and Gentlemen: First Community Bank Ltd has again trail-blazed by introducing a Shariah-compliant mutual fund. I am informed that the fund will be denominated in Kenya Shillings and the aim is to pool funds amounting to Ksh.1 billion. The fund will invest principally in Sharia-compliant opportunities in Kenya and other countries in the Eastern Africa region and may also undertake offshore investments. The bank intends to invest in money market instruments, equity, structured investments and other collective investment schemes that are all Shariah-compliant. Indeed, this fund will avail investment opportunities to many people, particularly those who could not invest in the available products on account BIS central bankers’ speeches of faith-based or other risk related restrictions. It is a welcome addition to deepening Kenya’s nascent capital markets. This move is also a positive step towards not only attracting increased foreign direct investments into the country and the region at large, but also enhancing the capacity of the Kenyan people to harness the available resources for national development. As you are aware, a key goal of the Government of Kenya, as espoused in Vision 2030 is establishing Kenya as a premier financial services hub in the region with a wide range of competitive products and services. One of the ways of achieving this goal is ensuring that Kenya becomes the gateway for Shariah-compliant financing, through establishment of an enabling environment that supports the development of Shariah-compliant financial services and products. To this end, the Central Bank has in the recent past liaised with the Shariahcompliant banks and established the main challenges that impede the achievements of this objective. Some of these impediments are: Inadequate Shariah-compliant products. For example, the lack of Shariah-compliant liquidity instruments places Shariah-compliant banks at a disadvantage compared to the conventional banks; Uncertainty on the tax treatment of Shariah-compliant financial instruments; Inadequacy of the requisite human capital with respect to Shariah-compliant finance. Ladies and gentlemen: The Central Bank is in this regard engaging other relevant arms of Government to address these challenges in order to propel Shariah-compliant finance to the next level. The future of Islamic Finance in Kenya and in the region remains bright. On its part, the Central Bank will continue to pursue policies that create an enabling environment that will eventually culminate in Kenya establishing itself as a regional financial hub as envisaged in Vision 2030. With these few remarks, I want to wish First Community Bank Ltd as well as the First Community Bank Capital (Investment Bank) the best in their future endeavours. The Islamic Finance picture is thus complete. Thank You BIS central bankers’ speeches
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Remarks by Prof Njuguna Ndung'u, Governor of the Central Bank of Kenya, at the official launch of the Housing Finance Current Account, Nairobi, 20 March 2012.
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Njuguna Ndung’u: Strengthening the mortgage market in Kenya Remarks by Prof Njuguna Ndung’u, Governor of the Central Bank of Kenya, at the official launch of the Housing Finance Current Account, Nairobi, 20 March 2012. * * * Mr. Steve Mainda, HFCK Chairman; Mr. Frank Ireri, Managing Director, HFCK; Board Management of Housing Finance here present; Distinguished Guests; Ladies and Gentlemen I am very delighted to join you this evening for the official launch of the Housing Finance Current Account. The provision of current account is one of the institution’s key planks towards its long term vision of offering a broad range of services to its customers. Ladies and Gentlemen, allow me first to commend the Board, Management and Staff of Housing Finance for the introduction of this new product that will go a long way in enabling the institution access affordable funds. It is noteworthy that since its incorporation in 1965, the institution has progressively grown in this very specialized market to 11 branches. I also note that as at January 2012, the institution had an impressive mortgage portfolio of Ksh.26 billion and customer deposits of Ksh.19 billion, supported by a strong capital base of Ksh.3.7 billion. In addition, the number of mortgage accounts stood at 5,143, accounting for about 31% of the total banking sector mortgage accounts. This indeed shows great effort put in by the Board and staff of Housing Finance. This is the direction we need to strengthen our mortgage market. Ladies and Gentlemen, the product being launched today is as a result of the policy proposals made by the Central Bank in Year 2010 that resulted in the Banking Act being amended to allow mortgage finance companies to operate current accounts. This initiative was meant to facilitate attraction of large amounts of low cost customer deposits that would in turn allow such institutions to increase their lending capacity and expand operations to meet the growing demand for housing. The Central Bank, jointly with the World Bank in June 2010, conducted a baseline survey on mortgage finance in Kenya with the aim of assessing the size and obstacles to the development of the mortgage finance market. The results of the survey showed that the country’s mortgage finance market has more than tripled over the last five years, from Ksh.19 billion in 2006 to Ksh.61 billion in 2010, while the number mortgages in the banking sector grew from 7,580 to 13,803 over the same period, demonstrating great potential in this sector. However, Kenya’s mortgage debt to GDP ratio at about 2.5% is still low compared to the international standards such as US Market where the ratio is over 70%. The survey also identified key constraints to the mortgage market in Kenya such as low levels of income, access to long term funds, credit risk due to absence of historical information, relatively high interest rates, difficulties with property registration and high incidental costs of borrowing. However, various initiatives are under way to tackle these obstacles. These initiatives include issuance of corporate/housing bonds by institutions with the aim of mobilizing long term resources to match the long-term nature of mortgages and the roll-out of the credit information sharing mechanism to enable financial institutions enhance their credit risk management processes. Ladies and Gentlemen, Kenya has seen rapid urbanization over the last decade with the proportion of the Kenyan population living in urban areas forecast to reach 60% by the year 2030 from about 20% in 2005. Expanding cities are good for productivity and growth. BIS central bankers’ speeches However, the Kenyan housing sector is currently characterized by inadequacy of affordable and decent housing and low-level of urban home ownership. Despite the challenges, the Housing Sector plays a critical role in the achievement of key goals envisaged by Vision 2030. Housing construction, being labour intensive and having strong linkages with other sectors of the economy remains one of the principal levers for creating jobs and driving economic activity. Mortgage market development will be required to support the expanding cities with the accompanying productivity gains; but also has to be accompanied by infrastructure to decongest the cities and create more space for housing. Ladies and Gentlemen, the Central Bank of Kenya in partnership with the banking sector is currently focusing on initiatives aimed at reducing costs of doing business for financial institutions with the main aim of bringing down costs of financial services. In addition to developing innovative products, the other major initiative towards cost reduction and financial inclusion has been the introduction of Agent Banking. The CBK has so far licensed eleven banks to carry out agent banking business and approved 10,335 specific agents since the roll out in May 2010. The rollout of the agent banking model is mainly aimed at addressing the challenges of high transaction costs arising from the lack of proximity to financial services and putting up brick and mortar branches where they may not be economical in all the corners where customers are to be found. I am delighted to note that Housing Finance has also obtained approval for agent network from CBK and will in due course be rolling out the model. Finally, let me reiterate that the Central Bank will continue to facilitate an environment that allows for a diverse range of financial service providers to thrive and compete in the Kenyan market. Specifically, the Central Bank remains committed to working with the relevant stakeholders to create an enabling environment for the mortgage sector to play its rightful role in achieving the aspirations of the country’s blueprint, the Vision 2030, which includes providing the country’s population with adequate and decent housing in a sustainable environment. Further, it will pursue better regulation as opposed to more regulation so as to create room for more innovations by financial institutions and also be ready with effective tools to deal with any system vulnerabilities and emerging risks. We are happy and proud to be associated closely with the developments Housing Finance has introduced and the growth success they have achieved so far. With these few remarks ladies and gentlemen, it is now my honour and privilege to declare the Housing Finance Current Account officially launched and we look forward to seeing better results and innovations from them in the market place with increased capacity and financial strength due to this launch. Thank You BIS central bankers’ speeches
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Remarks by Prof Njuguna Ndung'u, Governor of the Central Bank of Kenya, at the opening of the meetings of the Economic Affairs Sub-Committee of the Monetary Affairs Committee MAC, Nairobi, 3 April 2012.
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Njuguna Ndung’u: Working towards an East African Monetary Union Remarks by Prof Njuguna Ndung’u, Governor of the Central Bank of Kenya, at the opening of the meetings of the Economic Affairs Sub-Committee of the Monetary Affairs Committee MAC, Nairobi, 3 April 2012. * * * MF and IGC officials present; Distinguished delegates from EAC Partner States Central Banks and EAC Secretariat; Ladies and gentlemen: The Central Bank of Kenya is delighted and honoured to host you in this workshop aimed at reviewing the various studies under MAC priority activities that will assist in understanding the policy terrain and the process of EAMU protocol negotiation. The EAC has a target of moving towards a Monetary Union and this meeting will improve and further consolidate our understanding of the EAMU process and invigorate and guide our integration agenda. On behalf of the Central Bank of Kenya, let me take this early opportunity to thank all those who have contributed to the organization of this workshop and all the participants and resource persons. I wish you an enjoyable stay in Nairobi. Ladies and gentlemen; The Monetary Affairs Committee (MAC) of the EAC Central Bank Governors is working on various fronts to provide a knowledge base for exchange rate and monetary policy frameworks and how the policy designs can be applied in EAC. This will support the East African Monetary Union (EAMU) protocol negotiation, currently underway. In order to fast track this process, Governors met in June 2010 and identified and apportioned the various priority study areas that would ensure that the decisions taken on EAMU are informed and policy proposals are consistent with the aspirations of EAC. The Central Banks of EAC identified three levels of this process: Analytical and design work, which entails immediate activities to improve the understanding of the entire EAMU process, especially the pre-conditions for EAMU establishment and the institutional set up; Harmonization of operating frameworks, which entails undertaking all the activities that will result in the harmonization of EAC Partner States’ operating frameworks, thereby setting the stage for enhanced convergence in not only policies, but also the required structures; and, The above blocks will deliver the input to the policy regimes block, which entail the tools for negotiating the EAMU protocol. This block is being dealt with by the High Level Task Force (HLTF). Distinguished delegates: The output from the first two blocks is meant to provide the technical input required to inform the HLTF, a body mandated to negotiate the EAMU protocol. The East African Monetary Union is currently being negotiated by the Partner States. The HLTF is preoccupied with negotiating policy issues of the monetary union integration, especially the creation of common frameworks across the member countries in order to facilitate the institutional arrangement envisaged in the process towards the EAMU. Ladies and gentlemen: It is within this context that two separate studies were identified under the “analytical and harmonization platforms” of MAC’s priority activities. The first study is on the “Harmonization of the Monetary Policy Framework for the EAC Partner States” being undertaken by the International Monetary Fund (IMF) and the second study is on the “Exchange Rate Arrangements in the EAC” being undertaken by the International Growth Centre (IGC). The two institutions have undertaken the studies in collaboration with Partner States Central Banks, and we are really grateful for this technical support. BIS central bankers’ speeches Since the inception reports, the final report of the two studies we are reviewing today is a culmination of a lot of work at the technical level. There was a meeting held in August 2011 here in Nairobi to review the progress, besides the various presentations and feedback during the different Ordinary and Extra-ordinary MAC meetings. This attests to the quality of output expected from these two studies. Distinguished delegates: I believe that there is a great wealth of experiences and ideas to be shared in this workshop given the diversity in the knowledge base of participants gathered here. By the end of this workshop, we shall have a better understanding of how the region’s exchange rate arrangements can be aligned to a common regime and how monetary policy frameworks can be harmonized in the process of the envisaged East African Community. With these few remarks, Ladies and gentlemen, I declare this workshop open and wish you fruitful discussions. Thank you. BIS central bankers’ speeches
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Remarks by Prof Njuguna Ndung'u, Governor of the Central Bank of Kenya, at the launch of the FirstRand Bank Representative Office in Kenya, Nairobi, 2 May 2012.
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Njuguna Ndung’u: Brief overview of the Kenyan banking sector Remarks by Prof Njuguna Ndung’u, Governor of the Central Bank of Kenya, at the launch of the FirstRand Bank Representative Office in Kenya, Nairobi, 2 May 2012. * * * Honourable Njeru Githae, Minister for Finance of the Republic of Kenya; Mr. Sizwe Nxasana, the Chief Executive Officer, FirstRand Bank Limited; Mr. Lloyd Muposhi, the Chief Representative Officer, FirstRand Bank Limited Representative Office in Kenya; Distinguished Guests; Ladies and Gentlemen: It is my great pleasure to join you this evening for the official launch of the FirstRand Bank Representative Office in Kenya. At the onset, I wish to acknowledge the presence of Hon. Njeru Githae, the Minister for Finance of the Republic of Kenya. His presence gives this function the great significance it deserves. Further, I wish to thank the Chief Executive Officer, Mr. Sizwe Nxasana, for inviting me to this auspicious occasion. We are glad that the FirstRand Bank Ltd has a physical presence in Kenya. Ladies and Gentlemen: I am delighted to note that the Kenyan Banking sector has continued to attract a lot of interest from international financial players. To this end, the number of licensed representative offices of top international banks has steadily grown from one (1) in 2008 to four (4) in 2011. Moreover a fifth institution was granted an approval in principle on 5th March 2012 to establish a representative office in Kenya. I therefore applaud this interest as it anchors well with Kenya’s Vision 2030 that will make Kenya the premier regional financial services hub. For this reason, financial development and deepening will be strong outcomes. Financial infrastructure in Kenya can be considered complete. Banks; Microfinance Institutions; currency centres; credit reference bureaus; agency banking; risk-based supervision are indicators that the financial infrastructure in Kenya is now in place: with banks rolling out branch networks across the region supported by initiatives like agency banking and an appropriate information sharing mechanism allows the financial sector to grow. Then the other arms of Pension, Securities and Insurance are moving in the same direction. Ladies and Gentlemen: It is worth noting that the Kenyan banking sector has remained resilient despite the dynamic macro environment it 3 operates in. This is evidenced by the impressive profit before tax of Ksh.89.3 billion (USD1.08 billion) for the year ended December 2011. This was a 20.4% increase from Ksh.74.3 billion (USD895 million) returned in the same period in 2010. The number of banks is growing to create strong banks: mergers will be required, but that is a market outcome. Ladies and Gentlemen: I would like to assure the banking sector and other market players that the Central Bank will continue to support the market development by providing an enabling environment for growth in the banking sector. Allow me to outline the thrust of the initiatives we shall continue to inculcate to ensure the sector operates efficiently, effectively and soundly. The initiatives will be anchored on three pillars: First, strengthening Financial Stability, Supervisory and Regulatory Framework. In particular, CBK will adopt a consolidated supervision approach to take cognisance of the growing pan-African nature of the Kenyan banking sector. BIS central bankers’ speeches Second, enhancing Financial Integrity in the Banking Sector so as to ensure that the financial systems are safeguarded against money laundering and financing of terrorism. Third, promoting Financial Inclusion for financial deepening and development in line with the aspirations under the Kenyan Vision 2030. Distinguished Guests, Ladies and Gentlemen: Finally, allow me once again to applaud FirstRand Bank Limited for establishing a physical presence in Kenya through a representative office. As the Central Bank we are ready to support you as you develop your business not only in the Kenyan market but also on the Eastern African side. With these remarks, it is now my pleasure to welcome Honourable Njeru Githae, Minister for Finance of the Republic of Kenya to make his remarks and officially launch the Representative Office of FirstRand Bank here in Kenya. Thank you. BIS central bankers’ speeches
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Remarks by Prof Njuguna Ndung'u, Governor of the Central Bank of Kenya, at the Kenya Institute of Bankers National Banking & Finance Conference, Mombasa, 3 July 2012.
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Njuguna Ndung’u: Ongoing developments in the Kenyan financial sector Remarks by Prof Njuguna Ndung’u, Governor of the Central Bank of Kenya, at the Kenya Institute of Bankers National Banking & Finance Conference, Mombasa, 3 July 2012. * * * Hon. Robinson Njeru Githae, Minister for Finance; Hon. Kenneth Marende, Speaker of the National Assembly; Hon. Justice Willy Mutunga, Chief Justice of the Republic of Kenya; Hon. Prof. Githu Muigai, Attorney General of the Republic of Kenya; Mr. Richard Etemesi, Chairman, Kenya Bankers Association; Mr. John Waka, Chairman, Kenya Institute of Bankers; Chief Executives of Financial Sector Regulators here present; Distinguished Guests; Ladies and Gentlemen: I am delighted to join you this morning at the onset of this landmark Conference. At the outset, I would like to thank the Kenya Institute of Bankers for inviting me to this forum. I also applaud all those who participated in organising this conference for their commendable efforts. Ladies and Gentlemen: My task this morning is to invite the Minister for Finance to deliver his keynote address to this gathering and also officially open the forum. But before I do so, allow me to make some few remarks on the ongoing developments in the financial sector. Over the last five years, the Kenyan financial sector has witnessed significant transformational developments. The Kenya Institute of Bankers has been on the driver’s seat to spearhead these developments. Let me highlight a few of these developments: The growth of technologically enabled financial services, especially through the inter-linkage of mobile phone technology platforms and banking technology platforms; Increased regional and international expansion and connectivity of financial service players as well as increased market potential to the region; Increased market awareness of customer rights and the resultant emphasis on consumer protection; and Strengthening of oversight mechanisms to protect the integrity of financial systems. The operationalisation of the National Payment Systems Act and the Financial Reporting Centre amongst others will strengthen the integrity and stability of the financial system; Ladies and Gentlemen: These developments present not only opportunities but also significant challenges. To be able to exploit the resultant opportunities and surmount the challenges, there is need to enhance the skills and competence of our human resources. It is therefore imperative that the Kenya Institute of Bankers and other capacity building institutions continuously interact with the market for their programmes to remain relevant. Ladies and Gentlemen: Kenyan banks have taken the lead in positioning themselves for the expanded market of more than 100 million people in the five East African Community Countries. More than ten Kenyan banks have presence in the EAC member countries and beyond. Following the operationalisation of the Customs Union and Common Market, the BIS central bankers’ speeches EAC member states are currently preparing for a Monetary Union. As part of this preparation, the EAC Central Banks are harmonizing their supervisory rules and practices while benchmarking to global standards. This will not only facilitate integration but will also position the region as a financial hub. To facilitate effective preparations for the monetary union, KIB should tailor its training programmes to satisfy the emerging needs of a dynamic regionally integrated financial sector. Ladies and Gentlemen: Kenya’s aspiration of being an International Financial Centre is already receiving a boost from the increasing interest by leading global banking brands. Over the last two years, four foreign banking institutions have opened Representative Offices in Kenya, with four others in the pipeline. These Representative Offices allow the foreign institutions to study the market with the aim of up-scaling to fully fledged banking institutions. Ladies and Gentlemen, it is worth noting that capacity building by banks should not be a preserve of operational staff as has been the case traditionally, but should span across all cadres of staff including board members. In this regard, KIB should review its offerings to ensure that they cut across all levels from the Board to operational levels. Ladies and Gentlemen, it is now my pleasure to welcome our Chief Guest, Hon. Robinson Njeru Githae, Minister for Finance, to deliver his keynote address and officially open the Kenya Institute of Bankers’ National Banking and Finance Conference 2012. Honourable Minister, you have the floor. BIS central bankers’ speeches
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Remarks by Prof Njuguna Ndung'u, Governor of the Central Bank of Kenya, during the 4th Institute of Certified Public Accountants of Kenya (ICPAK) Financial Services Conference "Financal services sector - steering the economy to the next level", Nairobi, 4 July 2012.
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Njuguna Ndung’u: Financal services sector – steering the economy to the next level Remarks by Prof Njuguna Ndung’u, Governor of the Central Bank of Kenya, during the 4th Institute of Certified Public Accountants of Kenya (ICPAK) Financial Services Conference “Financal services sector – steering the economy to the next level”, Nairobi, 4 July 2012. * * * Mr. Patrick Mtange, Chairman, Institute of Certified Public Accountants of Kenya; Ms. Caroline Kigen, Chief Executive Officer, ICPAK; Distinguished Guests; Ladies and Gentlemen: It gives me great pleasure to be here today to open this 4th Financial Services Conference. Let me at the outset thank the Institute of Certified Public Accountants of Kenya for organizing this forum and particularly for the choice of the theme “Financial Services Sector: Steering the Economy to the Next Level ”. At the Central Bank we work on the subject at the policy level with patriotic interest. Ladies and Gentlemen: For our country to develop and realize the aspirations of Vision 2030, the financial services sector must take the lead in steering the economy “to the next level”. Towards this goal, it is critical to keep in focus the vision for the financial sector as contained in the Vision 2030 blueprint that is, to create a vibrant and globally competitive financial sector. Ladies and Gentlemen: In pursuit of this vision, the Central Bank in collaboration with the government and market players continues to play a pro-active role in initiating the necessary reforms geared towards creating an enabling environment. Significant progress has been made on these initiatives but at the outset, we need to recognize that it is financial inclusion that will provide the gateway. The progress made so far shows that financial inclusion is a major public policy instrument. Several successes can be listed on this front: I. Licensing of Deposit Taking Microfinance Institutions (DTMs) Since 2008 when the DTMs regulatory framework became effective, 6 DTMs have been licensed and two granted approval in principle. As at the end of May 2012, the 6 licensed DTMs had 63 branches and 1.56 million deposit accounts with deposits worth over Ksh.11.6 billion. They also had 495,840 loan accounts with an outstanding loan portfolio of over Ksh.17.7 billion. This is significant progress given that banks in total only have 2.1 million loan accounts. The DTMs provide an avenue of reaching out to the lower levels of the population given that our markets are segmented, requiring different and more specialized actors in some segments. DTMs can be community based or nationwide with different core capital requirements of Ksh.30 million and Ksh.60 million, respectively. II. Agency banking Effective 2nd January 2012, DTMs were allowed to appoint third parties (agents) to offer specified DTM services on their behalf. This followed the successful rollout of agent banking by banks effective May 2010. So far eleven (11) banks have been granted approval to roll out their agency networks. Eight (8) of these banks have appointed 11,176 agents, which BIS central bankers’ speeches had executed over 18.6 million transactions valued at over Ksh.93.1 billion over the two year period to May 2012. III. Mobile phone financial services There has been tremendous growth in Mobile phone financial services in the country. Consequently, a number of institutions have initiated various innovations and new products to conveniently serve their customers and reduce the long queues that were previously experienced in banking halls. Mobile phone money transfer services have been a phenomenal success and have put the country at the global centre stage of financial inclusion and innovation. In a country like ours with remote corners not served by financial institutions, Mobile Financial Services has provided the answer. More importantly, our banks have easily integrated into their financial services with these technological platforms. The up-scaled level is now to use mobile phones to send money to savings accounts and credit provision through the same channels. This is already taking place with M-Kesho type of products in the market. IV. Credit information sharing The Credit Information Sharing (CIS) mechanism for banking institutions has successfully taken root with mandatory sharing of negative information on a monthly basis. All the 43 licensed commercial banks in Kenya and institutions under the Deposit Protection Fund Board have been submitting negative credit information to the licensed Credit Reference Bureaus (CRBs) within the required timeframes. The Banking Act and the Central Bank of Kenya Act have now been amended to allow institutions licensed under both the Banking Act and the Microfinance Act to share both positive and negative credit information of their customers. This will go a long way in enriching the CRBs database for the benefit of the entire banking sector and create objectivity in reporting. Credit information sharing allows the market to build information capital for the financial sector in Kenya. This will help build credit histories of borrowers and support a change of collateral technology in use currently. Development of information capital will remove information asymmetry that promotes moral hazard and adverse selection consequences in the financial market. V. East Africa community harmonization of legal and prudential supervisory rules and practices As part of the ongoing integration of the East African Community (EAC) member states, the EAC Central Banks are in the process of harmonizing their supervisory prudential rules. This will enhance the performance of Kenyan banks covering the EAC region. The harmonization process has already identified the key aspects of divergence that require harmonization. A draft convergence criteria based on international best practice as well as feedback from players in the banking industries of member countries has been developed. VI. Anti-money laundering framework Following the operationalisation of the Proceeds of Crime and Anti-Money Laundering Act, 2009 effective 28th June 2010, the Financial Reporting Centre (FRC) was created on 12th April 2012. The Central Bank and the Ministry of Finance seconded staff to facilitate the setting up of the FRC. The CBK has continued to undertake public sensitization on the AML regulatory framework including the establishment of the FRC. This is to safeguard the credibility of the financial sector as we push our financial inclusion agenda and goals forward. BIS central bankers’ speeches Ladies and Gentlemen: In order for us to appreciate where we have came from; allow me to mention some key indicators of financial performance: Total Assets of banks have increased from Ksh.951 billion as at December 2007 to Ksh.2.12 trillion in April 2012, an increase of 123%. The loan portfolio in the same period has increased from Ksh.534 billion in December 2007 to Ksh.1.26 trillion in April 2012, an increase of 136% Banks’ branch network has increased from 740 to 1200 currently, while we also have more than 10,000 Agents now in operation Mobile phone financial services have 19 million subscribers to date transacting an average of Ksh.3.0 billion every day Increase in the number of bank deposit accounts from 4.7 million in 2007 to 14 million in April 2012, a phenomenal increase of almost 300%. While the deposit values have grown from Ksh. 710 billion in 2007 to Ksh.1.6 trillion in April 2012, an increase of 125%. Loan and Advances accounts have increased from 1.2 million in 2007 to 2.1 million currently. Ladies and Gentlemen: These statistics show a phenomenal growth in less than five years. In 2010, the financial sector grew by 8.8% while the economy grew by 5.6%. In 2011, the financial sector grew by 7.8% and the economy by 4.4%. This shows that the financial sector is deepening and that its growth is pulling the national economic growth with it. As the economy continues to recover and the government is rolling out infrastructure projects to increase the capacity for future economic growth, the financial sector will thrive and must stand ready to finance long-term projects to support this growth of the economy. Indeed this impressive performance is an indication of our growing economy but also supported by the prudent risk management and regulatory reforms that continue to be put in place in line with best practice. As efforts progress towards a more developed financial sector, there is need to ensure fairness and transparency. The public needs to be furnished with reliable and adequate financial information. While discharging your duties therefore, be it as accountants, auditors or advisers of financial institutions, bear in mind that you play a critical role towards protecting and guiding the sector in the development of our economy. The constitution has two important contributions on this: the Competition Policy (that lowers unit cost) and Consumer Protection. These two important aspects will drive a healthy balance for the sector and the consumers of financial services. As ICPAK theme this year is in these lines, we consider you as partners in this important journey. Ladies and Gentlemen: The Central Bank in conjunction with Government and all other stakeholders in the financial sector will continue the policy path of maintaining macroeconomic stability for development and financial inclusion for financial deepening and development even with frequent occurrences of economic shocks. Ladies and Gentlemen: It is now my honor and privilege to declare this conference with a very enviable theme officially open and to wish you fruitful deliberations. Thank you BIS central bankers’ speeches
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Remarks by Prof Njuguna Ndung'u, Governor of the Central Bank of Kenya, at the launch of Continental Reinsurance brand and products, Nairobi office, Nairobi, 5 July 2012.
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Njuguna Ndung’u: Developments in Kenya’s insurance industry sector Remarks by Prof Njuguna Ndung’u, Governor of the Central Bank of Kenya, at the launch of Continental Reinsurance brand and products, Nairobi office, Nairobi, 5 July 2012. * * * The Chairman, Continental Re, Nigeria Distinguished guests, Ladies and Gentlemen. Many thanks indeed to Continental Reinsurance for having invited me here today at this auspicious occasion where Continental Re is launching its brand in Kenya. It is extremely heartening to see such a strong attendance for this breakfast meeting. Firstly, allow me to spend a few moments to reflect upon the future of the Kenyan insurance industry based on my experience, and to provide some thoughts and advice on where reinsurers such as Continental Reinsurance can contribute additional value in the sector. The Kenyan insurance market wrote KShs. 100 billion of Gross Direct Premiums in the year 2011. It has grown at an average rate of 16% p.a. over the last 5 years. The market comprises of 45 insurance companies, transacting long-term and short-term insurance business. In addition, there are over 140 insurance brokers operating in the Kenyan insurance market. Competition is strong and therefore clear market positioning is essential. I am standing here today wearing two hats: one, as Regulator of the banking sector and secondly, as a Board Member of the IRA. I have seen that there is a strong requirement for products that are driven by a real need from customers – products that appeal to a specific demand. I am happy to note therefore that the industry is addressing the matter of innovation and are designing new products particularly targeting the lower market. This is the way in which the insurance industry will be able to enhance the level of financial inclusion among the population. By way of example, let us look at the agricultural sector – which, comprises a vital 80% of our economy with a 26% contribution to GDP. Insurance and reinsurance should play a bigger role in the development of the agricultural sector in Kenya. I am sure that, Weather-index micro insurance schemes are making a measurable impact where payouts enable farmers to recover from what would otherwise be financial disaster. For instance in August last year, 3,380 farmers received compensation for the loss of their crops, totalling approximately KShs. 150 million. The transfer of weather risk away from these farmers to the international insurance markets strengthens the resilience of farmers and agricultural businesses to weather impacts. It provides additional – and important – security which also supports our Kenyan economy. A great benefit for the development of micro insurance is the deepening of penetration per capita. Currently most micro insurance schemes are run as small pilot type arrangements and continue to face a number of regulatory and operational challenges. I am informed that a policy framework paper has now been developed by the micro insurance working group set up by the Insurance Regulatory Authority and the same has been forwarded to the Ministry of Finance for further attention. In this regard, the Minister during his budget speech recognized micro insurance as a standalone class of insurance, giving it the prominence that is deserves. Ladies and gentlemen, insurance penetration in Kenya is 3% – high by African standards, but with a long way to go still. I appeal to leaders and operators in the sector to harness the growth opportunities and to think forward, to think innovatively. For example, the recent discovery of oil and gas in Kenya has marked a significant opportunity for this sector. We BIS central bankers’ speeches have had the chance to see how other African countries have tackled the discovery of important natural resources, and the onus is now firmly on us to learn from their successes, and from their mistakes. We know, for example, that there is long way to go to prepare our country for the technical intelligence required to provide security around the multitude of issues that accompany a discovery of this kind. I request the insurance and reinsurance market to test out the structures in place for oil and gas insurance. We need to be prepared as an industry and as a country in order that we safeguard against future potential issues resulting from the mining of our natural resources. In this regard Mr. Chairman, I wish to applaud Continental Reinsurance’s steps in progressing product innovation and development including Oil and Gas, and look forward to learning from your experience. Lastly, ladies and gentlemen, I urge the insurance industry to position itself for the economic integration in the East African Union. As you are already aware, the common market protocol of the East African Community (EAC) creates a big market full of opportunities. This is the way to go in terms of integration and expansion within the EAC and beyond. Indeed today’s occasion is a realization of that spirit as we congratulate Continental Re (a Nigerian company) on their authorization to transact fully reinsurance business in Kenya. This trend is the beginning of what I predict will be the future of the insurance and reinsurance market in Africa-spreading across countries with free movement and with the opportunity to exploit full cross-border growth. I therefore challenge the industry to prepare for this eventuality in a timely manner. Once more ladies and gentlemen, I would like to thank the Continental Reinsurance company on this auspicious occasion and to wish them all success. Thank you. BIS central bankers’ speeches
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Remarks by Prof Njuguna Ndung'u, Governor of the Central Bank of Kenya, at the Kenya Bankers Association 50th Anniversary Luncheon, Nairobi, 7 August 2012.
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Njuguna Ndung’u: Kenyan banking sector development over the last six years Remarks by Prof Njuguna Ndung’u, Governor of the Central Bank of Kenya, at the Kenya Bankers Association 50th Anniversary Luncheon, Nairobi, 7 August 2012. * * * Honourable Njeru Githae, Minister for Finance of the Republic of Kenya; Dr. Donald Kaberuka, President of the African Development Bank; Mr. Richard Etemesi, Chairman, Kenya Bankers Association; Mr. Habil Olaka, Chief Executive Officer, Kenya Bankers Association; Members of the KBA Governing Council; Distinguished Guests; Ladies and Gentlemen: It is a great pleasure for me to join you on this auspicious day to celebrate the Golden Jubilee of the Kenya Bankers Association (KBA). Allow me at the onset to thank the Honourable Njeru Githae, Kenya’s Minister for Finance and Dr. Donald Kaberuka, President of the African Development Bank for gracing this occasion. Their presence demonstrates the importance they attach to the role that the Kenyan banking sector plays in the economy. Let me also congratulate the members and management of KBA on turning 50. Ladies and gentlemen: The choice of the theme for this luncheon, “Banking’s Role in Development, Recognizing the Achievement while Catalyzing Greater Private-Public Sector Collaboration” depicts the path through which the Kenyan banking sector has scaled the heights over the last six years. The current resilience of our banking sector is the outcome of partnership between the regulator and the regulated. This is not a common occurrence in most sectors, but I can confidently tell you that CBK and the Kenya Bankers Association (KBA) have successfully demonstrated they are agents of development in the financial market. Ladies and gentlemen: The tremendous growth in the Kenyan banking sector in the midst of financial turmoil in the developed markets has been put to question by parties who may not be aware of the past efforts towards a more sound and resilient sector. Allow me to mention just a few initiatives that CBK and KBA undertook jointly over the last five years to complete the financial infrastructure set up in the economy and whose outcome is reflected by the unrivalled performance in the region. 1. Roll out of credit information sharing: Kenya witnessed several unsuccessful efforts by the Kenyan banking sector to introduce credit information sharing (CIS) in Kenya since 2003. However, CIS became a reality in 2008 when a regulatory framework was developed jointly by CBK and KBA. As banks benefit from enhanced credit risk management, Kenyan borrowers have started enjoying lower lending rates but more needs to be done by banks. 2. Roll out of agent banking: On realisation that it is not economical to establish brick and mortar branches across the country, the Banking Act was amended to allow banks to provide banking services through third parties (agents). To operationalise this amendment, CBK and KBA came together to lay the ground work. This included benchmarking with best practices in other countries and developing appropriate guidelines. Following consultative forums with the market players, the agent banking model was successfully rolled out in May 2010. Since the rollout 11 banks have been granted approval to rollout their agency networks and 9 of them have engaged more than 12,000 agents spread across the country. The aim of agency banking is to increase outreach of banks to enable them satisfy the financial needs of BIS central bankers’ speeches the under-banked and unbanked Kenyan populace as well as leveraging on additional cost effective distribution channels to offer financial services. So far agents of banks have facilitated more than 21 million transactions valued at more than Ksh.105 billion (USD1.2 billion) as at June 2012. 3. The cost of collateral and feasible solutions: Banks have cited cost of collateral as one of the main contributing factors to the prevailing high interest rates. To demystify this, CBK, KBA and Financial Sector Deepening (FSD) Kenya undertook a study on Cost of Collateral in 2008. The study confirmed that the high costs of collateral creation, perfection and enforcement accounted for a sizeable portion of interest rates charged by banks. The findings of the study were shared with the various relevant arms of Government for their consideration. We appreciate the ongoing reforms in the Ministry of Lands and we expect the same to be replicated in the other government agencies. 4. Establishment of currency centres: The high cost of transporting cash to the nearest CBK branch coupled with increasing robbery cases made it imperative for a solution to be established. Through CBK and KBA partnership, three currency centres in Nyeri, Nakuru and Meru were established in phase one of the project. Savings realised by banks in terms of cash-in-transit expenses as well as insurance premiums are expected to trickle to the economy as banks adjust their bank charges accordingly. 5. Clearing and settlement process: Effective and targeting real time for electronic transfers and T+1 for cheque clearing. Distinguished guests, ladies and gentlemen: These are just a few of the joint initiatives in the banking sector – they have lowered the cost of doing business in the sector. They have allowed the unbanked to be banked – we now have close to 15 million deposit accounts from around 2.5 million in 2007. Going forward, CBK and KBA will continue to collaborate in strengthening the banking sector’s legal and regulatory framework as well as enhancing the credit information sharing mechanism. Ladies and gentlemen: I once again applaud Kenya Bankers Association for the cherished partnership we have had. I urge them to remain committed to our mutual cause for the benefit of our economy. I assure you of CBK’s commitment. With these few remarks ladies and gentlemen, it is now my pleasure to welcome Honourable Njeru Githae, Minister for Finance to make his remarks. Thank you BIS central bankers’ speeches
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Remarks by Prof Njuguna Ndung'u, Governor of the Central Bank of Kenya, at the launch of the Kenya Commercial Bank Supervisory College, Kenya School of Monetary Studies, Nairobi, 3 October 2012.
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Njuguna Ndung’u: The importance of information sharing and collaboration among financial sector supervisors Remarks by Prof Njuguna Ndung’u, Governor of the Central Bank of Kenya, at the launch of the Kenya Commercial Bank Supervisory College, Kenya School of Monetary Studies, Nairobi, 3 October 2012. * * * The IMF East AFRITAC Officials here present; Distinguished delegates from the EAC Partner States Central Banks here present; Dr. Martin Oduor Otieno, Kenya Commercial Bank Group Chief Executive Officer; Distinguished Participants; Ladies and Gentlemen: The Central Bank of Kenya is delighted to host this inaugural meeting of a Supervisory College in the East African region. This is a great milestone for the region’s Central Banks in enhancing the existing mechanisms for information sharing and collaboration. At the onset, let me commend the IMF’s East AFRITAC for their unwavering support towards enhanced stability of the banking sector in the region. Today’s launch of the pioneering supervisory college has been made possible through the technical assistance and capacity building by the East AFRITAC. I would like to thank all those who have contributed to the organisation of this meeting. Let me also extend a warm welcome to all participants. Ladies and Gentlemen: The requirement for enhanced information sharing and collaboration among financial sector supervisors has gained more prominence recently. This is informed by the continued cross-border expansion of financial sector players as well as the convergence of their cross-sector operations. As a result, for us to be able to adequately address all potential risks from the continued convergence of players and their cross-border expansion, the time to embrace consolidated supervision within and across our borders is at hand. As you may be aware the importance of cooperation between home and host regulators of banking groups dates back three to four decades ago. The Basel Committee for Banking Supervision developed guidelines in 1975 to guide cooperation between national authorities in the supervision of banks with cross-border establishments. These guidelines were enhanced with the issuance of the Basel Core Principles on Effective Supervision in 1997, in particular, Basel Core Principle 24 on Consolidated Supervision which requires that supervisors should regulate banking groups on a consolidated basis, and Basel Core Principle 25 on Home-host Relationships (Cross-border consolidated supervision) which requires cooperation and information exchange between home supervisors and the host supervisors. Ladies and Gentlemen: Following financial crises experienced from 2007, the importance of information sharing and collaboration between banking group supervisors, especially through supervisory colleges, was re-emphasised by the G20 Leaders and Financial Stability Board Forum held in 2008. To actualise the Forum’s declaration the Basel Committee for Banking Supervision released a paper on Good Practice Principles on Supervisory Colleges in October 2010. The paper supplemented the existing guidance on cross-border cooperation and information-sharing. It outlined expectations for both home and host supervisors in relation to supervisory college objectives, governance, communication and information sharing as well as potential areas for collaborative work. Ladies and Gentlemen: Currently, 10 Kenyan banks have established presence across the Eastern Africa region including two in South Sudan and one in Mauritius. As at BIS central bankers’ speeches 30th June 2012, the 10 Kenyan banks had 240 branches outside Kenya, an increase of 34 branches from 204 in December 2011. It is worth noting that it is not only Kenyan banks that are expanding across the borders but banks in the other East African countries have also embraced the opportunity. A case in point is the application by Bank of Kigali to establish a Representative Office in Kenya. I envisage that more banks will consider cross-border expansion once the on-going harmonisation of the legal, supervisory and regulatory frameworks among the EAC Central Banks is completed. Ladies and Gentlemen: Effectiveness of consolidated supervision and in particular a supervisory college depends on how it is structured. The structure of a supervisory college to be adopted depends on the unique characteristics of the banking group being considered. In this regard, CBK as the home supervisor of Kenya Commercial Bank (KCB) Group, and with the technical assistance of East AFRITAC, has designed this supervisory college to reflect the nature and complexity of operations of KCB. The structure is expected to promote timely information sharing and closer collaborations amongst the KCB Group supervisors. Ladies and Gentlemen: As we hold this supervisory college meeting for KCB, it is worth noting that KCB has made great progress since its predecessor; the National Bank of India opened an outlet in Mombasa in 1896. I take note that as at 30th June 2012, KCB had a branch network of 226 branches; 56 of which were outside Kenya. Further, as at 31st July 2012, KCB’s total assets were valued at Ksh.295 billion (USD3.5 billion) while its total loans and gross deposits amounted to Ksh.190 billion (USD2.26 billion) and Ksh.213 billion (USD2.53 billion) respectively. Ladies and Gentlemen: Despite the commendable efforts towards full integration in the East African Community, banks with cross border operations continue to report operational challenges. The major operational challenge is the need for a huge capital outlay, which could otherwise be minimised through centralisation of some operations and decision making. With the advancements in information technology, centralisation of some operational processes is being embraced globally based on the resultant cost savings as along as adequate risk mitigating measures are assured. In this regard, I urge regulators in the Eastern Africa region to always embrace a developmental mindset as they consider proposals by market players. As long as adequate risk mitigation measures are demonstrated, innovations should be facilitated. It is only through this that our banking sectors will effectively play their roles of resource mobilisation, allocation and deepen the market. More importantly, innovations will reduce the cost of banking services and products. Lower costs are critical to tapping the vast unbanked populace in our region. Ladies and Gentlemen: The output from this meeting will provide a framework to enhance effective supervision of the KCB Group. It will also set precedence for the supervision of other banking groups with cross border operations. I acknowledge the presence of KCB Management who I am informed will showcase their strategy and operational plans. It is through a clear understanding of institutional strategies and plans that supervisors are able to proactively discharge their supervisory mandates. Ladies and Gentlemen: I believe that there is a great wealth of supervisory information and ideas to be shared in this supervisory college. As the East African Central Banks, there is need to be steadfast in supervision of institutions with cross border operations to minimise the likelihood of systemic effects in case of failure. I therefore wish to reiterate the importance of seizing this opportunity to discuss mechanisms of enhancing regional coordination in supervision as well as crisis management/mitigation. With these few remarks Ladies and Gentlemen, it is now my honour and pleasure to declare this inaugural supervisory college meeting officially opened and I wish you fruitful deliberations. Thank You BIS central bankers’ speeches
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Remarks by Prof Njuguna Ndung'u, Governor of the Central Bank of Kenya, at the launch of the FTSE-NSE Kenya Government Bonds Index, Nairobi, 3 October 2012.
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Njuguna Ndung’u: Initiatives, developments and achievements of the Kenya Government Securities Market Remarks by Prof Njuguna Ndung’u, Governor of the Central Bank of Kenya, at the launch of the FTSE-NSE Kenya Government Bonds Index, Nairobi, 3 October 2012. * * * The Chairman of the Nairobi Securities Exchange (NSE); Chief Executive, NSE, Mr Peter Mwangi; Officials of the FTSE Group; Capital and Financial Market Executives; Members of the Media; Ladies and Gentlemen: At the outset let me thank the Nairobi Securities Exchange Chief Executive for inviting me to participate in this auspicious moment of the launch of the FTSE-NSE Kenya Government Bonds Index. This achievement is indeed critical for the development of a robust domestic financial market in Kenya. Today’s event comes at a time when we as market players take pride in the success of our efforts in spearheading market development. This collaboration among market players has been instrumental in developing one of the fastest growing Bond Markets in Africa as the Kenyan Bond Market is ranked among the top in Africa. Ladies and Gentlemen: let me take a few minutes to make some remarks on the initiatives and developments that have underlined the achievements of Kenya Government Securities Market. Over the last one decade, the Central Bank of Kenya in liaison with stakeholders in the financial sector has contributed significantly to the following successes: 1. Longer maturity profile of domestic debt instruments: average maturity profile of government securities rose from 8 months or ratio of 76:24 in Treasury bills to Bonds in June 2001 to 5 years 5 months or ratio 20:80 currently. With a well-functioning secondary bond market in place, the Government no longer faces rollover risks associated with short term debt instruments. 2. Benchmark bonds implementation: successful implementation of Treasury Bonds benchmarks and reopening to increase their liquidity since April 2009 was a critical step towards addressing the Bond market fragmentation problem and in the development of a reliable yield curve in our market. About 16 benchmark bonds have so far been reopened bringing into the market more than Ksh.138 billion and providing critical financing for the national recurrent and development budget as per Government’s fiscal policy. 3. Project-specific (infrastructure) bonds – The Government of Kenya took a bold step in February 2009 to issue the first project/sector specific bond with an aim to fund key infrastructure projects and set pace for public, private as well as supranational agencies to tap the market for long term funding through bond issuance. Five infrastructure bonds worth Ksh.130.85bn have so far been issued thereby increasing the range of products in the market for purposes of diversification. 4. Creating more investment opportunities to spur national savings – The issuance of a 30-year Savings Development Bond in 2011 and the reduction of minimum entry into Treasury bills market from Ksh.1,000,000 to Ksh.100,000 in January 2009 were key milestones towards promoting a savings culture among the populace and in widening the investor base for the Government Securities market. BIS central bankers’ speeches 5. Putting in place the Automated Trading System (ATS) – The introduction of the ATS at the NSE in November 2009 was a great step towards achieving bond trading efficiency, effective pricing, increased market confidence and transparency as well as enhanced reliability and firming of the yield curve. Ladies and gentlemen, a well-developed and functioning financial market is regarded as the lubricant for the economy. In order to further enhance the proper functioning of the financial market, the Central Bank together with other market stakeholders has been working on a number of initiatives to further enhance the bond market so as to support the country’s development agenda under Vision 2030. These reforms include: • Development of the Over The Counter trading platform, • Introduction of online bidding for government securities, • Implementation of government securities market makers. The step taken by the Nairobi Securities Exchange to introduce the FTSE NSE Government Bond Index is a welcome initiative for this market as the index will play a key role in providing a benchmark tool for measuring market performance. It will also facilitate diversification through emergence of new financial products and market participants thereby encouraging foreign investors. Finally, it will have the benefit of opening up the market to the rest of the world and increasing Kenya’s financial sector competitiveness in the region and across the world. It surely does set the pace for the regional market. I wish therefore to congratulate the Nairobi Securities Exchange for the foresight of developing the bond index. With these remarks, ladies and gentlemen, I now declare the FTSE NSE Kenya Shilling Government Bond Index formerly launched. Thank you all for your listening BIS central bankers’ speeches
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Remarks by Prof Njuguna Ndung'u, Governor of the Central Bank of Kenya, at the Anti Money Laundering (AML) National Stakeholders Forum, Kenya School of Monetary Studies, Nairobi, 4 October 2012.
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Njuguna Ndung’u: Anti-money laundering and combating the financing of terrorism in Kenya Remarks by Prof Njuguna Ndung’u, Governor of the Central Bank of Kenya, at the Anti-Money Laundering (AML) National Stakeholders Forum, Kenya School of Monetary Studies, Nairobi, 4 October 2012. * * * Hon. Oburu Odinga, Assistant Minister for Finance; Chief Executives of Commercial Banks; Mr. John Wanyela, Chairman, Anti-Money Laundering Advisory Board; Eminent Ambassadors; Our Development Partners; Distinguished Guests; Ladies and Gentlemen: I feel honoured and privileged to be with you at the start of this important interactive forum that brings together financial sector stakeholders to deliberate on the important subject of Anti-Money Laundering and Combating of Financing of Terrorism (AML/CFT) with an aim of creating awareness on AML issues. Today I have a humble undertaking, namely of inviting our Chief Guest; the Hon. Assistant Minister for Finance to deliver the keynote address and officially open the Forum. But before I invite him to the podium, I wish to make a few remarks to bring delegates to speed on the status of Kenya on AML/CFT issues. Ladies and Gentlemen; let me begin by extending a very warm welcome to all our participants to the Kenya School of Monetary Studies. The School is working together with the Financial Reporting Centre (FRC) with the support of the Danish Government to create an extensive AML/CFT programme for the next two years to raise awareness as well as train Reporting Entities, Law enforcement Authorities and personnel in the FRC on Anti-Money Laundering initiatives. As such, today’s forum marks the start of the Danish funded project which will run over the next 24 months. The project includes activities whose objectives are to raise awareness amongst key stakeholders engaged in the fight against money laundering and terrorism financing. As you are all well aware, Kenya has made significant strides in protecting the integrity of its financial sector from illicit financial crimes. The Government has not only shown a high level of political commitment in overseeing the stability of the country’s financial sector but has also been actively engaged in overseeing the implementation of requisite laws and measures to ensure that our financial systems are adequately protected against the financial crimes of money laundering and the financing of terrorism (AML/CFT). At the Beirut review meeting last month, we argued that Kenya is caught up in a triple problem of implementing a new constitution and formulating accompanying bills, building and safeguarding strong institutions and moving fast on FATF deficiencies. The fourth dimension is that Kenya had to go to war to fight terrorism; this is beyond financial risks but also national sovereignty. We need: (a) Time to finalize all these interlinked issues. (b) Capacity building support. (c) To adopt, replicate and build a strong FRC and the best model in the world. BIS central bankers’ speeches And with these Kenya will succeed. Whilst the focus of this Forum today will be to raise awareness and sensitize you on upcoming programs on issues surrounding AML/CFT, allow me to briefly touch on a number of initiatives that have been undertaken by the Central Bank to address some of these issues. Ladies and Gentlemen; The Central Bank of Kenya is mandated to foster the financial integrity of the financial system in the country. The Bank has continually enhanced the regulation and supervision of the financial system in order to improve the sector’s integrity. As part of our efforts in ensuring appropriate and effective oversight, the central bank first issued AML Guidelines in 2000. These Guidelines were revised in 2006 and are currently in the process of being reviewed to reflect the prevailing international best practice and to align them with the proceeds of Crime and Anti-Money Laundering Act, 2009 (POCAMLA). Over the last two years, the Central Bank has issued regular AML/CFT guidelines to financial institutions to further support and enhance the implementation of POCAMLA. The guidance has covered various issues such as the operationalization of the AML Act, Suspicious Transaction Reporting and measures to be adopted by financial institutions to combat the financing of terrorism. The Central Bank has also revised the Forex Bureau Guidelines so as to align these guidelines to POCAMLA. On the Microfinance front, the Microfinance Regulations and the Agency Guidelines require Deposit Taking Microfinance institutions and their agents to implement AML/CFT measures. All these measures are aimed at ensuring the integrity of the financial sector. As you may be aware, Kenya is now a leading light in financial inclusion. The systems and practices we have put in place to deepen financial inclusion are now considered as acceptable best practices and are being emulated by other jurisdictions. The challenge before us on this front is to maintain the delicate balance between financial inclusion and financial integrity. By putting in place the required measures to address money laundering and terrorism financing in the financial sector while at the same time deepening our financial markets will therefore enable us maintain this critical balance. Kenya like other developing economies is quite vulnerable to money laundering and terrorism financing due to a number of displacement factors; key amongst them being a high volume of cash based transactions, lack of an adequate legal framework and the existence of alternative remittance avenues. I am glad to note that the Government of Kenya has taken a keen interest on these issues and has, and is continuing to undertake a number of initiatives towards addressing these challenges. The Central Bank, in addition to the initiatives I have just mentioned, is developing Regulations to strengthen the money remittance sector. Ladies and Gentlemen; It is my sincere hope that this forum will contribute to a better understanding of the AML/CFT issues affecting the Country and will generate ideas that will bring the fight against the organized crimes up to international standards. It is now my pleasure to invite the Hon. Assistant Minister, Ministry of Finance, Dr. Oburu Odinga, to address you and to officially open this forum. Thank You All. BIS central bankers’ speeches
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Remarks by Prof Njuguna Ndung'u, Governor of the Central Bank of Kenya, at a breakfast meeting celebrating the long collaboration between Diamond Trust Bank and the International Finance Corporation (IFC) to support Kenyan SMEs, adding new focus on very small enterprises, Nairobi, 5 October 2012.
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Njuguna Ndung’u: Initiatives to foster the growth of the Kenyan SME sector Remarks by Prof Njuguna Ndung’u, Governor of the Central Bank of Kenya, at a breakfast meeting celebrating the long collaboration between Diamond Trust Bank and the International Finance Corporation (IFC) to support Kenyan SMEs, adding new focus on very small enterprises, Nairobi, 5 October 2012. * * * Executive Vice President and Chief Executive Officer IFC; Jin-Yong Cai Chairman, Diamond Trust Bank Kenya Ltd; Abdul Samji Managing Director, Diamond Trust Bank Kenya Ltd; Mrs. Nasim Devji Board Members; Management and Staff; Distinguished Guests; Ladies and Gentlemen: I am pleased to be here this morning and I thank Diamond Trust Bank for the invitation. This breakfast meeting is to celebrate the long standing collaboration of more than thirty years between Diamond Trust Bank (DTB) and the International Finance Corporation (IFC). Before making my remarks, I would like to congratulate Mr. Jin-Yong Cai on his appointment as Executive Vice President and Chief Executive Officer of IFC. Ladies and Gentlemen: As the world’s leading private sector development institution, IFC has continued to support public policies and investments that create opportunities for the poor developing economies. The activities of IFC have helped developing countries register improved growth by financing investment, mobilizing capital in international financial markets, and providing advisory services to businesses and governments. In Financial Year 2012, IFC’s investments reached an all-time high of more than USD20 billion, leveraging the power of the private sector to create jobs, spur innovation, and tackle the world’s most pressing development challenges. This is how DTB’s long-standing relationship with IFC has thrived. Ladies and Gentlemen: DTB has operated in East Africa for over 60 years starting off as a small financial institution in Mombasa. DTB’s focus and commitment to enhancing convenience for customers through branch network expansion has driven the bank’s growth in recent years and it currently has 79 branches in Kenya, Tanzania, Uganda, and Burundi. The bank became the first bank in East Africa to join the IFC Africa Micro and Small Micro Enterprises (MSME) Finance program in 2008 which provides advisory services to commercial banks seeking to expand their MSME banking services. I am also informed that DTB is working closely with the IFC Advisory Services program to strengthen its positioning in the MSME market segment. Ladies and Gentlemen: IFC became a shareholder of DTB in 1983 and has continued to support the bank throughout the thirty years. This is a testament of faith in the institution. IFC has availed over USD 75 million in funded and unfunded facilities and other forms of technical assistance to the bank aimed at supporting the bank’s expansion plans and fund lending to small and medium enterprises. DTB in return has created a strong presence and market niche in Kenya and the EAC. Ladies and Gentlemen: For us in CBK, Financial inclusion is entrenched in Government of Kenya’s Development Blueprint, Vision 2030 and lies at the core of the CBK’s strategic actions towards implementing this Vision. I believe that banks and other financial institutions in the country will continue to play a key role as partners, agents, promoters and advisers to firms and households to enhance financial sector development and financial inclusion. We are glad that DTB is among the partners. BIS central bankers’ speeches Ladies and Gentlemen: The Central Bank has also introduced initiatives to foster growth of the SME sector. These include creating instruments of financial inclusion appropriate for each market segment. Also among the initiatives are licensing of deposit taking microfinance institutions which currently stand at six, two credit reference bureaus (CRBs); introduction of Shariah compliant banking products, the hugely successful mobile phone money transfer services and the agency banking which boasts of more than 13,000 agents countrywide. These are financial SMEs. The initiatives have culminated into increased number of deposit accounts from 2.55 million in 2005 to 16.7 million in August 2012, with micro accounts growing from 2.14 million in 2005 to 15.8 million accounts at end of August 2012. With these few remarks, Ladies and Gentlemen, I wish to thank the IFC for its continued support as we celebrate this long collaboration between IFC and DTB, which has a positive impact on our economic growth. Thank you BIS central bankers’ speeches
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Address by Prof Njuguna Ndung'u, Governor of the Central Bank of Kenya, at the "Emerging Payment Systems Technical Capacity Building Workshop 2012", Kenya School of Monetary Studies, Nairobi, 14 November 2012.
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Njuguna Ndung’u: Development of efficient and cost effective payment systems in Kenya Address by Prof Njuguna Ndung’u, Governor of the Central Bank of Kenya, at the “Emerging Payment Systems Technical Capacity Building Workshop 2012”, Kenya School of Monetary Studies, Nairobi, 14 November 2012. * * * Dr. Eliawony Kisanga; Executive Secretary; ESAAMLG; Ms. Maria C. Stephens; Senior Technical Adviser; USAID; Representatives of USAID and US Treasury; Representatives of Central Banks present; Distinguished Guests and Participants; Ladies and Gentlemen: Let me begin by extending a very warm welcome to all the workshop participants. To the participants who are drawn from beyond our borders, it is my sincere hope that your stay with us shall be enjoyable and that you will carry with you pleasant memories of Kenya when you return to your respective countries. Ladies and Gentlemen: This workshop is about the development of efficient and cost effective payment systems. The workshop will offer the pertinent issues of financial integrity which completes the architecture of financial inclusion. The importance of financial inclusion is now critically clear. Indeed, there has been mounting evidence that access to financial services is a tool to fight poverty sustainably. Access to affordable and sustainable financial services enables the poor to save and accumulate capital for investment. This is important for generating self- employment opportunities, smooth consumption, reduce vulnerability to economic shocks, raise productivity, obtain higher returns on investments and ultimately improve the quality of their lives. However, approximately 2.5 billion adults globally, representing over half of the world’s adult population, have no access to formal financial services to increase their incomes and improve their lives. Among them, 1.1 billion live on less than one dollar a day. These numbers are a representation of the great demand and need for increased access to income generating activities and to appropriate financial services for the large un-banked populace across the globe. This is particularly true of developing economies in Africa, Asia and Latin America where nearly 90% of the world’s unbanked adults reside. The expansion of financial inclusion has thus become a critical topic in development agendas for policy makers and regulators globally, with considerable energy and resources having been devoted towards its enhancement. The testament to this is the G20 Global Partnership for Financial Inclusion (GPFI) where non-G20 members participate. The Central Bank of Kenya, and indeed Kenya has been represented by the Governor. At this point therefore, allow me to underscore the importance of emerging payment systems to promoting financial inclusion agenda. Ladies and Gentlemen: The rapid growth of the mobile phone-based money transfer service in Kenya beginning with M-Pesa, in 2007 has been seen by many as having produced a tectonic shift in Kenya’s financial landscape with a great impact on financial inclusion. Indeed, the rapid adoption and use of mobile money transfer services by some 70% of the adult population has suggested that there is huge potential for the development of inclusive formal financial services through mobile phones. Equally complementing this was banks integration with it and also payments of goods functionality raising in acceptance and reception. Notably, the development of innovative and easy-to-use payment systems by financial institutions and other businesses such as mobile phone operators has helped to BIS central bankers’ speeches support rapid growth in e- commerce, in many cases providing consumers with more effective, convenient, and secure ways to purchase an expanding variety of products. Ladies and Gentlemen: We all know that in the business world, the customer is King. In this regard, I wish to highlight at this point key issues that policy makers may need to address to strengthen consumer confidence in new and emerging payment systems and which may be categorized into five broad areas including: clarity, transparency and completeness in information disclosure; variability in regulatory and protection regimes; fraudulent, misleading and deceptive commercial practices; dispute resolution and redress and security and interoperability. Ladies and Gentlemen: Any success in financial inclusion has to go hand in hand with financial integrity. In this regard, the Central Bank of Kenya has continuously sought to enhance the regulation and supervision of the financial system in order to improve its integrity. Indeed, as part of our efforts in ensuring appropriate and effective oversight, we first issued AML Guidelines in 2000. These Guidelines were later revised in 2006 and are currently in the process of being reviewed to reflect the prevailing international best practice and to align them with the Proceeds of Crime and Anti-Money Laundering Act, 2009 (POCAMLA) as amended and the new Act on combating terrorism financing. It is true that over the last 2 years, the Central Bank has issued regular AML/CFT guidelines to financial institutions to further support and enhance the implementation of the Proceeds of Crime and Anti-Money Laundering Act (POCAMLA), 2009. The guidelines have covered the operationalization of the AML Act, Suspicious Transactions Reporting, and measures to be adopted by financial institutions to combat the financing of terrorism. The Central Bank has also revised the Forex Bureau Guidelines so as to align them with the AML Act and is currently sharing with stakeholders the Hawala guidelines. Ladies and Gentlemen: The creation of the Financial Reporting Centre early in the year and the passing of the Anti-Terrorism Law is a clear signal of the Kenya Government’s commitment in protecting the integrity of our country’s financial system. In fact I wish to inform you that following the creation of the FRC, all financial institutions in Kenya including banks, forex bureaus and mobile phone financial service providers will be required to report all suspicious transactions to the Financial Reporting Centre. I have expounded on these issues and updates whenever I represent Kenya in FATF evaluation meetings. That is why in the current standing, FATF has commended Kenya for its tremendous effort in AML/CFT Laws enactment and how we are on implementation. Ladies and Gentlemen: In conclusion, it is my hope, that this workshop will help enhance our technical capacity on emerging payment systems as we share our own country experiences on these systems. Let me also once again take this opportunity to assure all of you of the Central Bank’s continued commitment, collaboration and partnership in the development of robust and secure payment systems. But this is where capacity is urgently needed and support by USAID and the US Treasury arising from their experience is most welcome. Finally, it is a pleasure and honour to now declare the Emerging Payment Systems Technical Capacity Building Workshop officially open and wish you fruitful deliberations. Thank you. BIS central bankers’ speeches
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Address by Prof Njuguna Ndung'u, Governor of the Central Bank of Kenya, at the launch of the National "Chomoa Coins" Campaign, Nairobi, 26 November 2012.
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Njuguna Ndung’u: National “Chomoa Coins” Campaign – importance of coins in Kenya Address by Prof Njuguna Ndung’u, Governor of the Central Bank of Kenya, at the launch of the National “Chomoa Coins” Campaign, Nairobi, 26 November 2012. * * * Mr. Richard Etemesi, Chairman, Kenya Bankers Association; Mr. Habil Olaka, Chief Executive, Kenya Bankers Association; Mr. Alfred Nganga, Chairman, Retail Traders Association of Kenya; CEOs of Commercial Banks; Chairmen and CEOs of Represented Supermarkets; Distinguished Guests; Ladies and Gentlemen: I am honoured to launch the 2012 National Coin Week, we dub it “Chomoa Coins Campaign” which starts today, November 26th and ends on December 7th, 2012. As you are all aware, the Central Bank of Kenya is charged with the responsibility of ensuring availability of adequate currency, that is, Banknotes and coins, across the country. Pursuant to this mandate, the Central Bank of Kenya has over the years endeavoured to ensure that there is adequate supply of coins. However, in the recent past, last year to be precise, concerns started to emerge among members of the public regarding challenges in obtaining coin-change at retail outlets. In response to these concerns, the Central Bank together with key stakeholders such as the Kenya Bankers Association (KBA), Supermarkets and the Matatu Owners Association, launched the National Coin Week initiative in July 2011. The campaign was very successful as members of the public brought out large amounts of coins into circulation, thus alleviating the perceived shortage. However, in the early part of this year, the momentum seemed to have waned and reports of perceived coin shortages have resurfaced again. Ladies and Gentlemen: it is against this background that the Central Bank of Kenya has once again partnered with key stakeholders such as the Media, the Kenya Bankers Association (KBA) and the Retail Traders Association of Kenya (RETRAK) among others, to promote the re-circulation and use of coins. As mentioned last year, it is the view of the Central Bank that the current perceived shortage of coins could be addressed through circulation of the coins presently held by the public in their homes, tills, piggy banks, car pouches etc. The purpose of the coin week campaign therefore is to: • Sensitize the Mwananchi on the importance of coins in the economy; • Encourage the public to exchange coins for notes; • Promote the habit and culture of using coins in day to day transactions; • But also encourage a cost-effective circulation of coins. Ladies and Gentlemen: as you are aware, coins constitute low-value units of our currency structure and adequate availability at all times everywhere cannot be over-emphasized. Most of you must have witnessed situations at Points of Sale (POS) and retail outlets where token items such as sweets or matchboxes are offered in place of coin-change. This is a practice that we would like to see stopped. Coins should be readily available in all retail outlets to BIS central bankers’ speeches ensure proper pricing and avoid undue retail price hikes or issuance of token items in lieu of coins. The Central Bank through the commercial banks has continued to ensure that adequate quantities of coins are in circulation. As of today, the Central Bank of Kenya has issued into circulation over 1.31 billion pieces of coins in various denominations with an estimated face value of Ksh.5.1 billion. We believe these coins are more than adequate to serve the economy. In the month of October 2012 alone, CBK released 9 million pieces of coins into circulation, while in November 2012, a further 12 million pieces have so far been released, yet the challenges on coin circulation still persist in some segments of the market. It must be that it is the circulation problem in the country. We believe that the bulk of coins are held by members of the public either in their homes, offices or car pouches or is it becoming expensive to make trips to the bank for coins? This trend seems to be continuing and we need to find a mechanism to end or discourage it. It is therefore clear that the problem of inadequacy of coins in circulation cannot be addressed by adding new coins but by ensuring that there is an efficient mechanism for recirculating existing coins within the economy. The 2012 National Coin Week has therefore been appropriately dubbed “Chomoa Coins” and involves a variety of media activities which have been mooted by the Central Bank, KBA, Supermarkets and the other key stakeholders. Besides educating the public on the importance of coins, the key campaign aims at: • Encouraging the general public to utilize coins in making low value payments; • Calling upon everyone keeping coins in homes, offices, cars etc. to instead circulate them by dropping them at designated change points in supermarkets and banks; • Informing the general public and traders in particular that they have a responsibility towards their currency and should accept all legal tender coins that are in circulation • Partnering with commercial banks for a most cost-effective way to ensure circulation. The Central Bank in collaboration with all the stakeholders will continue to explore ways of addressing bottlenecks in the coin circulation system and strive to provide solutions. The Bank also encourages the development of innovative approaches and mechanisms, including use of technologies that facilitate the efficient distribution, exchange and circulation of coins. May I also take this opportunity to thank all stakeholders for supporting this event. Ladies and Gentlemen: with these brief remarks, it is now my honour and pleasure to formally launch the 2012 ‘National “CHOMOA COINS” Campaign’. Thank you and God bless you BIS central bankers’ speeches
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Remarks by Prof Njuguna Ndung'u, Governor of the Central Bank of Kenya, at the 3rd Governors Consultative Forum on "Cooperation between the Bank of South Sudan and the Central Bank of Kenya", Kenya School of Monetary Studies, Nairobi, 19 December 2012.
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Njuguna Ndung’u: Cooperation between the Bank of South Sudan and the Central Bank of Kenya Remarks by Prof Njuguna Ndung’u, Governor of the Central Bank of Kenya, at the 3rd Governors Consultative Forum on “Cooperation between the Bank of South Sudan and the Central Bank of Kenya”, Kenya School of Monetary Studies, Nairobi, 19 December 2012. * * * Mr. Kornelio Koriom Mayik, Governor, Bank of South Sudan; Members of the Technical Committee, Bank of South Sudan and Central Bank of Kenya; The Central Bank of Kenya is delighted and honoured to host the 3rd Consultative Forum on cooperation between Bank of South Sudan and Central Bank of Kenya here at the Kenya School of Monetary School Studies. I take this opportunity to welcome the Governor, Bank of South Sudan, H.E. Kornelio Koriom Mayik, and the entire BSS delegation to Nairobi, Kenya and more specifically to the Kenya School of Monetary Studies (KSMS). The genesis of the cooperation between BSS and CBK goes back a few years ago before South Sudan became a Republic when a number of officials were hosted here at KSMS and the first Governor of BSS operated for a while from an office at CBK. To date we have had two other Consultative Forums at Bank of South Sudan in Juba; the 1st one being in July 2012 and the 2nd in October 2012. The purpose of these forums is to strengthen the mutual cooperation between the two institutions and to seek solutions to common binding constraints. During the 1st Consultative Forum, BSS outlined the challenges the Bank was facing, including; • The capacity constraints in conventional banking operations; • Facilitating Government borrowing from the domestic market and putting in place the necessary infrastructure; • The need to put in place a framework and appropriate instruments for monetary policy implementation; • The adverse impact of stoppage of oil revenues that led to reduced foreign currency revenues; and, • The need to establish a functioning Capital Market The CBK on its part identified a number of areas that it could provide support. This, combined with the challenges highlighted by BSS formed the basis for mutual cooperation between the two Central Banks. During the 2nd Consultative Forum which was held in October 2012, we agreed to form a Technical Committee (TC) to fast-track the implementation of issues discussed during the 1st Consultative Forum. The Terms of Reference of the Technical Committee were drawn up and agreed upon. Among the tasks given to this TC include; 1. To formulate a comprehensive Memorandum of Understanding between BSS and CBK; 2. To map out capacity building requirements for BSS and support to be provided by CBK to enhance operations at BSS; BIS central bankers’ speeches 3. To review and finalize a Balance Sheet for BSS; 4. To fast-track the opening and operationalization of reciprocal accounts at both BSS and CBK to facilitate trade between the two countries and solve the supply constraints of dollars in the market in South Sudan; 5. To formulate a method of determining the bilateral exchange rate; 6. To propose instruments to enhance Government borrowing and facilitate the deepening of the financial markets in South Sudan; and 7. To propose a comprehensive budget for the TC. I am informed that the TC held its 1st meeting from 4th to 6th December, 2012 in Juba and that you have been holding the 2nd TC meeting in this same venue over the last two days. Governor Kornelio and myself look forward to the TC’s report on the progress made on the tasks identified. In this particular meeting, we need to make tangible progress and produce meaningful results that the market participants and governments on both sides are waiting for. I am pleased to hear that the Memorandum of Understanding has been finalized and reviewed by the Legal Counsels of the two Central Banks, who are present here with us today. Before we give the chance to the TC for the presentation, I want to invite Governor Kornelio to make a few remarks. Thank you. BIS central bankers’ speeches
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Opening remarks by Prof Njuguna Ndung'u, Governor of the Central Bank of Kenya, at the Inaugural African Roundtable Meeting to launch the "Africa Mobile Phone Financial Services Policy Initiative (AMPI)", co-hosted by the Bank of Tanzania, Alliance for Financial Inclusion (AFI) and Central Bank of Kenya, Zanzibar, Tanzania, 14-15 February 2013.
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Njuguna Ndung’u: The Africa Mobile Phone Financial Services Policy Initiative (AMPI) Opening remarks by Prof Njuguna Ndung’u, Governor of the Central Bank of Kenya, at the Inaugural African Roundtable Meeting to launch the “Africa Mobile Phone Financial Services Policy Initiative (AMPI)”, co-hosted by the Bank of Tanzania, Alliance for Financial Inclusion (AFI) and Central Bank of Kenya, Zanzibar, Tanzania, 14–15 February 2013. * * * Professor Benno Ndulu, Governor, Bank of Tanzania; Alfred Hannig, Executive Director, Alliance for Financial Inclusion; Professor Mwangi Kimenyi, Director, African Growth Initiative, Brookings Institution; Distinguished Guests and Colleagues; Ladies and Gentlemen: On behalf of the co-hosts, Bank of Tanzania, Alliance for Financial Inclusion (AFI) and Central Bank of Kenya, it is my honour to extend a warm welcome to all of you to Zanzibar, Tanzania to participate in the “Inaugural Leaders Roundtable meeting to launch the Africa Mobile Phone Financial Services Policy Initiative (AMPI).” It is indeed encouraging to note that the efforts by all the pertinent players to make this launch a success are being realized today. The fact that you have all graced this occasion demonstrates our commitment as AFI members and the passion we have to move financial inclusion to higher levels in our Continent and the entire world. I take this opportunity, therefore, to applaud you for your unending passion towards this initiative. Ladies and Gentlemen, as you may recall, the idea to have a focused regional initiative on Mobile Phone Financial Services (MFS) platform in Africa, was initiated right here in Zanzibar during the first African Financial Inclusion Policy Forum held in March 2012. This was following discussions held at Brookings Institution, Washington D.C, on the importance of spurring MFS in Africa and after a critical analysis of the hurdles that limit the scaling up of MFS in Africa. It was further emphasised during the 4th Annual AFI Global Policy Forum (GPF), held in Cape Town, South Africa in September 2012 where we, the African AFI members, agreed to organize this inaugural African Leaders’ Roundtable meeting. As AFI members, our major objective is to extend financial inclusion to the Continent’s large unbanked populace. We recognise that there is significant potential in the development of mobile phone financial services in Africa to accomplish this. AMPI, therefore, will provide a framework through which we will jointly determine effective policy solutions to advance MFS across the African Continent while recognising the unique circumstances, environments, conditions and needs of each country within the region. Specifically, AMPI will seek to launch new, or expand on existing MFS policy, regulatory initiatives and strategies with the objective of deepening the penetration of MFS across Africa in line with our national agendas and policy priorities, including the Maya Declarations, where they apply. Further, AMPI will provide a platform for regional networking and cooperation. African AFI Members will be in a position to share experiences and address policy issues which are common in nature. This is expected to help us develop effective solutions, policy strategies and regulatory frameworks that will be beneficial not only to Africa but also to the wider AFI network. Ladies and Gentlemen, it is envisaged that AMPI’s broad objectives will be achieved through tailored activities which include; • Tapping into the synergies and experiences of the AFI African members; BIS central bankers’ speeches • Mapping of comparative case studies on policies and regulatory implications of new business models; • Advancement of research, studies and exchange of knowledge and experiences around MFS; • Supporting the implementation of the Maya Declaration commitments relating to MFS; and • Secondment/attachment of staff/members to different organisations of African AFI member countries for further learning. To successfully operationalise the AMPI initiative, we propose to establish an AMPI help desk, but not necessarily a physical one, which will provide all technical coordination towards the implementation of AMPI’s objectives and activities. The key mandates of this help desk will be focused on facilitating communication of the results and progress of AMPI, enabling engagement among the AFI members and external stakeholders and ensuring synchronization of the overall AFI strategy towards enhancing MFS in Africa. In addition, it will contribute to our fulfilment of the Maya Declaration Commitments relating to MFS. We will discuss, sharpen and adopt this proposal over the next two days. Ladies and gentlemen, it is my ardent belief that this initiative will go a long way in enhancing financial inclusion in Africa. AMPI will pave the way for us to create an enabling environment to support the delivery of financial services through mobile phone technology and other emerging technologies, leading to increased penetration of MFS in Africa. In addition, through the interaction between members and the external stakeholders, AMPI will serve as a peer learning and knowledge platform for AFI members to share and learn insights on MFS. In conclusion, I want to emphasize that access to financial services is a major boost to a country’s overall economic health as well as in providing significant benefits to low income households and unbanked populace. Therefore, the launch of AMPI will provide a platform to enhance the growth of various economies in Africa and fulfil our developmental aspirations. I am sure we all want to be part of such a revolutionary initiative. In this regard, I want to encourage all of us to stay focused and see to it that this initiative is a success. AMPI will be a sub-network of AFI with specific deliverables. This roundtable should also feel free as members of AFI to develop a framework of AMPI modalities, including a governance structure. Ladies and Gentlemen, I take this opportunity, once again, to thank all of you for gracing this occasion and for your unrelenting support to this Initiative. More specifically, I want to thank the Bank of Tanzania and the Alliance for Financial Inclusion (AFI), for providing a platform for its members to enhance financial inclusion and for their continued and focused support towards this initiative. It is my hope that this roundtable meeting and launch of AMPI will spur us to work together to develop smart and strategic policies and regulatory frameworks that can catalyse MFS into a platform for innovation, leading to greater financial inclusion and economic development in the African Continent. Thank you BIS central bankers’ speeches
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Remarks by Prof Njuguna Ndung'u, Governor of the Central Bank of Kenya, at the 15th East AFRITAC Steering Committee Meeting, Naivasha, 8 April 2013.
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Njuguna Ndung’u: Implementing reforms in Kenya Remarks by Prof Njuguna Ndung’u, Governor of the Central Bank of Kenya, at the 15th East AFRITAC Steering Committee Meeting, Naivasha, 8 April 2013. * * * Members of the East AFRITAC Steering Committee here present; Mr. Xavier Maret, the East AFRITAC Centre Coordinator; Mr. Ragnar Gudmundsson, IMF Resident Representative to Kenya; East AFRITAC Advisors and Consultants; Distinguished Ladies and Gentlemen: It is my pleasure to officially open the 15th East AFRITAC Steering Committee meeting. On behalf of the Government of Kenya, I take this opportunity to welcome you all to Kenya. In particular, I would like to welcome you to Naivasha, one of our leading horticultural producing regions and a tourist destination at the heart of the Great Rift Valley. I know that we have some good work cut out for us in the next one and a half days but at the same time I would like to encourage all of you and especially those visiting the region for the first time, to find time to sample our beautiful tourist attractions in Naivasha before you depart. Naivasha is also the home town of the roses that are cherished in Europe and the town is also located in the precincts of the panoramic landscapes of the Great Rift Valley which you must have enjoyed as you descended the escarpment on your way to this resort. Ladies and gentlemen Some of you may be wondering why I am opening the 15th East AFRITAC Steering Committee meeting this evening instead of tomorrow, 9th April 2013 as had been indicated in the programme. It is for a good reason because on the 9th of April we will be witnessing the culmination of a process that started way back in 2010 when we promulgated our new constitution. The Kenyan Constitution 2010 brought in new governance structures and processes including the way we conduct elections and procedures for transfer of political power. This is why we had to adjust the programme to allow my participation during the inauguration of the Fourth President of the Republic of Kenya on Tuesday, 9th April 2013. Given the critical importance of this meeting, we thought it should proceed as planned. Ladies and gentlemen Let me now turn to the subject matter of our meeting and in this regard, I would like to first and foremost express our sincere gratitude to East AFRITAC for the support that we have received over the years. Through this support, we have been able to implement far reaching reforms in many areas including public financial management, revenue administration, financial sector regulation as well as macroeconomic policy analysis. I am sure you will agree with me that these reforms have contributed substantially in the growth and development of our economies that we have witnessed in the region in recent years. In Kenya for example, East AFRITAC has been our main source of Technical Assistance in implementing the public financial management aspects that were required to be implemented in a time bound manner by our Constitution 2010. In this regard, we have received valuable and timely support in enacting the Public Finance Management Act 2012 and the accompanying regulations, reengineering IFMIS, setting up the National Treasury, Performance Based Budgeting, revenue administration, and financial reporting and in developing the VAT Bill that is now in Parliament. BIS central bankers’ speeches These are just a few examples of the critical support that we have received from East AFRITAC. But one common feature of the support in these areas is that the Technical Assistance has been relevant and demand driven primarily to meet the requirements of our Kenya Constitution 2010. I must add that Kenyans, through the National Assembly have also been very proactive in demanding many of these reforms especially in performance based budgeting and financial reporting and accounting. There is therefore strong ownership of these reforms and this is a clear indication that they will be sustained. I believe what I am saying for Kenya should be true for all the seven recipient countries of East AFRITAC’s technical assistance and capacity building initiatives. In this regard, and on behalf of all the seven recipient countries, I would like to take this opportunity to once again thank the IMF and the other contributing partners without whose support these reforms would not have been possible. But let me add that while we have made substantial progress, we need to do a lot more to in order to advance our reform agenda and in this regard, I welcome this meeting because it will help us in assessing implementation of our work plan for the financial year 2013 and also consider the proposed work plan for the financial year 2014. Let me also say that the mid-term evaluation of East AFRITAC’s performance will play a useful role in establishing the exact extent to which we have achieved the objectives we have set together. It will also inform any necessary realignment to sharpen our focus to the most relevant and priority areas. The evaluation report to be presented on Wednesday should therefore be of keen interest to the Steering Committee. Ladies and gentlemen Turning to the financial sector, I would like to point out that the continued expansion of players in the sector across borders is another development that needs our attention. In order to effectively regulate and supervise such players, adequate capacity building on cross border supervision is necessary. I appreciate the East AFRITAC’s technical assistance and capacity building to the recipient countries on consolidated supervision, risk based supervision and establishment of supervisory colleges. The knowledge base established has proved useful for the supervisors to facilitate innovations by the players without comprising the stability and integrity of the financial systems of the region. These are the pillars of strong institutions of the regulators and the regulated. The dynamic reforms being witnessed in the region point to the continued need for technical assistance and capacity building to be able to derive optimum results. In this regard, I see the role of East AFRITAC becoming more pronounced than ever before. The current areas of focus by East AFRITAC’s technical assistance and capacity building remain relevant. However, I expect that the mid-term evaluation will offer suggestions on new areas of focus that will ensure that East AFRITAC remains relevant to the evolving needs of members. Ladies and gentlemen As I conclude, let me make one observation. I am informed that at the end of the two-day meeting, there will be an excursion to the Olkaria Geothermal site. This is part of a major initiative by the Kenyan government aimed at increasing the use of green energy while at the same time addressing the adverse effects of climate change by exploiting natural steam that we have in abundance along the Great Rift Valley. I am sure that some of you may be asking how this is related to what we are doing here. In Kenya, we do not have sufficient hydro power potential and we have been increasingly relying on thermal generation which is very expensive and unfriendly to the environment. As BIS central bankers’ speeches such, the government has been subsidizing thermal generation to make it affordable and this has substantial fiscal implications. With geothermal generation, a lot of resources can be saved that would be allocated to other priority areas. I therefore urge you to spare some of your time to participate in the excursion. Ladies and gentlemen I would not wish to take any more of your time but before I conclude, I once again take this opportunity to welcome you all to Kenya and wish you an enjoyable stay. I wish all of you a fruitful meeting. With these remarks, it is now my pleasure and honour to declare the 15th East AFRITAC Steering Committee meeting officially open. Thank you all and enjoy the rest of the evening. BIS central bankers’ speeches
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Remarks by Prof Njuguna Ndung'u, Governor of the Central Bank of Kenya, at the Bank of India, Kenya Branch, Diamond Jubilee Celebrations, Nairobi, 12 April 2013.
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Njuguna Ndung’u: The importance of the banking sector in the Kenyan economy Remarks by Prof Njuguna Ndung’u, Governor of the Central Bank of Kenya, at the Bank of India, Kenya Branch, Diamond Jubilee Celebrations, Nairobi, 12 April 2013. * * * Mrs. V.R. Iyer, the Chairperson and Managing Director of Bank of India; Dr. Manu Chandaria, Chairman, Bank of India Local Advisory Committee; Mr. R.K. Verma, Chief Executive, Bank of India, Kenya; The Local Advisory Committee Members; Management and Staff of Bank of India, Kenya; Distinguished guests; Ladies and gentlemen: I am delighted to join you on this auspicious occasion to celebrate the Diamond Jubilee of Bank of India’s operations in Kenya. As the regulator for the banking sector, Central Bank is pleased to be associated with the achievements of the banks we regulate, particularly where these developments lead to increased access to banking services for the Kenyan public. In this regard, Bank of India, Kenya certainly has made its mark on the Kenyan market. Ladies and gentlemen: Bank of India, Kenya Branch, was established in Mombasa in 1953, it has four branches. With regard to its performance, I note that as at February 2013, the bank had a total asset base of Ksh.27 billion. Net Loans and Advances stood at Ksh.11.5 billion while customer deposits were Ksh.20.8 billion, supported by a core capital base of Ksh.3.9 billion. The bank returned a profit before tax of Ksh.568.4 million for the year ended December 2012. This impressive performance of Bank of India is consistent with the continued commendable performance of Kenya’s banking industry. Ladies and gentlemen: The banking sector and the totality of the financial sector is very important to the economy. Let me share with you some key highlights of the Banking Industry’s performance for the last 10 years that is the period 2002 to December 2012 to consolidate the importance of the banking sector in the Kenyan economy: • Assets grew from Ksh.456.7 billion to Ksh.2.35 trillion; • Total deposits grew from Ksh.360.6 billion to Ksh.1.76 trillion. • Net advances increased from Ksh.222.8 billion to Ksh.1.27 trillion, • Profit before tax of Ksh.5.8 billion increased to Ksh.107 billion. • The number of bank accounts has increased from 1.9 million accounts to 17.6 million. • Deposit insurance has evolved to cover fully 94% of the total deposit accounts. This phenomenal growth has been supported by the expansion of banks into new market segments, prudent risk management and enhanced economic prospects underpinned by a stable macroeconomic environment. The Central Bank expects the banking sector to continue on this growth trajectory. Ongoing reforms and initiatives by the Government and CBK will serve to further propel the banking sector to new frontiers of financial inclusion for more Kenyans to access these services. Ladies and gentlemen: Kenya’s financial industry is currently one of the fastest growing not only in the East African region but in the continent. The Government is committed to the implementation of sound policies towards financial deepening and overall economic development of this country as captured in Vision 2030. It goes without saying that the banking industry is and will remain a major player towards this end. BIS central bankers’ speeches Ladies and gentlemen: We need now to concentrate on reducing costs of doing business for banks so that we can bring down costs of financial services. For example, the recently introduced credit information sharing platform has enabled banks via reduced risk, to extend more credit to productive sectors boosting wealth and employment creation. The information sharing platform will support development of Information Capital as a new collateral technology in the market and reduce the information search costs and hence the risk premium over-load in the lending rates. In addition, the introduction of positive information sharing with Credit Reference Bureaus will allow good debtors to leverage on this and bargain for lower costs of borrowing. The second area in reducing cost of doing business is the cost of rolling out branch networks to reach Kenyans cost-effectively. This has worked and will continue to work well with the introduction of Agent Banking. The CBK has so far licensed 16,333 Agents since the roll out in May 2010. The third area that has lowered the cost of doing business is banks introducing innovative products to the market by leveraging on advanced technology and the mobile phone financial services platform. Lower cost on these products has ensured uptake and volumes have grown. Finally, the currency centres have helped to de-congest services at the branch and headquarters of CBK and physical distances, lowering costs for banks. In addition, the Central Bank will continue more forcefully with its four dimensional approach: Advise; Cultivate Partnership; Agent of Development, but also a Regulator. This approach will ensure innovative policies that work for the market and ensure financial inclusion for all Kenyans, lower unit cost of financial services and also ensure the market stability. Ladies and gentlemen: In conclusion, I would like to assure the banking sector and other market players that the Central Bank will continue to support the market development by providing an enabling environment for growth in the banking sector. We shall continue to ensure that the sector operates efficiently, effectively and soundly, supported by the following three pillars:• First, strengthening Financial Stability, through a robust Supervisory and Regulatory Framework. In this regard, the Central Bank has adopted a consolidated supervision approach to take cognizance of the growing pan-African nature of the Kenyan banking sector – and where applicable, supervisory colleges will be used. • Second, enhancing Financial Integrity in the Banking Sector so as to ensure that the financial systems are safeguarded against money laundering and financing of terrorism in line with international best practice. • Third, promoting Financial Inclusion for financial deepening and development in line with the aspirations under the Kenyan Vision 2030. We expect banks to strengthen their screening and monitoring role of their clients, new or potential ones for market development. The Kenyan Bank of India should take advantage of the market vibrancy as well as initiatives put forth by the Central Bank to grow its market share even further in the coming years. Ladies and gentlemen: with these few remarks, let me once again applaud the Kenyan Bank of India, as you celebrate your Diamond Jubilee and wish the bank continued prosperity in the years to come – not only in Kenya but also in the East African Community region. Thank You and God bless you all. BIS central bankers’ speeches
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Address by Prof Njuguna Ndung'u, Governor of the Central Bank of Kenya, at the Technical Cooperation among Developing Countries Programme on "Mobile and agency banking in Kenya", Kenya School of Monetary Studies, Nairobi, 6 May 2013.
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Njuguna Ndung’u: Mobile and agency banking in Kenya Address by Prof Njuguna Ndung’u, Governor of the Central Bank of Kenya, at the Technical Cooperation among Developing Countries Programme on “Mobile and agency banking in Kenya”, Kenya School of Monetary Studies, Nairobi, 6 May 2013. * * * Mr. Saleh Usman Gashua, Secretary General, AFRACA; Prof. Kinandu Muragu, Executive Director, KSMS and AFRACA’s sub-regional chair for East Africa; Facilitators; Distinguished Guests and Participants; Ladies and Gentlemen; It is my pleasure to officially open this knowledge exchange programme on Mobile and Agency Banking in Kenya. On behalf of the Kenya School of Monetary Studies (KSMS), which is co-hosting this programme, let me extend a warm welcome to you all to Kenya and in particular to KSMS, a leading regional training institution in financial matters. I sincerely hope that you will enjoy Kenya’s hospitality and tourist attractions during your stay in Kenya. Ladies and Gentlemen: At the outset I would like to commend AFRACA for its continued efforts towards enhanced agricultural and rural financing environment. Forums like this allow AFRACA members not only to learn from each other’s experiences but also to challenge each other on possible policy solutions to increase agricultural and rural financing. As you may be aware, financial inclusion has lately assumed a central place in financial regulators mandates and is a public policy. The more formally financially included an economy is, the greater the likelihood of attaining financial developments and financial stability. In this regard, AFRACA’s vision of achieving a rural Africa where people have access to sustainable financial services for economic development is very relevant to the financial inclusion objectives of AFRACA’s members. Ladies and Gentlemen: AFRACA’s decision to host you for this knowledge exchange on mobile and agency banking in Kenya is a well thought out decision. This is because over the last 6 years millions of people, most of whom were financially excluded, have been brought into the formal financial sector through successful rollout of innovative mobile phone financial services products (MFS). Kenya has witnessed increased competition and diversity in the mobile phone financial services space with more mobile phone operators launching mobile money products. Financial institutions have also increasingly partnered and integrated their operating platforms with those of mobile phone financial services platform to leverage on the convenience and efficiencies they present. As a result, the unit costs for some of the financial products have been lowered significantly. Ladies and Gentlemen: The potential of mobile phone technology to bridge the financial access barriers of distance and cost seems un-rivalled in Africa. In recognition of this, the Alliance for Financial Inclusion (AFI) brought together policymakers and regulators from 18 African countries that are AFI members to launch the African Mobile Phone Financial Services Policy Initiative (AMPI) in February 2013. The aim of AMPI is to share experiences and develop policy solutions for extending financial inclusion to the Continent’s large unbanked populace through the use of Mobile phone financial services. Ladies and Gentlemen: Allow me now to briefly share with you the Central Bank of Kenya’s role in propelling financial inclusion through mobile phone financial services. Even before the enactment of the National Payment Systems Act, the Central Bank of Kenya took a proactive role in facilitating consultations on proposals by the telecommunication companies to introduce mobile phone money transfer services. The Central Bank of Kenya continuously supported the rollout of innovative products driven by mobile phone technological platforms BIS central bankers’ speeches using a “test and learn” approach that allows innovations to take place while ensuring that the necessary safeguards are in place to mitigate the potential risks. This approach has allowed CBK to partner with both financial service providers and telecommunication providers as they seek to introduce innovative solutions into the market that are reliant on technology. This approach has seen an: a) Increase in mobile phone participants. Close to 20 million people are served by over 60,000 telecommunication companies agents handling over USD 54.4 million worth of Mobile phone financial service transactions per day in Kenya. These have achieved, with the stability and integrity of the financial system remaining intact. b) Introduction of Agent Banking by both banks and deposit taking microfinance institutions. The aim was to increase the level of formal financial inclusion in un-served and underserved areas. This has led to close to 17,000 approved bank agents’ facilitating over 45 million transactions valued at over Kshs 232 billion (USD 2.76 billion), mainly leveraging on mobile phone technology. c) Evolution of the mobile phone money transfer system to provide bill payments, savings/deposit mobilization, and credit application, all operated in the same platform with lower costs to the public. d) Adoption of mobile phone technology by other sub-sectors such as pensions, insurance and capital markets to provide convenience and efficiency to their clientele. The information capital built within mobile phones is an area of great interest to credit reference bureaus and the credit market in general. Ladies and Gentlemen: The main lesson we have learnt is that financial inclusion will succeed once we understand the market segments and the delivery channels that are appropriate for those segments for financial inclusion to succeed. I would not wish to pre-empt the details of CBK’s experiences in regulation and supervision of mobile phone financial services and agency banking. My colleagues will be taking you through the detailed journey we have travelled during the day’s afternoon session. In conclusion, Ladies and Gentlemen, it is worth noting that the potential to expand financial inclusion is still huge and mobile phone technologies are proving very useful in this front. At the end of this programme, I expect the unrivalled Africa’s pace of adoption of mobile phone financial services to be upheld. Finally, let me take this opportunity to reiterate the commitment of CBK to contribute to the fulfilment of AFRACA’s vision. It is my hope that this programme shall provide participants with key lessons on how to achieve a rural Africa where people have access to affordable financial services for economic development – to allow them to escape poverty through savings and affordable credit. With these remarks, Ladies and Gentlemen, it is now my pleasure and honour to declare the 2013 Technical Cooperation among Developing Countries Programme on Mobile and Agency Banking officially opened. I wish you all fruitful deliberations. Thank you for your attention. BIS central bankers’ speeches
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Address by Prof Njuguna Ndung'u, Governor of the Central Bank of Kenya, at the official launch of the National Bank of Kenya's sharia compliant banking "The National Amanah", Nairobi, 29 April 2013.
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Njuguna Ndung’u: The future of sharia compliant banking and finance in Kenya Address by Prof Njuguna Ndung’u, Governor of the Central Bank of Kenya, at the official launch of the National Bank of Kenya’s sharia compliant banking “The National Amanah”, Nairobi, 29 April 2013. * * * Board of Directors of National Bank of Kenya Limited here present, Mr. Mohamed A. Hassan, Chairman, National Bank of Kenya Mr. Munir Ahmed, Managing Director, National Bank of Kenya, Distinguished guests, Ladies and gentlemen: I am delighted and honored to have been invited to preside over the official launch of the rebranded sharia compliant banking window of National Bank. Allow me at the onset to congratulate National Bank for this relaunch of the two sharia compliant products to be offered under the new brand name of “National Amanah”. This will no doubt enable the bank reach out to more of the unbanked in our country. This will not only grow the deposit base but also enhance the Government’s goal of financial inclusion for all Kenyans. Ladies and gentlemen: sharia compliant banking and finance has evolved to become an integral part of global financial system transcending geographical boundaries from Asia, to the Middle East, to Europe, Americas and Africa. The assets worldwide have expanded from some US$150 billion in the 1990s to US$ 1.3 trillion by 2011. This was expected to have reached US$ 1.6 trillion by end of last year. Although sharia compliant banking industry currently only constitutes 1.6% of the total assets of the top 50 largest banks in the world, it remains one of the fastest growing segments in the global financial services sector. The sharia compliant banking industry is expected to witness further development particularly in terms of development of new products as well as opening up of new markets, in light of the industry’s resilience during the global financial crisis of 2007/2008. There must be important characteristics of sharia compliant products that we should learn. At the local level too, Sharia compliant banking is notably beginning to take root. Kenya currently has two fully fledged shariah compliant banks and a number of conventional banks have been granted approval to roll out Shariah Compliant Products. Kenya has also pioneered in the sharia compliant insurance and re-insurance segments. The Government, through Finance Act 2010, amended section 45 of the Central Bank Act, to allow for CBK to recognize the payment of a return rather than interest on government securities with the aim of opening up a spectrum of shariah compliant investment in the country. Similarly, Section 16 of the Banking Act was amended to allow for payment of a return rather than interest on savings products in the Banking Industry. I therefore urge all the players in this sector to come up with innovative products and services so that Kenya may achieve her ambition of becoming a financial hub in the region. The Central Bank of Kenya will work with all the players in facilitating the achievement of this dream. Ladies and gentlemen: Sharia Compliant Banking, although still in its infancy in our country, has a lot of opportunity for growth. The two fully sharia compliant banks as at the end of February 2013 had a total of kshs.15.4 billion in loans and advances and kshs.19.5 billion in total deposits. Furthermore, these two banks together with other conventional banks offering Sharia Compliant Banking Window had total deposits of Sha.27.8 billion as at BIS central bankers’ speeches 31st December 2012. These numbers just show how Sharia Compliant Banking is gradually becoming a major player in the banking sector. Ladies and gentlemen: The introduction of these specialized products in the Kenyan banking industry no doubt comes with its challenges. These include limited short term liquidity management products, lack of experienced human resources in this specialized Banking & Finance area, lack of product standardization which can be a cause of ambiguity and source of disputes to mention but a few. The Central Bank is currently formulating policy and regulations to regulate the sharia compliant products and therefore depart from the current practice of subjecting sharia compliant banking to conventional banking regulations. I urge all the Shariah Boards to work together to help find solutions or come up with suggestions on how to address these challenges. We at the Central Bank will be willing and happy to provide the necessary facilitation and share our views. Ladies and gentlemen: The future of sharia compliant banking and finance in Kenya is bright but the challenges that exist need to be tackled collectively. I urge all players in the sharia compliant banking to embrace the spirit of cooperation and competition as they come up with ways of product and service standardization. Kenya has pioneered in sharia compliant banking in this region but other countries in the region are headed in that direction, with Tanzania already having two fully Sharia compliant banks. Somalia is another country keen on modeling its emerging financial system predominantly along sharia compliance as it reconstructs. To maintain Nairobi as the predominant Financial Centre in East & Central Africa we need to develop necessary expertise and capacities in both conventional and sharia compliant financial systems. Ladies and gentlemen: Let me now point out that Kenya’s financial industry is currently one of the fastest growing not only in the East African region but in the continent. In this regard, the Government is therefore committed to the implementation of sound policies towards financial deepening and overall economic development of this country as captured in Vision 2030. It goes without saying that the banking industry is and will remain a major player towards this end. Ladies and gentlemen: We must now work towards reducing costs of doing business for banks so that we can bring down costs of financial services. For example, the recently introduced credit information sharing platform has enabled banks to extend more credit to productive sectors boosting wealth and employment creation. The information sharing platform is a new collateral technology in the market and reduces the information search costs. In addition, the introduction of positive information sharing with Credit Reference Bureaus will allow good debtors to leverage on this and bargain for lower costs of borrowing. The second area in reducing cost of doing business is the cost of rolling out branch networks to reach Kenyans cost-effectively. This will work well with the introduction of Agent Banking. The CBK has so far licensed 17,088 Agents since the roll out in May 2010. Thirdly, is for banks themselves to develop innovative products for the market by leveraging on advanced technology. You have to lower cost on these products to ensure uptake and volume. This will lower unit cost to the benefit of your customers. The Central Bank will continue more forcefully with its four pronged approach namely advise, cultivate partnership, develop and regulate the market. This approach will ensure innovative policies that work for the market and ensure financial inclusion for all Kenyans and also the market’s stability. Ladies and gentlemen: In conclusion, I would like to assure the banking sector and other market players that the Government and the Central Bank will continue to support market development by providing an enabling environment for growth in the banking sector. On the basis of the following three pillars, we shall continue to ensure that the sector operates efficiently, effectively and soundly:• First, ensure Financial Stability through a robust Supervisory and Regulatory Framework. In this regard, the Central Bank has adopted a consolidated supervision BIS central bankers’ speeches approach and Supervisory Colleges, where they apply, to take cognizance of the growing pan-African nature of the Kenyan banking sector. • Second, enhancing Financial Integrity in the Banking Sector so as to ensure that the financial systems are safeguarded against money laundering and financing of terrorism. • Third, promoting Financial Inclusion for financial deepening and development in line with the aspirations under the Kenyan Vision 2030. National Bank of Kenya should take advantage of the new developments in the industry as well as initiatives put forth by the Central Bank to grow its market share. Finally, Ladies and Gentlemen: Let me again congratulate the National Bank on this endeavour and challenge it to be innovative in products and services offering in sharia compliant banking. I wish the bank every success in this new business segment. With these few remarks let me take this opportunity to officially launch “National Amanah”, the Sharia Compliant Banking business segment of National Bank. Thank you and God bless you all. BIS central bankers’ speeches
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Remarks by Prof Njuguna Ndung'u, Governor of the Central Bank of Kenya, during the announcement of the T+1 Cheque Clearing Cycle, Central Bank of Kenya, Nairobi, 31 July 2013.
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Njuguna Ndung’u: New Cheque Clearing Cycle Remarks by Prof Njuguna Ndung’u, Governor of the Central Bank of Kenya, during the announcement of the T+1 Cheque Clearing Cycle, Central Bank of Kenya, Nairobi, 31 July 2013. * * * Mr. Jeremy Awori, Chairman, KBA The Deputy Governor, Central Bank of Kenya Ladies and Gentlemen; It is my great pleasure to welcome you all to the Central bank of Kenya. Ladies and Gentlemen, Today marks another important milestone in the enhancement of the Cheque Clearing Process in the Automated Clearing House. Since 1998, the Central Bank of Kenya has worked towards modernizing the National Payment Systems. This journey started with the automation of the Clearing House, through the introduction of the Magnetic Ink Character Recognition (MICR) technology and the Electronic Funds Transfer (EFT) payments. These initiatives resulted in the reduction of clearing time from fourteen (14) days to the current two (2) days. Other milestones in the modernization process include the successful launch of the Kenya National Payments System Framework and Strategy Document in September 2004, the Kenya Electronic Payments and Settlement System (KEPSS), in July 2005 and authorization of the mobile payments platforms to enhance financial inclusion, in 2007. Ladies and Gentlemen, KEPSS implementation helped phase out the previous paper-based inter-bank settlement system and completely transformed the management of liquidity in the banking industry. Currently, KEPPS processes, real time, a daily average of over 7000 transactions valued at KES 86 billion. In 2008, the Central Bank of Kenya in conjunction with Kenya Bankers Association (KBA), initiated the modernization of the cheque clearing payments system, which was aimed at mitigating various risks as well as enhancing efficiency, with three key deliverables two of which are the Cheque Truncation system and the Reduction of Cheque clearing cycle to T +2. The Cheque Truncation System and the T+2 Clearing Cycle were achieved within the agreed time, in 2011 and 2012 respectively. These measures have contributed tremendously to the significant reduction in cheque-related frauds as well as increasing the efficiency of cheque payments. Ladies and Gentlemen, The introduction of Cheque Truncation enabled the whole of Kenya to become a “One Clearing Zone”. This meant that cheques drawn in Nairobi, upcountry and remote zones e.g. Moyale, would be processed within the T+2 clearing cycle, thus saving customers time and transport costs. Thus, the implementation of cheque truncation system has delivered on improving the efficiency of the clearing process, reducing the cost associated with handling physical cheques and reducing the clearing period. More recently, we have witnessed additional initiatives to enhance efficiency in the cheque clearing process. For example, with effect from 1st July, 2012, KBA waived commissions BIS central bankers’ speeches charged on cheques cleared from upcountry and remote bank branches thus reducing the cost of clearing cheques. Prior to cheque truncation, bank branches in the country were divided into local, upcountry and remote zones. On 16th January 2012, (KBA) issued a circular effectively reducing the clearing period to 2 clearing days (T+2). In so doing the Association passed on the benefits of cheque truncation to banking customers and the public in general. In June 2013, the automated clearing house processed 1.5 million cheques valued at Kes 175.1 billion. Due to the reduced clearing period, beneficiaries received their funds a day earlier to finance their economic activities. Ladies and Gentlemen, The final deliverable initiative of the cheque truncation project is to reduce the clearing period to 1 clearing day (T+1). Today, I am happy to announce that we have achieved this deliverable that is T+1 clearing cycle, which takes effect on 19th August, 2013. This means that banks will be moving to the one day cheque clearing cycle, which will shorten the time it takes for banks to process cheques. By further reducing the clearing period, banking customers will benefit by accessing their funds at a much shorter time to conduct economic activities. Ladies and Gentlemen, The continued systematic modernization of the payments and settlements systems is aimed at enabling the country’s payment system to attain international standards and ensure that Kenya becomes a financial hub in the region as well as the preferred investment destination. Furthermore, a fundamental policy objective for payments modernization remains the achievement of safety, efficiency and effectiveness of the payment system as well as promoting access and inclusion to financial services. To achieve these objectives, the Bank works in close liaison with the Government, the Kenya Bankers Association (KBA), the financial sector in general and other stakeholders. Ladies and Gentlemen, As we make this important announcement, may I take this opportunity to sincerely thank the KBA, who has been an instrumental player and partner in the modernization of the National Payment System as a key stakeholder in Kenya’s banking industry. We are thankful for their role in facilitating and supporting the success of the automation and improvement of the National Payment System. Indeed, the Central Bank remains committed to creating, nurturing and strengthening partnerships with all stakeholders in the banking industry. Finally, I would like to assure you all that the Central Bank will continue to provide a supportive regulatory environment for banks and other financial institutions to do business and to improve the payment systems. Thank you all for your attention BIS central bankers’ speeches
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Remarks by Prof Njuguna Ndung'u, Governor of the Central Bank of Kenya, at the Market Leaders Forum dinner, Nairobi, 6 August 2013.
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Njuguna Ndung’u: Challenges in developing a successful bond market in Kenya Remarks by Prof Njuguna Ndung’u, Governor of the Central Bank of Kenya, at the Market Leaders Forum dinner, Nairobi, 6 August 2013. * * * Members of the Market Leaders Forum, Officials from the Treasury, Colleagues at the Central Bank of Kenya, Ladies and Gentlemen, Let me take the opportunity to welcome you all to this event which has been organized to take stock of our achievements for the year, review challenges encountered and develop the plans for the future. At the outset I wish to commend the market leaders for the effort and success in taking this market to a higher level. As you may be aware, Kenya’s bond market is now regarded among the top and fastest growing in Africa and this could not have been without the strong partnerships that we have continuously cultivated. We are however still a long way to achieve liquidity, market efficiency and stability. The 2012–13 financial year was a great success with respect to raising the borrowing requirement for the Government. The Market Leaders Forum together with market stakeholders contributed significantly to the success of the bond market in terms of the following: 1. Successful financing of the FY 2012–13 Borrowing Plan: Treasury’s target for the year was successfully achieved reflecting a sterling performance especially given that this was the highest in the history of domestic borrowing at Kes. 165bn. 2. Benchmark Bonds Program Implementation: Successful implementation of this program during the year was critical for addressing bond market fragmentation and increasing liquidity in the market. All 17 bonds valued at Kes 209.8bn issued in the year were benchmark tenors, out of which 5, worth Kes 5.4bn were issued through reopen auctions. Overall, 16 benchmark bonds have been reopened since 2009 when the strategy was first employed, bringing into the market more than Kes. 183 billion and providing critical financing for the country’s fiscal gaps. 3. Longer Maturity Profile of Domestic Debt: Average maturity profile of government bonds in the debt portfolio rose to 7.3 years by end June 2013 compared to 6.2 years at the beginning of the year. These are encouraging outcomes given that in 2001, the average maturity of all government securities was about 8 months. This is indeed a reflection of the continued success in reducing rollover risk associated with short term debt which is essential for a well-functioning secondary market for bonds. 4. Global recognition for Kenya: Infrastructure Bond program and the plan by the government to issue a Euro bond in the current financial year also signifies that the domestic market has matured over time and gained confidence from both local and foreign investors. This is evidenced by the stable country’s credit rating and an attractive environment for investors. 5. Automation of primary market processes: In an effort to enhance efficiency and safety of its operations, the Central Bank launched the T-24 system in all its operations in April 2012. I would like to thank the stakeholders for being patient while the bank was experiencing challenges leading to the implementation of the new system. Going forward the bank is working towards providing internet banking BIS central bankers’ speeches which will allow for services such as: online bidding faster dissemination of auction results and statements for government securities. 6. Competitiveness at auctions: The use of an auction-based method in the issuance of government securities over the years has promoted price discovery and competitive prices at the primary market which is a key ingredient for the secondary market. 7. Kenya Government Bond Index: In October 2012, the Nairobi Securities Exchange (NSE) launched the FTSE NSE Kenya Shilling Government Bond Index as a benchmark tool for measuring market performance. This was a great step in market development because the market now has the benefit of further opening up to the rest of the world and increasing Kenya’s financial sector competitiveness. Ladies and Gentlemen, as you all know our success has not been without challenges along the way. Just to mention a few, the slow pace of reforms particularly in the secondary market has promoted market illiquidity and hampered faster growth. But above all, economic vibrancy has been constrained by shocks in both the domestic and international environment beyond our control and this has at times affected the momentum of our market development. I wish to emphasize that a well-developed and proper functioning financial market is critical to economies all over the world as it enhances effectiveness of monetary policy, cushions the economy against external vulnerabilities while mobilizing long term financing for public and private sector development. Therefore, the development of a robust financial market is not only a priority of the Central Bank of Kenya but for every stakeholder in this market to embrace. Towards this objective I urge all the stakeholders to continue to build a competitive bond market that supports the country’s development agenda under Vision 2030. In cognizance with today’s theme of “Taking Kenya’s bond market to the next level”, we as stakeholders have set for ourselves a number of initiatives which are ongoing or for the future. These include: 1. Further support to the benchmark bonds program through strategies for building liquidity such as bond reopening, and initiating approaches to smoothen the debt maturity structure such as bond exchanges through switches and conversions. 2. Promoting financial literacy to ensure market confidence and increased numbers of investors, so as to enhance further market deepening. 3. Fast-tracking financial markets reforms particularly at the secondary market including diversification of existing products, improving the legal and operational framework and expanding the trading platform to incorporate Over the Counter trading. But we also need to review and develop mechanisms to reduce insider activities and fraud so as to mitigate these risks and increase the integrity of our financial markets. 4. At the primary market level, enhancement of products that will include; the issuance of project specific infrastructure bonds with bond service costs matched with income streams from the projects as well as more products to promote national savings and attract small investors and the Kenyan diaspora. As I conclude, I wish to thank the Market Leaders Forum for its invaluable contribution towards market development and at the same time call upon all the stakeholders to take up the challenge of enhancing market efficiency and transparency. With these remarks, ladies and gentlemen, I invite all of you to relax and enjoy the rest of the evening. Thank you for your attention. BIS central bankers’ speeches
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Remarks by Prof Njuguna Ndung'u, Governor of the Central Bank of Kenya, at the official opening of the 1st Annual Research Seminar on "Exchange rate and monetary policy nexus", organized by the Kenya School of Monetary Studies, Nairobi, 1 October 2013.
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Njuguna Ndung’u: Exchange rate and monetary policy nexus Remarks by Prof Njuguna Ndung’u, Governor of the Central Bank of Kenya, at the official opening of the 1st Annual Research Seminar on “Exchange rate and monetary policy nexus”, organized by the Kenya School of Monetary Studies, Nairobi, 1 October 2013. * * * Invited Guests; Members of the Monetary Policy Committee; Researchers; Distinguished Guests; Ladies and Gentlemen: Good morning. I am pleased to join you this morning at the official opening of the Research Seminar on “Exchange Rate and Monetary Policy Nexus” organized by the Research Centre at KSMS. I am delighted that KSMS took the initiative to organize this event which provides an important avenue to share ideas and knowledge, and for researchers to receive input from the financial sector players on research needs of the sector. Ladies and Gentlemen, why the focus on the exchange rate? As so often in recent years, I will take, as my starting point, the global crisis of 2009–2010, and the risk reassessments that banks, investors, researchers and decision-makers all over the world were forced to make as a result of the crisis. Legacies of this crisis amid continued globalization is significantly reshaping the global and regional economic and financial landscape. This new landscape seems to be characterised by: 1. Volatile capital flows, prompted by cyclical shifts in flows of funds in response to new risks and opportunities; 2. Greater interconnectedness, between financial institutions as well as between the real and financial sectors; 3. Lower global economic growth, with the centre of economic gravity shifting towards emerging and frontier markets especially in Asia, Africa, and Latin America; 4. Currency wars with potential for emerging markets currencies entering the accepted reserve currency range. These impending structural changes pose a number of challenges to emerging markets, including Kenya. From the viewpoint of monetary authorities, there are two especially pressing policy issues that potentially arise from these changes. First, more volatile capital flows combined with greater financial interconnectedness translate into a growing risk to financial stability; Second, there are implications for management of the exchange rate policy and the macroeconomy given the increasingly large and volatile financial flows. Under a flexible exchange rate regime, large swings in capital flows can generate excessive exchange rate fluctuations which may in turn undermine macroeconomic stability. These challenges are real for Kenya. In addition to the above two challenges, the lower global growth puts pressure on the sustainability of the export-led growth model, hence the need to look for new markets just as emerging markets have done to move away from traditional market enclaves. BIS central bankers’ speeches The policy issue is then the determination of the appropriate role of exchange rate policy, with a view to facilitating an appropriate structural adjustment process that promotes long-run and sustainable growth. The theme of today’s Seminar is timely as Kenya’s economy readies for take-off. Policymakers need to find a flight path through the lingering risks. Ladies and gentlemen, several papers that link monetary policy actions and the exchange rate policy have been lined up for presentation today. These include research that looks into factors that explain exchange rate movements, the extent of real exchange rate misalignment and the relationship between the real exchange rate and exports. We will also get presentations on papers that develop indices that can serve as an early warning system for currency and macro-economic crises. 4 As Kenya aspires to be the regional financial hub; and is indeed currently regarded as so, one of the pillars for maintaining this regional leadership is also being on the frontier of research information for the financial sector. A well known fact is that a financial boom can trigger an overvaluation of a currency if adjustments do not take place over time. The Kenya School of Monetary Studies is well placed to provide this leadership and it is challenged to do so. Therefore, these types of Seminars should be the norm on an annual basis. But filtering policy conclusions that can be used for policy direction remain the most important objective. As I conclude, I thank the participants present, including those that have travelled from far for this seminar. I hope the handful of issues addressed in the contributions today will provide the basis for a rewarding discussion. Once gain – you are all very welcome! It is my pleasure to declare this workshop officially opened. Thank you. BIS central bankers’ speeches
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Closing remarks by Prof Njuguna Ndung'u, Governor of the Central Bank of Kenya, at the First Annual Meeting of the Association of Kenya Credit Providers, Kenya School of Monetary Studies, Nairobi, 19 November 2013.
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Njuguna Ndung’u: The General Principles for Credit Reporting – how they pertain to Kenya Closing remarks by Prof Njuguna Ndung’u, Governor of the Central Bank of Kenya, at the First Annual Meeting of the Association of Kenya Credit Providers, Kenya School of Monetary Studies, Nairobi, 19 November 2013. * * * Mr. Habil Olaka, Chief Executive Officer, Kenya Bankers Association; Ms. Marianne Ndegwa Jordan, Chief Executive Officer, Kenya Tourist Development Corporation; Mr. Timothy Tiampati, Acting Chief Executive Officer, IDB Capital Ms. Mercy Njeru, Chief Executive Officer, Kenya Rural Sacco Societies Union; Chief Executive Officers of licensed Credit Reference Bureaus; Representatives of FSD Kenya and USAID FIRM; Representatives of SASRA; Representatives of various credit provider institutions; Ladies and Gentlemen: I am pleased to note that you have just concluded the first Annual General Meeting of the Association of Kenya Credit Providers (AKCP). I wish to congratulate the entire membership and particularly the Secretariat and the newly appointed Governing Council for this milestone in the evolution of the credit information sharing program. Indeed it is gratifying to note that since the launch of the Association at the CIS Regional Conference slightly over a month ago, some progress has already been made. The new Association is already settling in well at KSMS, which attests to the commitment of the Central Bank in playing its part in this very important initiative of sharing credit information by more credit providers. As you embark on implementing the objectives for which you have been set up, I wish to challenge you to strive to observe, from the very outset, the General Principles for Credit Reporting developed by an internationally representative taskforce of the World Bank and the Bank for International Settlements. The report issued jointly by the two bodies describes the nature of credit reporting elements of a credit reporting system that is safe, efficient and reliable. The report which consists of 5 General Principles, 5 Roles of Key Players and 5 Recommendations for Effective Oversight are a good reference for credit reporting systems’ policy and oversight. I encourage you to familiarise yourselves with those principles and strive to achieve full compliance. But in addition, there are country specific or peculiar characteristics that could be added to reflect our country characteristics and environment. Ladies and Gentlemen, allow me to lay some emphasis on the first of the 5 General Principles that I believe speaks well to the mandate of AKCP. It states that: Credit reporting systems should have relevant, accurate, timely and sufficient data – including positive – collected on a systematic basis from all reliable, appropriate and available sources, and should retain this information for a sufficient amount of time. Achievement of this principle will call for the collective contribution of all parties here today. The Governing Council and the Secretariat will need to work together to support various credit providers who sign up to share data. Good quality data will guarantee that the risk management tools and models developed from the data trends are robust and reliable. This way, the credit granting process will become more refined and more efficient. Lenders will soon move away from mere use of ‘gut feeling’ or other rudimentary forms of information gathering that are unreliable and costly to assemble. By paying attention to maintaining high quality data in the credit reference bureaus, the players will also minimise contentions by borrowing customers as every effort must be made to address customer complaints on data accuracy. All lenders need to appreciate that the BIS central bankers’ speeches first port of call in resolving customer complaints must always be within the lending institution itself. Where disputes cannot be settled internally, institutions must bring them to the attention of an industry mediation process. In this connection, I am pleased to note that the AKCP Secretariat has put in a lot of work towards developing a CIS Dispute Resolution Handbook. The AKCP Secretariat will soon be ready to conduct a public launch of its Alternative Dispute Resolution Mechanism and create awareness on the out-of-court settlement process. This will mark an important step towards adding credibility to the CIS process. Central Bank is ready to provide required support needed to make this launch a success. Ladies and Gentlemen: I now wish to turn to the important role of AKCP in contributing to policy and legal reform. The 4th of the General Principles for Credit Reporting states that: The overall legal and regulatory framework for credit reporting should be clear, predictable, non-discriminatory, proportionate and supportive of data subject and consumer rights. The legal and regulatory framework should include effective judicial or extrajudicial dispute resolution mechanisms. While we recognise that the role of formulating a robust legal and regulatory framework remains with the Regulators, the Central Government and Parliament, we would like to forge a partnership with industry players in achieving this important function. We therefore encourage you to form relevant committees that will consult with, and make proposals to, the Regulators in matters of CIS. Due to the multiplicity of Regulators involved, I urge the Secretariat of AKCP to liaise with the Domestic Regulators Forum using CBK to introduce CIS as an agenda item in the Forum’s meetings. With these few remarks, I wish to once again congratulate the officials of AKCP that have been elected today and assure you of the support of the Central Bank. Thank You! BIS central bankers’ speeches
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Keynote speech by Prof Njuguna Ndung'u, Governor of the Central Bank of Kenya, at the G20 Inclusive Business Workshop in Africa, Nairobi, 30 October 2013.
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Njuguna Ndung’u: Reflections on inclusive business in Africa Keynote speech by Prof Njuguna Ndung’u, Governor of the Central Bank of Kenya, at the G20 Inclusive Business Workshop in Africa, Nairobi, 30 October 2013. * * * Representatives of the German and Saudi Arabian Governments who are the CoFacilitators; The G20 Challenge Partners; Distinguished Guests; Ladies and Gentlemen: It is my honour and pleasure to join you this morning at this very important Workshop where we reflect on Inclusive Business in Africa. Before making my remarks, let me express my gratitude to the G20 Challenge Partners, the Conveners of this workshop, for the invitation and choice of Nairobi as the venue for the Workshop. May I also take this early opportunity to welcome our distinguished guests from all over the world to this beautiful land of Kenya, which enjoys a diversity of stunning and captivating landscape, wildlife and culture? I kindly urge you to take part of your time during your stay to enjoy this diversity and to always come back to enjoy it. Ladies and Gentlemen: The timing of this workshop could not have come at a better time for our continent. Africa is composed of developing economies with untapped wealth, a youthful population and low volume of trade with itself due to infrastructure gaps. The binding constraints that the infrastructure gaps have created has not turned around the rich potential that exists in Africa. But most of its economies are developing into a class of frontier and emerging economies. The G20 Challenge on Inclusive Business Innovation is a global entity that promotes employment through innovative, scalable and commercially viable ways of working with lowincome people in developing countries. This development should be appreciated in this region. Ladies and Gentlemen: Building inclusive businesses holds the key to unlocking Africa’s potential. This will integrate the poor into the businesses value chains in various capacities whether as producers, distributors, suppliers or employees. When the challenges of scaling and replicating the businesses are overcome, profitable and sustainable ways of engaging with the low-income segments of the population create sustainable livelihoods and contribute to sustainable poverty reduction. Inclusive business models, as is said, aim to “do well by doing good” through creation of more stable jobs that provide sustainable income flows, build technical skills and local capacity at the bottom of the pyramid. If we achieve this we will not only have created inclusive businesses, but also inclusive growth and shared prosperity. This is the dream for Africa on shared growth that will support endogenous growth and strong institutions. Ladies and Gentlemen: Kenya’s Vision 2030 development plan and the new Constitution aim to promote shared growth for the youthful population. The Government recognizes that her youthful population is a resource and has therefore been implementing various targeted interventions to harness this resource. These initiatives include: • Basic primary education – free and mandatory: To boost school enrollment and literacy levels and continue to lay proper ground for skills and local capacity development for inclusive businesses. BIS central bankers’ speeches • Targeted interventions: Funds like the Women Enterprise Fund and Youth Enterprise Fund to enable the youth and women engage in profitable business ventures. • Policy on Procurement: The Government has reserved 30% of public procurement for small enterprises owned by the youth, women and the disadvantaged to include them as suppliers of businesses. • Development and promotion of financial inclusion and use of mobile phones and Agency banking has created a market and reduced costs of doing business. This has created a favourable environment and enhanced access in the financial sector as well as creating opportunities for the youth who are more versatile with technology. Ladies and gentlemen: Let me share with you some of the initiatives we have undertaken to tap the potential of the bottom pyramid by developing a market and creating market access: • Innovative delivery channels for financial products beyond traditional brick and mortar models, e.g. mobile-phone financial services (MFS). The number of mobile phone money agents has increased from 307 when M-Pesa was launched in March 2007 to a network of small business units of more than 50,000. These businesses have become more inclusive and created thousands of stable formal sector jobs that pay regular incomes to Kenyans. • Agency Banking Model, which has turned non-bank outlets into financial service providers, using technology to enable third parties to offer limited financial services. It is a low-cost delivery channel that reduces both the fixed costs of setting up and maintaining bank branches and the high variable costs of small transactions and enables financial institutions to reach the unbanked and underserved segments of the population. Since its inception in 2010, nearly 20,000 agents have been appointed. Not only has financial inclusion been expanded through this model to capture the excluded, most of who are poor, but new and sustainable formal sector jobs created paying sustainable incomes making banking business more inclusive. A principal Agent Model gives the regulator less challenges and encourages growth. • Credit Reference Bureaus have been introduced to enhance access to credit based on financial identity through building information capital, which has benefited many low-income households and enterprises that lack traditional tangible collateral. Demand for tangible assets to secure loans has for many years locked out the bottom pyramid from the more affordable credit market. Opening up this market to them enables them join the formal sector and engage in more inclusive businesses that generate better and sustainable incomes and benefit from inclusive growth. • Expansion of bank branches and MFIs to reach the lower pyramid due to lower barriers to entry, enhanced competition and declining costs of maintaining accounts. The numbers of branches have consequently increased exponentially from 534 in 2005 to 1272 in 2012. The expansion in bank branches is not only enhancing financial inclusion, but also funding more inclusive businesses. Ladies and gentlemen: the innovation that spurred most of these developments has ensured increased financial inclusion, which is a sure way of tapping potential in the lower pyramid into inclusive businesses through creation of stable formal sector employment opportunities that pay sustainable incomes, reduce cost of operations, enhance inclusive growth and reduce poverty sustainably. The Bank will therefore continue to work with market players and stakeholders, including the G20 Challenge Partners to enhance financial inclusion and build inclusive businesses that employ the poor. Thank you very much for your kind attention. BIS central bankers’ speeches
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Keynote speech by Prof Njuguna Ndung'u, Governor of the Central Bank of Kenya, during the launch of the FinAccess Survey Report 2013, Nairobi, 31 October 2013.
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Njuguna Ndung’u: Enhancing the reach and coverage of financial services to Kenyans Keynote speech by Prof Njuguna Ndung’u, Governor of the Central Bank of Kenya, during the launch of the FinAccess Survey Report 2013, Nairobi, 31 October 2013. * * * Hon. Henry Rotich, the Cabinet Secretary to the National Treasury; Hon. Aden Mohamed, the Cabinet Secretary to the Ministry of Industrialization and Enterprise development; The Chief Executive Officers of the Domestic Financial Sector Regulators; Distinguished Ladies and Gentlemen: It is my honour and pleasure to join you this morning to formally launch the results of our third national survey on access to financial services in Kenya. Before making my remarks, let me take this opportunity to thank all the collaborating partners under the Financial Access Partnership (FAP), FinAccess Management comprising of Central Bank of Kenya (CBK) and the Financial Sector Deepening (FSD) Kenya as well as the FinAccess Secretariat based at the Research and Policy Analysis Department of the Central Bank of Kenya for making today’s launch possible. Let me also appreciate our technical partner, the Kenya National Bureau of Statistics (KNBS), for providing critical support to the initiative. On a solemn note, we recall the loss of Mr. Ravindra Ramrattan of FSD Kenya, following the terrorist attack at the West Gate Mall on 21st September 2013. Ravi was a devoted member of the FinAccess Secretariat and contributed immensely to the survey. Let us observe a minute of silence in honour of those we lost in the West Gate Mall Tragedy. Ladies and Gentlemen: The Government recognizes the vital role the financial system plays in the economy. In this regard Kenya’s development blue print, Vision 2030, covering the period 2008–2030, envisages the financial services sector being transformed into a vibrant and globally competitive sector that will drive high levels of savings to finance the country’s investment needs. The transformation entails doubling deposits mobilization from 44% to 80% of GDP and enhancing growth of savings channelled into productive investments from 14% to over 30%. This goal can be achieved by addressing the Vision’s three core objectives, namely: enhancing financial system stability, efficiency, and expanding financial access and usage. • Regarding the objective of Expanding Access to Financial Services, which is our main theme this morning, there would be no meaningful financial sector development, if it is not accessible. There is, therefore, a case for expanding access of quality and affordable financial services and products to majority of the population. Access to finance will encourage savings and credit. This will effect savings/investments cycle, allowing for capital accumulation and asset building which enables the poor to escape poverty. Safe havens for savings by the poor reduce their vulnerability to periodic economic and social shocks. Access to finance will expand the level of participants and so lower unit costs. Ladies and Gentlemen: Our efforts to ensure expanded financial access have been measured by three national financial access surveys for 2006, 2009 and 2013. These surveys have clearly demonstrated that Kenya’s financial landscape has considerably changed over the period 2006–2013. The financial system is now offering a wider range of financial services and products to more Kenyans, covering a wider geographical spread, and even going beyond Kenyan borders. This has strengthened the banks and created a wider market. These developments are a BIS central bankers’ speeches testimony to the strength and vibrancy of our banking sector it has contributed to Kenya’s financial development. • Enhancing the Efficiency of the financial system has an immediate impact on the welfare of its customers and the wider real economy through the consequent reduction of costs of financial services. Competition is essential in ensuring that financial institutions are incentivised to invest in improving productivity, efficiency and cost effectiveness. The CBK has acted to encourage greater transparency in pricing of financial services and products to foster effective competition and delivery of services to majority of Kenyans. • On the Financial Stability Front, the Government has continued to implement necessary reforms designed to strengthen the legal, regulatory and supervisory framework in to ensure stability of the financial system. Lessons from the 2008–2009 global financial crisis call for regulators to invest in better regulation. Better regulations is characterised by a regulatory framework with ability to: − readily identify weaknesses and emerging vulnerabilities; − analyse and price risks; − provide appropriate incentives (and penalties) to induce prudent behaviour in the market place; and − encourage innovations and develop strong institutions of the regulators and the regulated – strong institutions enforce the rules of the game and define appropriate incentives. Ladies and Gentlemen: I am delighted to note that the FinAccess Survey, 2013 results bears witness to the above gains made in enhancing the reach and coverage of financial services to Kenyans. It shows that the proportion of the adult population using formal financial services rose to 66.7% in 2013 from 27.4% and 41.3% in 2006 and 2009, respectively. The proportion of the financially excluded on the other hand has been falling steadily from 39.3% in 2006 to 31.4% in 2009 and now stands at 25.4% of the adult population. Equally and more striking, the proportion of the population using informed financial services has declined to 7.8% from 35.2% in 2006 and 26.8% in 2009. These findings demonstrate impressive achievements and vindicate policy strategies and reforms undertaken by Government and initiatives and innovations by the financial sector players’ as having helped expand financial inclusion. It is even more interesting to note from the results that many more people are now accessing and using financial services and products supplied by diverse providers. This shows that people are now moving towards using a broader portfolio of financial services and products to satisfy their needs. The use of combinations of all formal prudential, formal non-prudential, other formal and informal financial services except the excluded has been rising from 16% in 2006 to 25% in 2009 and to 29% in 2013. These patterns demonstrate that financial sector participants require choices and therefore the need to maintain diversity and encourage competition amongst providers of the different financial products in different market segments. Ladies and Gentlemen: The survey results we are releasing today are as a result of developments in the wider economy, policy and regulatory reforms, increased competition and innovation and advances in information and communication technology. These developments have set off a dramatic shift away from the traditional delivery of financial services. In the banking industry, the introduction of Automatic Teller Machines (ATM) a few years ago already moved customers out of the physical branches. And now more than ever, access through point-of-sale (POS) devices, the internet and mostly through mobile phones platforms have accelerated and are still poised to accelerate the swing to branchless banking. We, however, still have some ground to cover in expanding access to financial services, given that about 25% of the population remains totally excluded. BIS central bankers’ speeches Ladies and Gentlemen: The information generated by the past three FinAccess surveys will help financial service providers identify where opportunities exist. I am delighted that the sector now has such useful information resource at its disposal. In conclusion, Ladies and Gentlemen, let me also observe that the FinAccess studies have been championed and driven by a partnership between public and private institutions. I commend and support such initiatives and hope that this lays the foundation for a deeper and sustained partnership between the public and private sector in tackling the challenges and taking advantage of opportunities that arise. In this regard, I thank all the institutions under the FAP that have contributed in various ways towards these FinAccess surveys, particularly the 2013 survey – notably the FSD, Kenya, Kenya National Bureau of Statistics (KNBS), Kenya Bankers Association, the research house TNS-RMS, Kenya Institute for Public Policy Research and Analysis (KIPPRA), Kenya Commercial Bank (KCB), Development Alternative International (DAI) and the CBK. Ladies and Gentlemen: Beside the FinAccess studies that provide us all with valuable information as to where we should focus our efforts most in order to achieve our goal of providing affordable and accessible financial services and products to majority Kenyans. I wish to inform you that FAP is also working with CBK, FSD, Kenya and Bill and Melinda Gates Foundation on the spatial mapping of all financial access touch points, the findings of which will improve our understanding on how to enhance financial inclusion. With these few remarks, Ladies and Gentlemen, I welcome you to this breakfast event and look forward to the Launch. THANK YOU. BIS central bankers’ speeches
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Remarks by Prof Njuguna Ndung'u, Governor of the Central Bank of Kenya, at the launch of the Regional Certificate in Participatory/Islamic Banking, Kenya School of Monetary Studies, Nairobi, 25 February 2014.
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Njuguna Ndung’u: Essential groundwork for competing effectively in the Islamic banking environment Remarks by Prof Njuguna Ndung’u, Governor of the Central Bank of Kenya, at the launch of the Regional Certificate in Participatory/Islamic Banking, Kenya School of Monetary Studies, Nairobi, 25 February 2014. * * * Distinguished Guests; Ladies and Gentlemen: 1. It gives me great pleasure to be here today to officially welcome all of you to the launch of the Regional Certificate in Participatory/Islamic Banking Programme conducted by the Kenya School of Monetary Studies in collaboration with the International Center for Education in Islamic Finance (INCEIF). INCEIF is the only educational institution in the world devoted to Islamic Finance. On behalf of the Central Bank of Kenya, let me extend a very warm welcome to all the organizations represented here today. 2. The School has established a collaborative partnership with INCEIF to offer the exclusive certificate targeting members of staff at Executive level in bank and non bank financial institutions offering lending services. In this collaborative arrangement, KSMS is leveraging the expertise INCEIF has developed over the years in delivering a globally recognized certificate in Islamic Banking. Further, it is important to note that the launch of the INCEIF Program we are having here today is a culmination of concerted efforts by Kenya School of Monetary Studies in developing solutions to problems faced by the region that are practical and relevant. 3. Ladies and Gentlemen: This program is designed to develop human capital in Participatory/Islamic Banking in the COMESA region. It is structured to provide an introduction of basic Islamic Principles governing financial transactions in order to establish a good foundation for the understanding of key operations in Participatory/Islamic Banking. The program will change the Islamic Finance Training landscape and enhance financial inclusion since the focus is definitely now on Africa and particularly Sub-Saharan Africa where consumer awareness of non interest banking or Participatory/Islamic Banking is growing and the demand for this across bank customers. 4. As Kenya and the region at large becomes an increasingly attractive destination for investments, the onus is on you, the financial industry players and financial institutions to tap into this tremendous potential in the area of Islamic Banking. As you know, with growth comes opportunities; with opportunities, demand for engaging qualified personnel and developing training capacity for the drivers of the industry in technical and operational areas of handling and managing Participatory/Islamic Banking based products for the benefit of the institutions and the market. I call on all of you to support such training initiatives by the School. 5. Ladies and Gentlemen: The program lays the essential groundwork for competing effectively in the Islamic Banking environment and explores the business opportunities and challenges of the field. We are delighted to be offering this new program in Regional Certificate in Participatory/Islamic Banking which is fast becoming an attractive field in the global finance industry. Globally, the Islamic finance market is growing. Islamic finance investments are now worth $1.6 trillion and are forecast to increase to $2.5 trillion by 2015. 6. In Kenya we are committed to Islamic banking framework for conducting financial transactions. We feel there is no better time to offer a course that will cover not just the conceptual apparatus, but the various opportunities and challenges that face Islamic finance, whose growth shows no signs of abating. BIS central bankers’ speeches 7. Ladies and Gentlemen: The primary objective of the Regional Certificate in Participatory/Islamic Banking program is to build the knowledge and human resource skills base that enhances competency of personnel serving in this sector. The benefits of attending this course include among others:• Giving participants an all-round understanding of the documentary and structural issues involved in Islamic Banking. • The course will be resourced by top quality trainers of reputable professional standing. • The participants will be availed with highly researched reference text and training materials. 8. With these few remarks, ladies and gentlemen, it is now my honour and pleasure to launch the Regional Certificate in Participatory/Islamic Banking Program. I wish all of you success as you commence the learning process. Thank You and God bless you all BIS central bankers’ speeches
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Remarks by Prof Njuguna Ndung'u, Governor of the Central Bank of Kenya, at the official opening of the MEFMI (The Macroeconomic and Financial Management Institute for Southern and Eastern Africa) Human Resources Workshop, Nairobi, 3 March 2014.
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Njuguna Ndung’u: Strategic human resource management and development in the MEFMI region Remarks by Prof Njuguna Ndung’u, Governor of the Central Bank of Kenya, at the official opening of the MEFMI (The Macroeconomic and Financial Management Institute for Southern and Eastern Africa) Human Resources Workshop, Nairobi, 3 March 2014. * * * The MEFMI Executive Director, Dr. Ellias Ngalande; Resource Persons; Distinguished Participants; Ladies and Gentlemen; It gives me great pleasure to officiate at the opening of this important workshop for human resource officials of the MEFMI region. May I take this opportunity at the outset to extend a warm welcome to you all to Nairobi and the Republic of Kenya. I extend a special welcome to our first time visitors to Kenya. Kenya is certainly an interesting country which you will discover despite being here for a short period. I have to assure you that Kenya as a hosting country for this event feels greatly honored because of your presence having travelled long distances to come here. This only goes to confirm one aspect, that the membership of MEFMI is like one family and visits of this nature help to cement relationships among the peers. Indeed, I am told that this is the first time that MEFMI is holding a workshop for heads of human resources in Kenya. On a very important note, the timing of this workshop is also critical, as it comes in the third year of MEFMI Phase IV. As the Executive Director alluded to earlier in his remarks, MEFMI is implementing the Phase IV Strategic Plan that runs from 2012 to 2016. Please take time to understand and appreciate the progress that MEFMI has made in implementing Phase IV, during Dr. Ngalande’s presentation later in this workshop. However, I wish to add from my perspective that since its foundation in the 1990s, MEFMI has grown into a network institution that plays an invaluable role in enhancing public sector capacity in Eastern and Southern Africa. Kenya was a founder member of MEFMI’s forerunner ESAIDARM in 1993 and has continued to benefit in all aspects of capacity building. Many officials in the Central Bank, The National Treasury, Ministry of Devolution and Planning and other related institutions have had an opportunity to improve their technical skills through participation in various programmes delivered by MEFMI within the region. A number of technical missions have also been undertaken by MEFMI following our requests. In this regard, the contribution that MEFMI makes in this region and the quality of training is an efficient responsiveness to demands for technical assistance rendered. One other aspect adding to the positive attributes of MEFMI is the essence of mobilizing technical expertise within the region for delivery of the activities. This workshop can bear that testimony. I am informed that the resource persons who will facilitate the discussions are two experts in the area of human resources drawn from Nairobi and Dar es Salaam. For the other capacity building programmes, a cadre of trained MEFMI Fellows is used as resource persons. I have been informed that some of the participants in this room attended the previous workshop held in Kigali, Rwanda in 2012. This provides excellent continuation to learning and implementation of best practices shared from these workshops. The Executive Director, Distinguished Participants, Ladies and Gentlemen: Allow me now turn to the subject matter of this workshop. I note with satisfaction the approach of the MEFMI Secretariat in organizing this workshop. I am informed that the workshop will focus on the following objectives: BIS central bankers’ speeches • To share experiences on the key human resource management trends that are changing organizations; • To expose participants to key strategic issues in human resource management; • To discuss human resource management’s role and alignment as a strategic business partner; • To learn about issues of ethics in human resource management; • To strengthen networking amongst peers on the emerging human resource issues confronting the member states. Looking at the above objectives, I can see the central theme being strategic human resource management and development. Our organizations have not provided enough support for the Human Resource Departments to carry out a strategic role. Human Resource is the driving force behind our organizations. Strategic human resource management and development requires the recognition of Heads of human resources as key partners in the management of the organization. There is therefore a need for HR to have a seat at the decision table in order to ensure alignment of HR strategy to the business strategy, this is key for business success and sustainability. Judging from the volume of our capacity building activities, I am prompted to note that within the MEFMI region, we tend to put a lot of emphasis on strengthening technical capacities in areas such as macroeconomic policy, bank supervision, debt management, among others and not much investment has been put in building capacity of the HR function. The missing link is the aspect of human resources role as a strategic business partner in engaging the rest of the business functions to drive value across the organizations. It is the responsibility of the Human Resources Practitioners to ensure that the organization has the right number of human capital, with the right skills and placed in the right jobs in order to deliver on the organization’s vision, mission and strategy. I trust that the experts who have been engaged will provide the needed learning that all have been waiting for. I recognize that for our human resources experts, one of the biggest challenges that lies ahead relates to development of skills in strategic thinking. Such skills are needed in light of the changing environment. How does human resources staff strategize under the circumstances? What critical roles do they need to play? I realize that compared to the private sector, the public sector is lagging behind in human capital practices. This impedes the efficiency and effectiveness of service delivery. The challenge therefore to HR business leaders is to design and implement innovative HR strategic plans that will lead to increased Employee engagement and productivity. I am informed that this workshop will examine some of the strategic human resources management techniques that will enable our organizations transform HR into a strategic partner delivering value for the business. It will therefore be an opportune moment to reflect on the HR practices requiring improvement at our own institutions. Dear Participants, Ladies and Gentlemen: in conclusion I would like to encourage all of you to participate actively during the presentations and discussions. Take time to ask relevant questions and share experiences with other HR practitioners in this room. I would like to once again thank MEFMI for organizing this workshop and also to thank the resource persons for accepting to facilitate and share their expertise in this region. As MEFMI we believe in synergies in our capacity building approach; as such we really stand to benefit from expertise drawn from various backgrounds. Further, I wish to thank all your institutions for allowing you to come this far in order to attend and participate in this workshop. For a number of you, this is also an opportunity to get BIS central bankers’ speeches acquainted with the activities of MEFMI and I would encourage you to continue facilitating the capacity building efforts of our own Institute. I believe while you are here you will try to sample the usual Kenyan hospitality especially what Nairobi has to offer. I would like at this stage to wish you all a fruitful workshop. With these remarks, I declare the MEFMI 2014 Human Resources Workshop officially open. I THANK YOU FOR YOUR ATTENTION BIS central bankers’ speeches
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Keynote speech by Prof Njuguna Ndung'u, Governor of the Central Bank of Kenya, at the launch of the FinAccess GIS Mapping of all Financial Access Touch Points 2014, Nairobi, 13 March 2014.
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Njuguna Ndung’u: Understanding and expanding financial inclusion in Kenya Keynote speech by Prof Njuguna Ndung’u, Governor of the Central Bank of Kenya, at the launch of the FinAccess GIS Mapping of all Financial Access Touch Points 2014, Nairobi, 13 March 2014. * * * The Chief Executive Officers of Domestic Financial Sector Regulators; The Chief Executive Officers and Officials of Financial Services Providers; The Principal Secretary – Ministry of Information, Communication and Technology Deputy Governor – Dr. Haron Sirima Representatives of Development Partners; Distinguished Participants; It is my honour and pleasure to join you this morning to formally launch the results of our GIS Spatial Mapping of all Financial Access Touch Points in Kenya under the auspices of the Financial Access Partnership (FAP) with Bill and Melinda Gates Foundation. This GIS Spatial Mapping of Financial Access Touch Points was supposed to provide insights in understanding the financial inclusion landscape and our quest to expand financial inclusion. As you will recall during the launch of the Third National FinAccess 2013 Survey Report of top line findings on 31st October 2013, I extended to you the invitation towards the launch we are witnessing today. I am delighted that we have kept our word. Ladies and Gentlemen: Before making any further remarks, allow me to thank the Bill and Melinda Gates Foundation and all our collaborating partners under the Financial Access Partnership (FAP) for their tremendous contribution towards the success of this Project. At this point, I cannot forget to thank Brand Fusion Marketing International Ltd. for conducting the field work successfully despite the numerous challenges they faced and the FinAccess Management (FAM) comprising the Central Bank of Kenya (CBK), Research and Policy Analysis Department and the Financial Sector Deepening (FSD) Kenya for ensuring the project’s success and making today’s launch possible. Let me also appreciate our technical partner, the Kenya National Bureau of Statistics (KNBS), for providing critical support to the initiative. Ladies and Gentlemen: During the launch of the Third National FinAccess 2013 Survey, the Government recognized the important role played by the financial system in the economy. Our Vision 2030 envisages the financial sector being transformed into an innovative, vibrant and globally competitive sector to drive high levels of savings to finance the country’s investment needs. The transformation entails doubling deposits mobilization from 44% to 80% of GDP and enhancing growth of savings channelled into productive investments from 14% to over 30%. This goal cannot be achieved if the Vision’s three core objectives, namely: Enhancing Financial System Stability, Efficiency, and Expanding Financial Inclusion are not addressed. • Without expanding inclusion to financial services, there is a case for expanding quality access and affordable, appropriate and sustainable financial services and products to majority of the population. This will inevitably increase their access and usage of financial markets and products that will encourage savings/investments and allow capital/asset accumulation. Safe havens for savings by the poor reduces their vulnerability to periodic economic and social shocks and enhances their productive capacity. BIS central bankers’ speeches • The Three National Financial Access Surveys for 2006, 2009 and 2013 have clearly demonstrated that Kenya’s financial landscape has changed considerably over the period 2006–2013. The financial system is now offering a wider range of financial services and products to more Kenyans, covering a wider geographical spread, and even going beyond its borders more than ever before. These developments are attributable to expansions in financial sector infrastructure (including innovation in products and adaptive institutional outreach) and advances in technology. Ladies and Gentlemen: I am delighted to note that we have added the spatial mapping of financial services providers to the FinAccess Surveys by digitally mapping out all the financial access touch points in the country. This affords us more in-depth knowledge on how to address the challenges we face in expanding financial inclusion and ensure that the majority of our populace access and use affordable, appropriate and sustainable financial services. Some of the insights we have gained from the mapping exercise include: • Kenya enjoys better financial access compared to countries in the region. The percentage of the population living within a 3km distance of a financial access touch point is 58.7% for Kenya, 44.1% for Uganda, 42.7% for Nigeria and 28.3% for Tanzania. In terms of financial access touch points per 100,000 people; Kenya has 161.7, Uganda 63.1, Tanzania 48.9 and Nigeria 11.4. • Financial services touch points tend to be located in economically active regions of the country: more in urban than in rural areas. In these areas use of portfolios of financial services is more prevalent. • Financial services touch points locate away from areas of high poverty levels, for instance, 69% of all financial access touch points are located in areas with the least likelihood of poverty even though only 30% of the population live in those areas. • Kenyans have greater access to mobile phone financial services providers compared to banks. For example, Kenyans living within 3km of a mobile phone money agent is 58.6% or 23.64 million compared to only 21.2% or 8.57 million living near a bank branch. Ladies and Gentlemen: The results we are releasing today are as a result of developments in the wider economy, infrastructural facilities, technological innovation, institutional developments, natural features, as well as financial system policy and regulatory reforms, increased competition and innovations in the financial market. These developments have set off a dramatic shift away from the traditional delivery of financial services. In the delivery of financial services, innovations using technology such as Automatic Teller Machines (ATMs), Point-of-Sale (POS) devices, the internet and mobile phone platforms and its interlinkages with financial institutions platforms have accelerated and moved us closer to branchless banking. We, however, still have some ground to cover in expanding access to financial services, given that about 25% of the population remains totally excluded. Ladies and Gentlemen: The information generated by this spatial mapping exercise will help financial service providers identify where opportunities exist. I am delighted that the sector now has such a useful information resource at its disposal. The results from all these efforts will help the public and private sector to better understand the developments and dynamism of the broader Kenyan financial market landscape and its dynamics in order to develop appropriate policy strategies and products as well as delivery channels to targeted clientele that they have not served before. Ladies and Gentlemen: The GIS Spatial Mapping Project brings forth more information necessary to satisfy the objectives of the Financial Access Partnership, which remain; (i) To provide information to policymakers about the main barriers to financial access and inclusion; BIS central bankers’ speeches (ii) To provide information to the private sector on market conditions and opportunities; (iii) To provide a solid empirical basis to track progress on financial inclusion and evaluate the effect of government, donor and industry led initiatives; (iv) To provide data for use in research into the impact of access to financial services and products on growth, development and poverty reduction. In conclusion, Ladies and Gentlemen, let me also observe that the FinAccess studies have been championed and driven by a partnership between public and private institutions. I commend and support such initiatives and hope that this lays the foundation for a deeper and sustained partnership between the public and private sector in tackling the challenges and taking advantage of opportunities that arise. In this regard, as I have always done, I thank all the institutions under the Financial Access Partnership that have contributed in various ways towards the Spatial Mapping Project and The Bill and Melinda Gates Foundation. I urge financial services providers and the domestic sector regulators to work out modalities of collecting the spatial data of all the financial services touch points. The Research and Policy Analysis Department of the Bank will champion these efforts. With these few remarks, Ladies and Gentlemen, I welcome you to this breakfast event and launch the financial access web portal and look forward to further fruitful deliberations. Thank you. BIS central bankers’ speeches
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Remarks by Prof Njuguna Ndung'u, Governor of the Central Bank of Kenya, at the launch and celebration of Solidaridad's achievement of ISO 9001-2008 Certification, Nairobi, 20 March 2014.
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Njuguna Ndung’u: Combating structural poverty amongst producers in Africa Remarks by Prof Njuguna Ndung’u, Governor of the Central Bank of Kenya, at the launch and celebration of Solidaridad’s achievement of ISO 9001–2008 Certification, Nairobi, 20 March 2014. * * * The Solidaridad Eastern and Central Africa Expertise Centre (SECAEC), was officially established in September 2008 in Nairobi, Kenya with the vision to be a regional leader in combating structural poverty amongst producers in Africa and promoting social and environmental sustainability. – This is what I term binding constraints in our economies. Its mission is to facilitate the smallholder producers to produce commodities in an economically, environmentally and socially sustainable manner that ensures good market access, improved prices and high incomes for better quality of life. To achieve this, SECEAC is working in the Eastern and Central Africa region, impacting over 400,000 smallholder farmers in Coffee, Tea, Livestock, Horticulture and Food Security, Cotton, Gold and Sugarcane. The 2008 World Bank’s “Agriculture for Development Report” recognized the enormous potential of agriculture in offering employment globally. SECEAC programs in Kenya are also aligned to the achievement of Vision 2030, which recognizes the agricultural sector as one of the key sectors within the economic pillars for the country’s economic growth. It envisages “a food-secure and prosperous nation”. Regionally, the program targets to achieve six out of the eight Millennium Development Goals targeting reduced poverty and hunger by half by the year 2015; promoting gender equality and empowering women through integrating gender issues in their projects, reducing child mortality, ensuring environmental sustainability and developing a Global Partnership for Development. SECAEC programs on these value chains are currently valued at 16 million Euros, targeting improvement of productivity and quality for better incomes, with the overall objective of improving the livelihood of the smallholder farmers in the region. In achieving its goals and mandate, indirectly SECAEC are contributing towards the economy of the region through foreign exchange, creation of employment and empowerment of women and youth through programs designed to address gender and youth disparity. Within the region and internationally, SECAEC has established a network of experts and consultants in all the value chains, working with a wide range of collaborators including key government departments. In public private partnership projects (PPP), the organization values the role played by both public and private institutions. Notable partnership in the region has been with international commodity traders in Coffee, Tea, Horticulture, Cotton and Sugarcane, with Donors funding various projects in the region. Building sustainability in the programs has been the key focus. SECAEC recognized that to achieve success, financial linkages are important. SECAEC has been able to link 75 percent of its smallholder farmers to microfinance institutions such as KREP, KWFT and mainstream banks such as Cooperative Bank, Chase Bank, Equity and KCB. It has remained focused and diligent in implementing its programs through integrating quality system management, leading to the award of the ISO 9001–2008 Certification, which guides its program management. BIS central bankers’ speeches Today, we are all gathered here to celebrate part of this achievement through a Documentary and ISO 9001–2008 Certification. This is satisfying and deserves credible support and appreciation. Thank You. BIS central bankers’ speeches
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Remarks by Prof Njuguna Ndung'u, Governor of the Central Bank of Kenya, at the African Rural and Agricultural Credit Association (AFRACA) International Exposure Visit to Kenya, Kenya School of Monetary Studies, Nairobi, 5 May 2014.
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Njuguna Ndung’u: Increasing the level of financial inclusion in Kenya Remarks by Prof Njuguna Ndung’u, Governor of the Central Bank of Kenya, at the African Rural and Agricultural Credit Association (AFRACA) International Exposure Visit to Kenya, Kenya School of Monetary Studies, Nairobi, 5 May 2014. * * * Mr. Saleh Usman Gashua, the Secretary General, AFRACA; Mr. Isaac Awuondo, Group CEO, Commercial Bank of Africa; Distinguished Participants; Ladies and Gentlemen: It is my honour to extend a warm welcome to all of you to Nairobi and specifically to the Kenya School of Monetary Studies (KSMS). I note with satisfaction the continued partnership that the African Rural and Agricultural Credit Association (AFRACA) and KSMS have established. As AFRACA aspires to promote quality financial services to the rural and agricultural communities in Africa, it is complemented by KSMS’s vision of being a world class research based capacity building institution for the financial sector in Africa. Ladies and Gentlemen: In an effort to confront poverty, that currently afflicts more than 1 billion people in the World, most of whom are in the developing countries, financial inclusion has been seen as one of the channels that can significantly reduce poverty sustainably. This is because access to financial services by the poor provides a safe haven for their savings and widens their economic opportunities through savings-investment cycles. However, in Africa and other developing countries in Asia and Latin America, 90% of the population do not have access to financial services. Closer home, 80% of the adult population in Sub-Saharan Africa do not have access to financial services (CGAP, 2011). In this regard, for the World and Africa in particular to catapult the efforts to reduce poverty, concerted action to increase access, uptake and use of financial services should be rolled out. Ladies and Gentlemen: Several reasons have been put forward to account for the low level of financial inclusion in Africa. Key among these reasons are poverty, irregular income flows, high levels of financial illiteracy, high financial costs, social and cultural beliefs, and underdeveloped financial markets. Acknowledging the important role that financial inclusion plays in economic development, none of the cited barriers to financial inclusion is insurmountable. What is required is for financial service providers, the Government and its agencies as well as the consumers to jointly contribute in eliminating the barriers to financial inclusion that are within their purview. I note with appreciation the continued role of AFRACA in promoting capacity building and knowledge exchanges among its members as one of the avenues of promoting financial inclusion in the rural and agricultural sectors in Africa. Ladies and Gentlemen: The efforts to increase the level of financial inclusion in Africa have started to bear fruit. This is largely attributed to advancements in mobile phone technology. Rollout of Mobile Phone Financial Services (MFS) has proved a very useful tool in enhancing financial inclusion. Africa has over the last few years, experienced one of the highest mobile phone penetration rates. Mobile phone technology provides an effective and convenient communication channel. As a result, leveraging on mobile phone technology as a channel for financial services not only overcomes the distance barrier but also presents convenience as well as cost effective platforms for financial services. Africa has continued to witness increased competition and diversity in the MFS space. More mobile phone operators are launching mobile money products whereas financial institutions are increasingly partnering and integrating with the telecommunication companies’ platforms BIS central bankers’ speeches to offer financial services. The number of MFS products as well as the increasing rate of adoption has significantly lowered unit costs of financial services. A good example for the poor is operating bank accounts via mobile phones like the M-Shwari product. Ladies and Gentlemen: Agency banking is the other initiative adopted to overcome some of the barriers to financial inclusion. Agency banking involves use of third party agents by financial service players to provide financial services. Agency banking was introduced to take financial services to the populace in areas deemed uneconomical for brick and mortar branches to be established. Agency banking complements mobile phone financial services since most of the agents use mobile phones in executing transactions for their clients. Ladies and Gentlemen: Allow me now to share with you the outcomes of Kenya’s adoption of mobile phone financial services platform and completed by agency banking. According to the FinAccess Survey, 2013, 11.5 million adult Kenyans use mobile financial services as compared to only 5.4 million who use banks. This confirms the unprecedented opportunity to enhance formal financial inclusion through mobile financial services as compared to other channels. Following rollout of MFS in Kenya in 2007, the level of the population which is financially excluded has declined from 38% in 2006 to 33% in 2009 and now 25% in 2013. Similarly, the size of the population using informal financial services had dropped from 35% in 2006 to 27% in 2009 and now stands at 8% in 2013. More significantly, 2 in 3 Kenyans have access to formal financial services. This is an impressive trend, which if replicated across Africa will poise the continent for unprecedented growth. As regards agency banking, which was rolled out in 2010, 14 Kenyan commercial banks and one microfinance bank have established agency networks. As at March 2014, the 14 banks had appointed 24,645 agents, who have executed over 92.61 million transactions valued at over Kshs 498.97 billion (USD 5.77 billion) since 2010. Ladies and Gentlemen: In 2013, Geospatial Surveys to map financial access points were undertaken in Kenya, Nigeria, Uganda and Tanzania. The survey results indicate that Kenya is ahead of the other countries in terms of financial access. This is evident through the following indicators: • 76.7% of the Kenyan population is now within 5 kilometres of a financial service touch point as compared to 47.3%, 42.7% and 35.1% in Nigeria, Uganda and Tanzania respectively. • Kenya has 65,353 financial service touch points as compared to 21,206; 20,229 and 17,212 financial touch points in Uganda, Tanzania and Nigeria respectively. • Kenya has 161.9 financial access touch points serving 100,000 people as compared to 63.1, 48.9 and 11.4 financial access touch points serving 100,000 people in Uganda, Tanzania and Nigeria respectively. Kenya’s leadership position in financial access is mainly attributable to the positive development in the financial sector, introduction of mobile financial services and agency banking, which have taken financial services to the door steps of most Kenyans. In addition, completing the financial infrastructure no doubt has driven its growth and dynamism. Ladies and Gentlemen: Having appreciated the important role that financial sector development has on the economy, it is worth noting that the financial sector can live up to its expectation only when regulators assume more than a regulatory role. Regulating an underdeveloped financial market will not contribute its fair share to economic development. As a result, regulators must balance their regulatory role with a developmental role. It is with this in mind that the concept of smart and better regulation as opposed to more regulation was coined. Smart and better regulation is flexible and accommodative to innovative financial products, through which financial development is registered. BIS central bankers’ speeches Ladies and Gentlemen: Having seen the diversity of activities in the agenda of your visit, I note that you will not only gain extensive knowledge on how Kenya has utilised both Mobile Financial Services and Agency Banking in addition to credit reference for information capital to enhance financial inclusion but you will also be able to sample, from your field visits, how Kenya is promoting rural and agricultural finance. This will be insightful as examples that can be replicated anywhere in Africa. To conclude, Ladies and Gentlemen, I would like to reassure AFRACA of CBK’s continued support and commitment. It is now my pleasure and honour to officially declare the 2014 Technical Cooperation among Developing Countries Programme on Mobile and Agency Banking officially opened. I wish you all fruitful deliberations. Thank you. BIS central bankers’ speeches
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Remarks by Prof Njuguna Ndung'u, Governor of the Central Bank of Kenya, at the Business Editors' Workshop, Naivasha, 2 May 2014.
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Njuguna Ndung’u: Building a platform for greater partnership Remarks by Prof Njuguna Ndung’u, Governor of the Central Bank of Kenya, at the Business Editors’ Workshop, Naivasha, 2 May 2014. * * * Dr. Haron Sirima, Deputy Governor, Central Bank of Kenya Mr. Jaindi Kisero, Managing Editor (Economic Affairs), Daily Nation Business Editors here present Central Bank of Kenya Colleagues Other distinguished participants Ladies and Gentlemen I would like to register my profound appreciation to you, members of the Fourth Estate for making time to attend this Workshop. No doubt, your role as editors is extremely demanding on your time. I believe this workshop in an important step in enhancing the partnership between the Central Bank and the Media, in line with the theme, Building a Platform for Greater Partnership. As you may already be aware, it was once believed that central banks needed to be as uncommunicative and as secretive as possible due to the conventional idea that doing so would safeguard the autonomy of policy making, coupled with the perceived wisdom of saying as little as possible. However, the last 15 or so years has witnessed tectonic shifts regarding how central banks view their communications. Central Banks have recently begun to engage in public communications more proactively and purposely. The shift is validated by the linkage between enhanced communication and the achievement of economic outcomes. Transparency in the policy making process creates partnerships and best outcomes. Ladies and gentlemen: Communication is essential to the functioning of a modern central bank as a policy tool rather than merely a means of conveying information, as traditionally understood. Communication enhances the effectiveness of policy by improving the public understanding of policy objectives and enhancing the legitimacy of the message. An overriding priority for a central bank is to provide financial markets, and by extension the general public, the confidence that its policy actions are in the public interest. By clearly explaining its objectives, central banks gain public support and in the process, secure the opportunity to shape expectations and influence behavior in a desired direction. Additionally, the prevailing emphasis on communication is informed by the need to balance increased demands for central bank independence with an equally necessary accountability to the public. That means ensuring that policy objectives are communicated in a manner that is understood and comprehended by the target audience. By investing in communication, central banks earn the trust of the public to pursue its strategic priorities independently. In addition, the decisions made by the central banks are themselves important inputs to decisions by governments, firms and households. Ladies and Gentlemen; It is against this background that the Central Bank of Kenya began, a few years ago, reforming its public communications function in response to the heightened demands for information by the various stakeholders. Some of the recent initiatives in this direction include; acquisition of a Web Content Management System with broad functionalities to enhance interactivity and navigation; participation in public education initiatives and awareness campaigns through involvement in trade fares such as ASK Shows; improvement in the quality of Central Bank publications; and improved mechanisms for handling media & public inquiries. BIS central bankers’ speeches Ladies and Gentlemen; To effectively execute its mandate, the Central Bank relies on a wide range of information inputs from various stakeholders, including the media. The Monetary Policy Committee (MPC) for instance regularly reviews media coverage of the financial and economic news as well as media predictions about the likely direction of monetary policy. In addition, the Bank normally takes great interest in the media review of its decisions. The financial news therefore forms a useful part of what broadly shapes policy making. I will discuss more of this in my presentation. Ladies and gentlemen: It is in view of your pivotal role as both information intermediaries and a unique target of our communication, that the Central Bank is keen to develop a structured engagement with the financial media. The Bank recognizes the need to “ride on your backs”, so to speak, to reach the ultimate stakeholder, the mwananchi. In order to empower you to undertake this role, the Central Bank would like to contribute, within its means, to the development of a budding financial journalism sector in Kenya through appropriate capacity building programmes for business journalists. As Kenya aspires to become a regional financial hub, the role of financial journalists cannot be gainsaid. The need for journalists with comprehensive economic reporting and analytical capabilities will become increasingly necessary if Kenya is to achieve and sustain the regional financial hub status. The Central Bank seeks to collaborate with the media in supporting broad based educational programmes for the society, such as Financial Literacy and promotion of a Savings Culture. Ladies and gentlemen: All that I have described in my remarks emphasize the need for mutual cooperation and partnership. Indeed, this workshop’s theme is “Building a Platform for Greater Partnership”. Going forward, we at the Central Bank commit to working closely with you in partnership to serve our nation better. This workshop is therefore forms the start of a “win-win” engagement that leads to better service delivery for our stakeholders. We also look forward to learning from you as you constructively critique the effectiveness of our communication and offer suggestions. Key questions moving forward in this partnership are: What are the practical steps that will anchor the partnerships between us? How do we ensure a sustainably structured framework in which policy intentions of the Central Bank gain traction in the public domain? How do we reduce superfluous noise that occasionally cloud the greater and more fundamental achievements in the policy terrain? How do we move forward with the agenda emerging from the cross-fertilization of ideas that will emerge from the workshop? Ladies and gentlemen; the Central Bank proposes a structured capacity building programme targeting business writers who cover the financial sector. In collaboration with the Kenya School of Monetary Studies (KSMS), the Central Bank will be seeking the input of the financial media to develop an appropriate Business Editors’ training curriculum that takes cognizance of the needs of the financial sector, in light our stage of development. In addition, the Bank will be hosting a Business Journalists workshop once a year, which will be appropriately themed to reflect the issues of the time. Furthermore, the Central Bank in partnership with other financial sector regulators proposes the formation of a Business Editors & Financial Regulators Forum. The role of this forum shall be largely advisory and will be tasked with providing appropriate advice on public education campaigns on broad latitude of themes such as financial education & literacy campaigns, and other mutually agreed programmes within the core competencies of the media. I believe these proposals will be refined as we go along and what emerges from this workshop will further shed more light in this regard. Once again I thank you for taking time off your busy schedules to participate in this workshop. May I also take this opportunity to appreciate my colleagues at the Central Bank for organizing this workshop successfully. And to the management and staff of Enashipai Resort and Spa for the excellent hospitality extended to us. BIS central bankers’ speeches Ladies and gentlemen; With these remarks, it is now my humble pleasure to declare this workshop officially opened. Thank you. BIS central bankers’ speeches
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Remarks by Prof Njuguna Ndung'u, Governor of the Central Bank of Kenya, at the East Africa Risk and Governance Summit, Nairobi, 13 May 2014.
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Njuguna Ndung’u: East Africa – focus on risk, corporate governance, anti-money laundering and other challenges Remarks by Prof Njuguna Ndung’u, Governor of the Central Bank of Kenya, at the East Africa Risk and Governance Summit, Nairobi, 13 May 2014. * * * Mr. Pawan Hegde, Managing Director – Governance Risk and Compliance, Thomson Reuters; Mr. Paul Muthaura, Acting Chief Executive Officer; Capital Markets Authority; Distinguished Participants; Ladies and Gentlemen: I am privileged to be with you this morning for this landmark summit. Let me first convey the best wishes of the Cabinet Secretary, The National Treasury, Mr. Henry Rotich who was supposed to deliver the opening keynote speech today. Due to emerging exigencies, the Cabinet Secretary, The National Treasury has asked me to represent him this morning. Let me also thank the organisers of this conference Thompson Reuters and the Capital Markets Authority (CMA). Indeed the issues to be discussed at this conference on regional regulatory trends, corporate governance, anti-money laundering, combatting the financing of terrorism and fraud are close to the hearts of governments across the East African region. It is also very apt that the focus is East Africa. This also coincides with the Regional Review Group for Africa and Middle East of the Financial Action Task Force (FATF) doing their OnSite Visit on Kenya. Ladies and Gentlemen: The East African Community (EAC) Heads of State in November 2013 signed the East African Monetary Union (EAMU) protocol. EAMU will work for more integration and convergence by 2014. EAMU’s success will, to a large extent, be anchored on a seamless, efficient and effective integrated financial services market. To build this market, EAC member states must elevate their supervisory and legal frameworks and embrace global supervisory and regulatory standards that converge. However, global standards must also be customised to cater for our unique East African terrain. The East African Central Banks are this week meeting here in Nairobi under the auspices of the EAC Monetary Affairs Committee to discuss some of the key building blocks essential for integrated banking, payments and financial market systems. The Central Banks will later this week launch the East African Payments Systems (EAPS). EAPS initially connecting the Real Time Gross Settlement Systems of the EAC countries, this will facilitate cross border trade and investment across the EAC countries. This summit comes at a time when it can offer some insights to this process of integration. Ladies and Gentlemen: Anti-Money Laundering (AML) and Combatting the Financing of Terrorism remains a challenge to us all. The heavy cash-based nature of the East African economies, civil conflicts and porous borders make the region particularly vulnerable to money laundering and financing of terrorism. However significant progress has been made across the region in strengthening AML/CFT regulatory regimes particularly with the support of the Eastern Africa Anti-Money Laundering Group (ESAAMLG). The growth of mobile phone financial services across the region will also significantly reduce the risk of AML/CFT with the tractability of mobile phone financial transactions and reduction of usage of informal financial services. Let us all agree that it is the informality of financial markets that will allow bad regimes of AML/CFT to thrive – we need then to formalize markets. Kenya and Tanzania have been incorporated in the Financial Action Task Force (FATF) public list of countries with deficiencies in their AML/CFT legal and regulatory frameworks. BIS central bankers’ speeches Uganda has recently been added to this list. Significant progress has been made in both Kenya and Tanzania in enacting and implementing the requisite AML/CFT regimes. Nairobi is also this week hosting the FATF Regional Review Group Meeting for Middle East and Africa that will review progress made in Kenya and Tanzania in addressing AML/CFT deficiencies. I am sure that we will continue to strengthen our AML/CFT regimes across the region given the strong political commitment and support from government, the private sector and the general public. I expect that this summit will also generate practical recommendations on how AML/CFT regimes across the region can be strengthened. Ladies and Gentlemen: As I draw to a close, I urge you to draw from the varied experiences of the high calibre facilitators and participants in this forum to come up with recommendations that will enhance the East African financial markets’ Governance, Risk and a Policy Convergence Environment. This will in turn enable our envisaged regional financial markets to attract the capital that is required to finance the EAC’s ambitious development agenda and also leave no room for informal financial markets to thrive. It is now my distinct honour to declare this summit officially open. Thank you. BIS central bankers’ speeches
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Remarks by Prof Njuguna Ndung'u, Governor of the Central Bank of Kenya, at the 17th Ordinary Meeting of the East African Community Monetary Affairs Committee (MAC), Nairobi, 16 May 2014.
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Njuguna Ndung’u: Financial market and payment system developments in East Africa Remarks by Prof Njuguna Ndung’u, Governor of the Central Bank of Kenya, at the 17th Ordinary Meeting of the East African Community Monetary Affairs Committee (MAC), Nairobi, 16 May 2014. * * * My Fellow Governors; Deputy Secretary General, EAC Secretariat; Delegates from the EAC Central Banks; EAC Secretariat Officials Present; IMF Officials Present; Distinguished Guests; Ladies and Gentlemen: Good morning. It is a pleasure to welcome you to Nairobi for the 17th Ordinary Meeting of the East African Community Monetary Affairs Committee. It is an honor for me to host this important meeting that will deliberate on pertinent issues aimed at driving forward the EAC integration Agenda. We are also grateful to have the EAC central bank Governors grace the official launch of the East African Payments System (EAPS), later today. The launch of EAPS marks a key milestone in the EAC integration process and will improve the efficiency of the payments system in the region. This is one of the targeted quick wins by the EAC central banks. Fellow Governors, we have managed the financial sector in a commendable manner since the onset of the financial crises in 2008, a period beset with structural shocks, both external and internal. Despite the challenges, the conduct of monetary policy in the region has continued to take effect, and is delivering expected results. We have in the recent past managed to coordinate among others, market expectations on inflation, which is a great boost to the credibility of central banks in discharging the principal mandate of price stability. This outcome partly reflects implementation of appropriate operational frameworks that have strengthened both the signaling of the policy stance and fining-tuning interbank liquidity management. However, a few challenges, though no less important, still remain especially in the conduct of open market operations where interventions to stabilize interbank liquidity are at times misinterpreted by money market participants as an attempt to defend a particular level or direction of the value of the currency. It appears we have to strive even more to improve our communication on monetary policy operations in order to enhance the market’s understanding of our use of available tools for monetary policy operations. Reverting to the purpose of this meeting, we are here to: review progress on the implementation of the decisions of the 16th MAC Meeting held in Kampala on May 23, 2013; consider strategic objectives to operationalize the EAMU Protocol and update on IMF Technical Assistance in support of financial markets development in the transition to the East African Monetary Union (EAMU). As is usual at MAC meetings, the format will involve the presentation of a Report of our Technical Officials, followed by a discussion of the issues raised in the Report. Our technical staff have worked extremely hard over the last four days and produced a very comprehensive Report. I commend them for a job well done. Fellow Governors, I believe you BIS central bankers’ speeches have already received a brief on the issues in the technical Report from your technical staff this morning. Without wishing to pre-empt the discussions, I would like to briefly highlight the following issues which I think merit particular attention today. The various initiatives by MAC to enhance financial and monetary integration in the EAC region are now bearing fruits. We have made inroads in the harmonization of monetary policy frameworks, harmonization of macroeconomic statistics, improvement in the payments system and financial markets development. Delegates will recall that studies undertaken by MAC were used to inform the negotiation of the EAMU Protocol. This culminated in the adoption and signing of the EAMU Protocol on 30th November 2013 by the EAC Heads of State which sets the stage for the establishment of the EAC Monetary Union. This notwithstanding, it is also important to acknowledge that much more needs to be done during the 10-year transition window beginning 2014 that the Summit provided for the establishment of the EAC Central Bank. More importantly, the EAC central banks need to harmonize their frameworks and policies in their core mandate areas, and enhance internal capacities. In this regard, we need to articulate strategic objectives and priorities under MAC geared towards operationalization of the EAMU Protocol. Fellow Governors, allow me to commend the EAC Secretariat for their support in our activities as well as reaching out to Development Partners who have continued to support the EAMU process. In particular, I take cognizance of the invaluable support by the IMF in the EAC integration process. The Fund’s continued partnership has been instrumental in the transformation and modernization of our economies at the national level as well as regionally. To conclude, fellow Governors, I once again want to reiterate that it is a great privilege to host you in our beautiful city, Nairobi. I invite you to enjoy the beautiful sites in the country side and savor our local cuisines. With these few remarks, I look forward to fruitful engagement in discharging our mandate in this meeting. Thank you. BIS central bankers’ speeches
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Remarks by Prof Njuguna Ndung'u, Governor of the Central Bank of Kenya, at the official launch of the East African Payments System (EAPS), Nairobi, 16 May 2014.
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Njuguna Ndung’u: Enhancing the cross border payments system across the East African Community Remarks by Prof Njuguna Ndung’u, Governor of the Central Bank of Kenya, at the official launch of the East African Payments System (EAPS), Nairobi, 16 May 2014. * * * Dr. Enos Bukuku, Deputy Secretary General, East African Community; Ms. Mwanamaka A. Mabruki, Principal Secretary, Ministry of the East African Affairs, Commerce and Tourism; Fellow Governors: Prof. Benno Ndulu, Governor, Bank of Tanzania; Hon. John Rwangombwa, Governor, National Bank of Rwanda; Mr. Jean Ciza, Governor, Bank of the Republic of Burundi; Dr. Louis Kasekende, Deputy Governor, Bank of Uganda; Distinguished Guests and Colleagues; Ladies and Gentlemen: On behalf of my fellow Governors from the EAC Central Banks, it is my great pleasure to welcome you all to the launch of the East African Payments System (EAPS). The EAPS, which went live on Monday 25th November 2013, is a cross border payment initiative by the EAC Central Banks and the EAC Secretariat, working closely with Commercial Banks in the region. It is part of the East Africa’s payments modernization efforts to enhance cross border payments system across the EAC Region. The System currently integrates with the respective Real Time Gross Settlement (RTGS) Systems of Kenya, Uganda and Tanzania that utilize the internationally recognized SWIFT messaging network for safe and secure delivery of payment and settlement messages. It sends and receives cross border payments in the region’s currencies that is Kenya Shilling (Ksh), Tanzania Shillings (Tzs) and Uganda Shilling (Ugx) from any of the commercial banks in the three East African Countries on a Real Time basis for the region’s business community. EAPS will therefore enable the public to pay as well as receive payments on real time basis. As such, its implementation will address deficiencies in the current cross-border payment methods, through enhanced efficiency and risk controls. All the commercial banks in Kenya, Tanzania and Uganda are participants in the system. Commercial Banks in Rwanda and Burundi are expected to join later in the Year. With respect to regional trade, the System is expected to promote, facilitate and support trade within the EAC Region. In this regard, EAPS has many benefits, they include: • Real time transfer of funds across the EAC borders; • Transfer of large value payments in the region; • Enhanced safety through use of the SWIFT infrastructure; • Increased accessibility as it is available in all the commercial banks; • Same day settlement; • Increased reliability through integration with RTGS; and, BIS central bankers’ speeches • Improved risk control mechanisms. • Transactions are carried out in any of the EAC local currencies hence reducing (cost of transactions) and risk of the transactions. Since go-live, a volume of 1106 transactions have successfully been processed through EAPS. The value processed in the three EAC currencies is Ksh.1.6B, Ugx.9.9B and Tzs.2.5B. On average 10 EAPS transactions are processed per day. All commercial banks open EAPS accounts with their respective central banks. The central banks also open accounts in each other’s central banks as they act as participants in their RTGS systems representing the individual commercial banks in their countries. Payments can be sent in EAC currencies. A commercial bank ensures that all its accounts in these currencies have been pre-funded before sending payments. For example, a customer gives the commercial bank instructions, the message is sent to the central bank of the originating country. The message is then sent through SWIFT to the central bank of the country where the payment is destined, at which point it is transformed and settled in the respective commercial bank account through a cross border module. Finally, let me take this opportunity to thank the Central Bank Governors, the EAC Secretariat and other colleagues in the Banks, Commercial Banks and Bankers Associations in the respective Partner States for working tirelessly in the last few years to make the successful implementation of EAPS possible. It is my hope that with the launch of EAPS, there will be an uptake in its usage by Commercial Banks in executing their cross border payments. THANK YOU. BIS central bankers’ speeches
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Remarks by Prof Njuguna Ndung'u, Governor of the Central Bank of Kenya, at the Bank of the Republic of Burundi's Golden Jubilee Celebrations, Bujumbura, Burundi, 7 June 2014.
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Njuguna Ndung’u: A successful regional integration in the East African community – the role of central banks Remarks by Prof Njuguna Ndung’u, Governor of the Central Bank of Kenya, at the Bank of the Republic of Burundi’s Golden Jubilee Celebrations, Bujumbura, Burundi, 7 June 2014. * * * His Excellency Honourable Pierre Nkurunziza, President of the Republic of Burundi; Honourable Tabu Abdallah Manirakiza, Minister of Finance, Cooperation & Development, Republic of Burundi; Mr. John Ciza, Governor, Bank of the Republic of Burundi; Central Bank Governors and Deputy Governors Present; Distinguished Guests; Ladies and Gentlemen: Good morning. I take this opportunity to thank Mr. John Ciza, Governor of Bank of Burundi for inviting me and my fellow Governors of the EAC Central Banks to the Golden Jubilee celebrations of the Bank of the Republic of Burundi. Indeed, I am honoured to join the Bank of Burundi and to speak during this auspicious celebration of the 50th anniversary of the Bank of Burundi. Today, while you are reflecting on the achievements of the Bank for the last 50 years, I am going to focus the way forward towards “A Successful Regional Integration in the East African Community: The Role of Central Banks”. I am happy to note that Central Banks in the region have adopted a coordinated approach to monetary and financial policy formulation and implementation. Given that the structures of our economies are similar, this coordination has continued to enhance the effectiveness of policy as well as the convergence required. Your Excellency, Ladies and Gentlemen, before going into the main theme of this topic, allow me to briefly highlight some of the key milestones the EAC Partner States have made in driving the integration agenda forward since commencement in July 2000. The EAC Partner States undertook to establish among themselves “a Customs Union, a Common Market, a Monetary Union and ultimately a Political Federation”. The Customs Union is already in place and implementation of the Common Market is ongoing. The signing of the Protocol establishing the East African Monetary Union by the Summit in November 2013 was a clear demonstration of the commitment of our EAC leaders in advancing the integration process. Your Excellency, Ladies and Gentlemen, economic integration is a vital ingredient of the development and growth of the EAC economies. Elimination of border restrictions between Partner States to allow movement of people and goods will accord EAC economies larger markets; enhanced policy credibility across all spheres of economic management and better coordination and bargaining position in international institutions. Increased convertibility of regional currencies and subsequently, creation of a single currency area will also minimize exchange rate uncertainty and eliminate volatile swings in the exchange rate, reduce transaction costs and lower interest rates and inflation. In addition, creation of larger markets in the EAC region will enable members to leverage their relative comparative advantages into one unified block of economic activity capable of offering more goods and services on the international market than its competitors. Furthermore, bridging infrastructure gaps through joint regional infrastructure projects that target key regional transport corridors will support trade and investment in the region. Finally, integration will allow for free movement of goods and labour skills within the region in response to market demand. BIS central bankers’ speeches However, regional integration comes with some challenges. We have learnt from EU the pitfalls of regional integration: Firstly, integration of economies could lead to loss of national sovereignty. To illustrate this, EAC partner states may have to give up some of their sovereignty to supra-national institutions to be created such as the East African Central Bank (EACB), East African Assembly, the Commission on Financial Services, among others. Secondly, Partner states may no longer be able to enact policies to meet their specific needs and interests if such policies are in conflict with regional initiatives. For instance, use of fiscal or monetary policy to pursue a specific country development agenda. Thirdly, it may be difficult for national governments to create and implement policies based on their own particular needs. In this regard, fiscal rules could limit a country’s ability to increase public debt to finance critical infrastructure projects or social safety nets. But one of the demonstrated challenges is the problem associated with the sovereign debt crisis in the Euro Zone. Dissimilarities in current debt levels and structure also pose a threat. Finally, the distribution of benefits and costs may be unequal due to different levels of development, as EU has demonstrated. Therefore, the involvement of stakeholders is crucial for the success of regional integration initiatives. Your Excellency, Ladies and Gentlemen, despite the challenges, experience has shown that the benefits from regional integration outweigh costs. Regional integration can promote peace, economic progress, structural change and growth with lasting benefits for the EAC region. Central Banks have a role to play to make these benefits a reality and improve the livelihoods of the East African people. Central Banks will be required to contribute to the development and prosperity of the EAC region through: achievement and maintenance of macroeconomic stability, especially price and financial stability; in addition, meeting the pre-requisites for the Monetary Union and creation of key institutions responsible for implementation of the EAMU roadmap; establishment of an efficient payment mechanism; and, through macro-prudential regulation of the financial system. Your Excellency, Ladies and Gentlemen, the recent financial crisis has shown that although financial integration improves access to financial markets and the opportunities for risk diversification, it may also increase the scope for financial contagion effect across countries. In this regard, EAC Central Banks must ensure that financial stability arrangements keep pace with the degree of financial integration; strengthen supervisory capacity and financial sector resilience; and, ensure adequacy of capital and liquidity buffers. Ladies and Gentlemen, financial stability requires a concerted effort by key stakeholders. It is therefore important for EAC Central Banks to strengthen synergies with other financial sector players. But also we have seen the benefits of innovations in the financial sector for inclusive growth and reducing cost of doing business. To conclude, Your Excellency, Ladies and Gentlemen, I once again want to reiterate that the benefits of regional integration outweigh the challenges and that EAC countries can overcome the challenges. The Central Banks in the region have a role to play in the transformation of the EAC economies. Consequently, the EAC Central banks have put their best foot forward to support the integration Agenda during the 10 year transition window to the establishment of the EAC Central Bank. To accomplish this, the EAC Central Banks will harmonize their macroeconomic frameworks and policies and enhance internal capacities within the region. THANK YOU, YOUR EXCELLENCY, THANK YOU, LADIES AND GENTLEMEN. BIS central bankers’ speeches
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Remarks by Prof Njuguna Ndung'u, Governor of the Central Bank of Kenya, at the Kenya Institute of Bankers 2nd National Banking & Finance Conference, Mombasa, 26 June 2014.
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Njuguna Ndung’u: Banking and financial sector developments in Kenya Remarks by Prof Njuguna Ndung’u, Governor of the Central Bank of Kenya, at the Kenya Institute of Bankers 2nd National Banking & Finance Conference, Mombasa, 26 June 2014. * * * Mr. Reuben Mbindu, Chairman, Kenya Institute of Bankers; Chief Executives of Commercial Banks and other Financial Institutions here present; Distinguished Ladies and Gentlemen: It is with great pleasure that I join you this morning at the start of this landmark conference. I take this opportunity to thank the Kenya Institute of Bankers for fulfilling its promise to hold such a conference on an annual basis. I appreciate your invitation to this conference and applaud everyone who participated in organising this conference for their commendable commitment. Ladies and Gentlemen: My task this morning is to represent the Cabinet Secretary to The National Treasury who could not make it as the Chief Guest to this 2nd National Banking and Finance Conference. Let me start with some few remarks on the performance of Kenya’s banking sector. The banking sector has recorded an improved performance – the sector’s balance sheet expanded by 15.6 percent from Ksh.2.50 trillion in May 2013 to Ksh.2.89 trillion in May 2014 mainly supported by an expansion of banking services and financial inclusion. Consequently, the sector’s profitability increased by 12.5 percent from a profit before tax of Ksh.48.7 billion for the quarter ended May 2013 to Ksh.54.8 billion for the quarter ended May 2014. The gradual improved performance has been supported by continued rollout of innovative banking products, adoption of cost effective delivery channels, and continued expansion of banks across the country and beyond Kenya. Ladies and Gentlemen: As part of Kenyan banks desire to improve their performance, they have explored business opportunities within and beyond Kenya’s borders. As at 31st December 2013: • Eleven Kenyan banks had established subsidiaries in East African Community (EAC) member states and South Sudan. One Kenyan bank owned a 50% stake in a Mauritius bank while another Kenyan bank had a minority stake of 11.4% in a bank operating in Malawi. • The eleven Kenyan banks had established 288 branches in EAC member states and South Sudan as compared to 223 branches in 2011. • The foreign subsidiaries had a total of 5,219 employees compared to 3,760 in 2011. • The total assets of the foreign subsidiaries stood at Ksh,306.3 billion compared to Ksh.195.6 billion in 2011. • The foreign subsidiaries had mobilised deposits worth Ksh.236.5 billion compared to Ksh.152.5 billion in 2011. Ladies and Gentlemen: This snapshot of cross-border operations of Kenyan banks demonstrates that the banking sector has made a sizeable contribution to the economic growth of not only Kenya but that of the entire Eastern Africa region and beyond. I note with satisfaction that the practices of Kenya’s banks operating outside the country are serving as best practices in some of the host countries. I therefore commend the Kenyan regional banks for their role in strengthening the financial sectors of the regional countries. BIS central bankers’ speeches Ladies and Gentlemen: The continued regional expansion of Kenyan banks augurs well with the on-going EAC integration process. Allow me now to share with you the current efforts by the EAC Central Banks towards the envisaged East African Monetary Union (EAMU). The Monetary Union Protocol was signed by the EAC Heads of State in November 2013 with an envisaged timeline for a single regional currency by 2024. Pursuant to the Protocol, the EAC Central Banks are required to integrate their financial systems and adopt common principles and rules for the regulation and supervision of the financial system by 2018. In this regard, the EAC Central Banks have already commenced efforts towards the harmonisation of the EAC Central Banks supervisory and regulatory rules and practices. The starting point was a request in 2011 to the players, especially those with regional presence, to indicate the aspects they would wish to be harmonised. Ladies and Gentlemen: In order to achieve a harmonised and improved supervisory and regulatory framework, the EAC Central Banks agreed to use the pronouncements by international standard setting bodies such as the Basel Committee on Banking Supervision (BCBS), Financial Stability Board (FSB) and Financial Action Task Force (FATF) as a basis for the harmonisation exercise. The main aspects of the supervisory and regulatory rules and practices that will be harmonised include the legal status of licenced entities, licensing requirements, licence validity, prudential requirements on capital and liquidity, corporate governance requirements, permissible activities, prudential returns and public disclosures. The EAC Central Banks have developed a convergence criteria for all aspects of divergence and expect to attain convergence by the Monetary Union Protocol deadline of 2018. The benefit of these developments to Kenyan banks is to increase the market size, allow diversity of banking products and strengthen our banks. We have introduced the East African Payment System (EAPS) to reduce the cost of doing business. We are now working on convertibility of the EAC currencies – MOUs have been signed. These initiatives will bring the EAC closer together. The central banks in EAC believe that these are important quick wins for the EAC regional integration process. Ladies and Gentlemen: For the continued regionalisation of the banking sector operations to generate the desired impact, a concerted effort to up-scale the skills and competences of our human resources as a region is necessary. In this regard, the Kenya Institute of Bankers (KIB) and other capacity building institutions should rise to the occasion not only to modernise their capacity building initiatives but to develop programmes that cater to the capacity needs of the entire EAC region and beyond. As the banking sector players establish presence across borders, KIB should explore avenues of satisfying the emerging human resource needs in the countries where the banks are expanding to. I am aware that the annual East African Banking School organised by the EAC Banking Institutes is designed with the regional banking sectors in mind. However the on-going integration calls for more tailored capacity building initiatives. In this regard, KIB and counterpart Banking Institutes should re-examine their strategies to ensure that the envisaged integrated financial market is not derailed by inadequate human resource capacity. Let me now turn to some interesting and current outcomes and landmark achievements for the Kenyan economy, that will continue to enhance and consolidate our financial sector performance: First, the success of the Sovereign Bond debut for Kenya that was over-subscribed by over 500%. The government took US$2.0 billion against US$8.8 billion offered at an average interest rate of 6.6%. This success has several implications: 1. The Sovereign Bond brings into the market an asset that is risk free and will form a benchmark of pricing risk free assets in Kenya. Since the interest on the Sovereign Bond is fairly competitive, it will lead to a re-pricing downwards of domestic financial assets – so domestic interest rates will decline. BIS central bankers’ speeches 2. The Sovereign Bond is already trading in the Irish Securities Exchange – This will improve Kenya’s standing and rating in the international capital markets. 3. The government, due to this success of entry into the international capital market, will reduce expensive domestic borrowing. This will of necessity release some liquidity into the domestic market. For this liquidity to be usefully applied to domestic and regional investments, interest rates on lending will have to decline substantially. 4. Since government domestic securities have now a competing exogenous substitute, those banks that have depended on trading with government securities will now have to apportion a larger proportion of their funds for domestic lending to firms and households. The KIB should now help such banks to re-build their infrastructure for monitoring and screening existing and potential borrowers but also supported by the Credit Reference Bureaus. This may have been left behind in the rush to trade with risk free securities. Second, the Kenya Bankers Association has provided a breakthrough to transparency in pricing of banking services. In a Committee chaired by the Cabinet Secretary to the National Treasury and whose recommendations were announced by the President, there will be a reference interest rate to be called KBRR (Kenya Banks Reference Rate). It will be an average of CBR and the 91-day Treasury bill – a risk free return on asset indicator. The first KBRR will be announced by the MPC on July 8th, 2014. For us at the Central Bank the KIB and indeed this Conference should lead the way to show how pricing of credit will benefit inclusive growth of the financial sector, by benefitting both the borrower and the lender. At the end, we will support very strong inclusive growth agenda of the Government. Finally, the FATF (Financial Action Task Force), a standard setting body on Monday 23rd June 2014 upgraded Kenya from the Dark Grey List to the Grey List on its Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) Regime. Kenya’s AML/CFT regime was in 2011 found to be deficient. Since then, the country amended its laws, introduced the Terrorist Financing Law and established the Financial Reporting Centre. For KIB and Kenyan banks, it means it is easier for correspondence bank facilities, easier to negotiate competitive rates for international credit lines and above all, the credit and risk rating for the country is now positively enhanced. These are the issues KIB should take on board to see the prospects of the financial sector development in line with the government growth agenda. With these remarks, it is now my pleasure – on behalf of the Cabinet Secretary to The National Treasury, Hon. Henry Rotich – to declare the 2nd KIB National Banking and Finance Conference, officially open. I wish you fruitful deliberations and report progress to develop our financial sector in line with the Government’s development agenda. Thank you. BIS central bankers’ speeches
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Keynote address by Prof Njuguna Ndung'u, Governor of the Central Bank of Kenya, at the launch of Metropol Consumer and SME Bureau Scores, Nairobi, 24 July 2014.
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Njuguna Ndung’u: Promoting private sector credit and mortgage finance in Kenya Keynote address by Prof Njuguna Ndung’u, Governor of the Central Bank of Kenya, at the launch of Metropol Consumer and SME Bureau Scores, Nairobi, 24 July 2014. * * * Mr. Peter Kebati, Chairman, Board of Directors, Metropol Credit Reference Bureau; Mr. Sam Omukoko, Managing Director, Metropol Credit Reference Bureau; Board Members; Representatives of Commercial Banks, Microfinance Banks and other Financial Institutions; Distinguished Ladies and Gentlemen: It is a great honour for me to join you this morning to witness the roll-out of another innovative financial product, Metropol’s Consumer and SME Bureau Scores. At the outset, I wish to express my gratitude to the Directors and Management of Metropol Credit Reference Bureau (CRB) for inviting me to this auspicious occasion. Ladies and Gentlemen: The roll-out of full file banking sector credit information sharing effective February 2014 is already yielding positive results. We are gathered here today for the inauguration of Consumer and SME Bureau Scores, which has been made possible by the expanded credit information sharing (CIS) mechanism. I take this opportunity to congratulate Metropol CRB for quickly seizing the opportunity to develop a customer’s scoring mechanism, that will contribute to the growth of the credit market in Kenya. Introduction of credit scoring by Metropol CRB will not only enrich the value of its credit reports to the lenders but will greatly improve the lenders credit risk management. Ladies and Gentlemen: When the CIS mechanism was launched in 2010, the viability of the licensed CRBs hinged primarily on the volume of credit reports accessed by the lenders. However, with the introduction of full file credit information sharing, CRBs are now well positioned to introduce value add products such as credit scoring that will not only propel their success but will contribute to the development of the financial sector; especially the dynamic and changing profile of collateral technology and pricing credit in our financial market. As you are aware, a high level Committee was established under the leadership of the Cabinet Secretary to the National Treasury in January 2014 to explore ways of increasing private sector credit and mortgage finance in Kenya. The formation of the Committee that comprised of representatives from the National Treasury, Central Bank of Kenya, Kenya Bankers Association and other private sector representatives and market players, was informed by the Government’s desire pursuant to Vision 2030 to transform the country to a middle income status by 2030. Countries that have attained a middle income status, such as Malaysia and South Africa, have reported private sector credit to GDP ratios of more than 100%. Kenya’s current ratio of private sector credit to GDP of about 40% is way below those of middle income and comparable countries. In addition, Kenya has only about 20,000 mortgage accounts concerted efforts to improve the situation were thus deemed necessary. Ladies and Gentlemen: The Committee finalized its task in April 2014. The various recommendations made by the Committee are already being implemented. As we gather here, the banking sector is at the deep end of rolling out a transparent pricing mechanism, whereby all banks are required to price their loans based on a common reference rate, the Kenya Banks’ Reference Rate (KBRR). This was the first of the recommendations by the Committee. To supplement the KBRR, the banking industry has also rolled out the use of the BIS central bankers’ speeches all-inclusive Annual Percentage Rate (APR) in loan pricing. This is loan pricing that includes the interest rate on the loan and other fees and charges such as appraisal, legal and valuation fees. KBRR is computed as an average of the Central Bank Rate (CBR) and a two-month moving average of the 91-day Treasury bill rate, and announced by MPC. The CBR reflects the monetary policy direction consistent with inflation profile, while the 91-day Treasury bill rate reflects the return on short term risk free assets. Prior to this every bank had its own base rate, whose composition was not known to the borrowers. This now opens a transparency window for borrowers who can compare and negotiate lending rates across banks. Banks are now required to explain to their customers and the Central Bank the composition of the premium (k) they charge above KBRR. The Central Bank will periodically publish on its website details of the premium (k) obtained through returns from the banks. The CBK has already developed a template for this information capturing process. This will in turn promote transparency and competition in the pricing of credit. Borrowers are now empowered to compare interest rates offered by banks as they shop for the cheapest credit facilities. This is the surest way of increasing credit in the market to the productive and profitable sectors. The contribution by Metropol’s credit scoring is to help customers know their risk profile and how their loans will be priced but also empower them with tools to negotiate for better rates. Ladies and Gentlemen: Apart from the introduction of KBRR, the Committee made other recommendations that require the Government and other players including the Central Bank to implement certain policy and institutional reforms to promote private sector credit and mortgage finance in Kenya. These reforms will have an overarching objective of reducing the cost of doing business. These recommendations include: • Promotion of sharing of infrastructure by banks. • Fast tracking of the on-going modernization of the Lands and Companies Registries to facilitate quicker collateral process. • Establishment of a legal framework for creation of an electronic moveable assets register. • Enhanced financial services consumer protection and education. • Ensure that Government borrowing does not crowd out private sector as well as adopting alternative sources of funding such as sovereign bonds. (This has been done with success). • Fast tracking capital markets reforms to make capital markets more efficient and attractive alternative sources of long term funding. • Facilitate lines of credit for large housing development projects targeted at lower income buyers for owner occupation. These recommendations are at different levels of implementation. Ladies and Gentlemen: Integrity and sanctity of information shared under the credit information sharing mechanism and building information capital are critical in promoting confidence in the mechanism. Once individuals and participating entities are assured of sanctity of the mechanism, application will increase and more innovative ideas will be shared to enrich the mechanism. This is the reason why consumer protection measures under the CIS mechanism were strengthened under the revised Credit Reference Bureau Regulations, 2013 that became operational in February 2014. In the same vein, I urge Metropol CRB and other CRBs to ensure that their value add products are introduced within the same precincts of consumer protection. Any blot on consumer confidence may ruin a noble cause that has taken several years to establish. BIS central bankers’ speeches Ladies and Gentlemen: As I conclude, it is worth noting that we are yet to reach the optimal level in credit information sharing. There are still several credit providers who currently are only able to contribute data but cannot access credit reports directly. We need to bring all financial sector and non-financial sector credit providers into the ambit of the CIS mechanism. The Central Bank will continue to support market development and market players in the development of an all-encompassing CIS mechanism. This will undoubtedly increase the supply of credit to the private sector to support Kenya’s growth and development as envisaged under Vision 2030; but more importantly, increasing supply must go hand in hand with declining and appropriate pricing of this credit. But above all this credit must be destined to productive sectors of the economy to make a difference to an allinclusive growth. With these few remarks, Ladies and Gentlemen, it is now my distinguished honour to declare the Metropol CRB Consumer and SME Bureau Scores officially launched. Thank You. BIS central bankers’ speeches
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Remarks by Prof Njuguna Ndung'u, Governor of the Central Bank of Kenya, at the opening ceremony of the international conference on "Revolutionising finance for agricultural value chains", Kenya School of Monetary Studies, Nairobi, 15 July 2014.
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Njuguna Ndung’u: Revolutionising finance for agricultural value chains Remarks by Prof Njuguna Ndung’u, Governor of the Central Bank of Kenya, at the opening ceremony of the international conference on “Revolutionising finance for agricultural value chains”, Kenya School of Monetary Studies, Nairobi, 15 July 2014. * * * His Excellency, Hon. William Ruto, Deputy President of the Republic of Kenya; Her Excellency, Tumusiime Rhoda Peace, Commissioner for Rural Economy and Agriculture, African Union Commission; Hon. Akinwumi Ayodeji Adesina, Minister for Agriculture and Rural Development, Nigeria; Mr. Henry Rotich, Cabinet Secretary for The National Treasury; Mr. Felix Koskei, Cabinet Secretary for Agriculture, Livestock and Fisheries; Honourable Ministers; Ambassadors; Development Partners; Fellow Governors and Deputy Governors of Central Banks; Distinguished Ladies and Gentlemen: It gives me great pleasure, on behalf of the Central Bank of Kenya, the Kenya School of Monetary Studies and on my own behalf, to welcome you to Nairobi and to this Conference on “Revolutionising finance for agricultural value chains”. I would, like, first of all, to recognize the role of the Technical Centre for Agricultural and Rural Cooperation for African Caribbean and Pacific countries (CTA) in bringing together the stakeholders in agricultural and development finance to discuss this highly important development agenda. The Conference seeks to share experiences on innovative models of financing agricultural value chains and to further explore opportunities and challenges in expanding financial inclusion to rural households. The objective of this conference is very much in line with the development goal of promoting inclusive growth and the facilitative role of the financial sector in achieving this goal. The presence of His Excellency, the Deputy President of the Republic of Kenya in this opening ceremony, goes to show the commitment of the Kenyan Government to the inclusive finance and growth objective. Your Excellency, Ladies and Gentlemen; Evidence shows that much of the gains in growth experienced in Africa in recent decades have largely been driven by efficiency gains and not due to new investments in the productive sectors. Achieving the growth targets envisioned in our national development objectives such as Vision 2030, would therefore require unlocking the bottlenecks to growth. These include among others, increasing savings and investment; improving the business environment; closing the infrastructure gaps; reducing telecommunications costs; and formalizing the informal sector. In the last few years, Kenya has made great strides in unlocking some of these bottlenecks in the financial sector. Innovations in technology that enable ICT-empowered financial services platform coupled with conducive regulations have led to a large proportion of the previously unbanked population to be mainstreamed in the formal banking system. Central banks in the region are committed to improving access to financial services and products to a much larger number of individuals and small businesses because it is good for management of both monetary policy and the stability of the financial system. BIS central bankers’ speeches Your Excellency, Ladies and Gentlemen; the overall objective of this Conference is to promote the development of smallholder and agri-business inclusive finance. To this effect, the Conference brings together: 1. Financial institutions to learn about innovative financial tools and products; 2. Farmers organisations that will help solve their members’ financial challenges; 3. Central banks, Ministries of Finance, agriculture and other government agencies seeking to discover how to develop and strengthen an enabling environment, that will enhance financial access and unlock agricultural growth in their respective countries; 4. ICT developers willing to showcase their agri-finance innovations and build a strategic network; 5. Development practitioners and the academia who will share their experiences, get acquainted with new developments and challenges, and strike new partnerships. Your Excellency, Ladies and Gentlemen: Banks all over the world are concerned with risk mitigation and appropriately pricing these risks. This is more pervasive in the agricultural sector. This forum seeks to address these issues by sharing experiences of innovations that are aiding banks, insurance companies and other financial institutions to safely reach out to such sectors and sub-sectors in sustainable ways. This is the model we would like to learn and enact in our economies. With these remarks, ladies and gentlemen, it is my honour and duty to once again welcome you all to the Kenya School of Monetary Studies, and to our international guests, we feel very honoured to host you. I now wish to invite the Chairman of AFRACA to give his remarks. Thank you. BIS central bankers’ speeches
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Keynote address by Professor Njuguna Ndung'u, Governor of the Central Bank of Kenya, at the dissemination of the Kenya Financial Diaries, Nairobi, 12 August 2014.
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Njuguna Ndung’u: Dissemination of the results of the Kenya Financial Diaries, 2014. Keynote address by Professor Njuguna Ndung’u, Governor of the Central Bank of Kenya, at the dissemination of the Kenya Financial Diaries, Nairobi, 12 August 2014. * * * Distinguished Guest; Ladies and Gentlemen: It is my honour and pleasure to join you during this breakfast event to disseminate the results of the Kenya Financial Diaries, 2014. This is a commendable and timely study by the Financial Sector Deepening Kenya aimed at understanding behaviour of the consumers of financial services in the country. By focusing on low income peoples’ lives the findings of the Diaries will help policy makers, industry players, researchers and others to better understand the challenges faced by low-income groups and recognise new opportunities to develop appropriate interventions and financial service options that better meet their needs. As you will recall, towards the end of last year, we launched the results of the FinAccess National Survey, 2013, and early this year, we launched the FinAccess Geographic Information System (GIS) Mapping of all financial access points results carried out by the Financial Access Partnership (FAP) that include both Central Bank of Kenya (CBK) and Financial Sector Deepening (FSD), Kenya. I am therefore happy to see that FSD Kenya has taken the initiative to also commission the Kenya Financial Diaries, 2014. This is very complementary to the other regular studies that we have undertaken together, like FinAccess surveys. It will help the researchers on financial sector issues more deeply understand what is behind the trends that we see in FinAccess surveys and uncover new opportunities to push the financial inclusion frontier in Kenya further. The information is equally critical for informed decisions by consumers of financial services. Ladies and Gentlemen: In line with Vision 2030, we have transformed the financial sector into a dynamic and growth pulling sector. But the goals set by Vision 2030 have not yet been achieved, although we are confident to achieve them. These goals will be achieved by addressing the Vision’s three core objectives, namely: enhancing financial system stability, efficiency, and expanding financial access to all Kenyans. The Financial Diaries give us an opportunity to consider these issues of stability, efficiency and inclusion in a very different light, through the eyes of low income Kenyans, and in many ways it shows us that those goals for financial sector are really quite intertwined. Financial inclusion is important to the Central Bank because of its impacts on the economy at large as well as its potential to improve the lives of the poor. When the majority of the population has access to and use of quality and affordable financial services and products, it fuels the national savings/ investments cycle, thus allowing for capital accumulation and asset building, which enables the poor to escape the poverty cycles. When the poor have secure savings, it reduces their vulnerability to periodic economic and social shocks. Increased access to and use of finance will expand the number of participants in our financial system and so lower the unit costs. None of these are trivial impacts. Ladies and Gentlemen: This morning marks a major milestone as we ruminate on the implications of this important Financial Diaries study results. I would like to highlight four key findings that I believe have particular bearing on the advancement as well as development of the financial sector in Kenya. • The first is that the financial lives of the poor are incredibly dynamic and complex. We have all observed this, in our families, estates and communities, but BIS central bankers’ speeches here we see complexity quantified. The median household has not one income source, but 10 separate income sources! Hence, expanding access to financial services is not just about what I’m calling the 3Ps: Presence, Price and Pushing, but also about relevance and fit with the needs of clients. Technological innovations have helped us dramatically increase access and usage in Kenya. Getting to the next level of application – and application that is meaningful for all Kenyans – is going to require a new generation of financial services and service improvements that meet the real needs of markets and people. When we see the diversity and number of financial devices that Kenyans are using and continue adapting, we can see that they are willing to try new solutions. This is a good reception to the dynamic solutions coming to the market. The results also highlight important gaps in current offerings in our market, while also giving us a much deeper understanding of peoples’ earning and spending patterns and behaviour. I hope that these rich insights inspire some creative thinking by the private sector players to tackle product relevance challenge and consider some new approaches to the low income market. • Second, the results makes it clear that financial devices play a very important role in helping poor people meet their basic needs and invest in the future. Reading the study report, we see how taking a loan from a local bank, one father was able to help his daughter get treatment that she needed after a miscarriage. We see how the credit facilities that schools extend to parents over the course of a school year enables poor parents stretch their budgets and afford this major investment in their children’s future. This also enhances the family capacity for the future. Indeed, financial services are making themselves present at every turn for these families. Finance is not a luxury, but absolutely a necessity in poor people’s lives, just as surely as it is for everyone. That is why when we look at the range of needs, we can focus on the pricing to make it sustainable and enlarge the market. • Third, poor Kenyans are in fact saving, but they are choosing to hold most of that savings in informal financial devices e.g. rotating group saving and lending. Few other studies are able to tell us about money that Kenyans are holding in informal financial devices, and one of the great values of the Financial Diaries is that it gives us this more comprehensive portfolio view especially as regards the mix of savings in banks and durable goods. As you know, the Central Bank is very concerned about savings. We know that achieving growth as a nation requires that deposits be available for productive investment. We expected that increasing the savings rate here in Kenya is about getting our people to save more. But, we also know that this will be enhanced after a particular threshold of income is achieved and surpassed. The Financial Diaries report suggest that we may need to explore that more. Perhaps in addition to saving more, we also need to save differently. In the Diaries households, only 9% of financial assets are being held in the formal financial sector and the balance in the informal segment. The authors of the report also point out that getting this kind of informal to formal shift is going to be difficult when savers want to see their money working. One advantage of the informal financial sector, that is, the non-organised non-institutional sector and in SACCOs and some MFIs is that savings are more visibly deployed among other group members and in one’s own self. It is visibly doing a job, and that can be harder to see when returns on savings are low and the investments those savings finance are not immediately visible. I have no easy answer about how Kenya’s financial sector can address this challenge, but it is an important insight that we need to understand better. How can BIS central bankers’ speeches we show people that their savings in the formal financial sector are in fact working? How can we improve the proportion of saving in formal institutions alongside the informal institutions that are already working for people and helping them accomplish many of their financial goals? This demonstrates the need to create appropriate incentives to save for the poor. • Finally, this study results also suggests that it’s not just the proposition or service offering that is inhibiting growth in use or application by the poor in formal institutions, but also the service experience. Bank clients are reporting losses in their formal accounts and they do not always understand the cause and nature of the loss because of breakdown in the communication of costs and fees. The breakdowns in service quality that these respondents experience help us understand why the banks are not always the preferred destination for poor people’s savings. I believe there is much more that formal providers can do to improve these service experiences and earn the utmost confidence and trust of potential and current clients. The Central Bank has already taken strides to encourage greater transparency and accountability in pricing of financial services to foster effective competition. We will continue to do so, and, if I can make a prediction, I would expect to see more providers in the future competing with one another on the quality of their service as well as pricing their financial services as we move into the future. This study results shows us just how thoughtful, active, and discerning consumers in our market can be, and they will continue to vote for their preferred providers with their feet and their money. I appreciate these findings and look forward to seeing how various financial service providers begin to incorporate these important insights into their operations and product developments. This is how we can target that 25 percent or so of the population still excluded from the financial sector. I encourage all of you to read the report and take advantage of opportunities that FSD Kenya offers to engage more deeply with the content in ways that are specific to your businesses. This is tremendously a valuable new resource for all of us working in the financial sector in Kenya. Let me take this opportunity to thank FSD Kenya again for sponsoring this study and hosting this breakfast event and also acknowledge Digital Divide Data Kenya and Bankable Frontier Associates for their commendable job in executing the research and preparing the report that we are witnessing today. With these few remarks, Ladies and Gentlemen, I welcome you to this breakfast event. Thank you. BIS central bankers’ speeches
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Remarks by Professor Njuguna Ndung'u, Governor of the Central Bank of Kenya, at the opening of the KBA 3rd Annual Banking Research Conference, Nairobi, 25 September 2014.
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Njuguna Ndung’u: Putting banking at the centre of the economy’s sustainable growth Remarks by Professor Njuguna Ndung’u, Governor of the Central Bank of Kenya, at the opening of the KBA 3rd Annual Banking Research Conference, Nairobi, 25 September 2014. * * * The Chairman, KBA Governing Council; Members of the KBA Governing Council; Banks’ Chief Executive Officers; Distinguished participants; Ladies and Gentlemen: It is my honour and pleasure to join you this morning at this very important Conference that focuses on the role of the banking sector in the economy’s growth. It is therefore my singular pleasure to be invited to open the KBA Third Annual Banking Research Conference and to make some remarks at its commencement. First and foremost, I would like to commend the KBA for its consistency in hosting the Annual Banking Research Conference. This is further evidence that the banking industry is keen on having its operations and strategic focus informed by analytical work. This being the Third Annual Conference, the body of knowledge that the process has generated is without a doubt going to be beneficial to all stakeholders. Research and its output is a “public good”. The broader benefits arising from knowledge cannot be restricted to those who have a direct interest in the research. Research that improves the policy environment benefits all and indeed the economy at large. This year’s Conference theme of “Putting banking at the centre of the economy’s sustainable growth” is an example of this point. Several papers focusing on finance and economic growth have confirmed the causal relationship. It is on that basis that I consider this Conference’s theme on sustainability of this relationship to be inspiring, given that it provides an opportunity for deeper reflection taking us beyond the general finance – growth nexus. The Kenyan economy has an ambitious real output growth target of at least 10 percent to enable the realization of the aspirations of Vision 2030. The high and sustained growth targets will only be achieved through increased investment and increased productivity. The Banking industry must intermediate and provide the funding required for the investment but even more important is long-term finance with attractive terms. Ladies and Gentlemen: The presentations lined up for this Conference give me confidence that we are embarking on a conversation that will lead to the consolidation of the gains to the economy from the dynamism of the banking industry. Let me make a quick reflection over the five areas around which the Conference presentations focus; • Firstly, increasing support for agriculture is important and in the right direction. This is because the agricultural sector – the leading contributor to the economy’s output, to direct and indirect employment, and to export earnings – does not attract as much bank credit as it requires. The importance will be supported by tangible solutions for financing agriculture. • Secondly, sustainable development is a very important subject today. A market-led process that will culminate in the development and adoption of sustainable finance principles must be backed by research. Sustainability in this case must also look at BIS central bankers’ speeches the investments supported by the banking sector and their outcomes to growth. This also looks at boom-bust cycles. • Thirdly, the interactive dynamics of the banking industry and housing development is a further area that touches on both commercial and social interests of households. Facilitation of home ownership needs to be seen beyond mortgage financing, which is only a demand side remedy; there are a host of supply side constraints some of which are financial in nature while others are non-financial – both sets require critical examination. But more important are the macro-prudential indicators and property boom we have seen. • Fourthly, a credible measure that tracks the changes in housing prices is very important. Our mandate at the Central Bank, particularly as the Monetary Policy Committee, of ensuring stability in the economic system necessitates that we look at all the key markets and track price evolution beyond inflation dynamics; the foreign exchange market is always on our radar, given that its policy management is under our purview; we are also able to track price evolution in the securities market. Given that instability could emerge from the housing market, making it imperative that we have a price tracking measure that can stand the test of scrutiny and therefore can be relied upon to identify any early signs of volatility from that segment of the economy that easily proliferates to other sectors, as has been proved internationally. It is gratifying therefore, that the KBA desires to have a housing price index that will fill this gap. We need to move away from the thinking of a bubble in the market and especially property prices driven on one hand by a supply constrained market, and on the other hand a transitioning demographic structure. • Fifthly and finally: a revisit to the dynamics of credit demand for the private sector, its drivers and whether there are international dimensions that influence the domestic credit market is interesting. This is an area that is at the heart of the finance-growth nexus. Beyond the policy interest of determining how credit affects aggregate demand, a clear understanding of what motivates the private sector to seek bank credit enables the industry to react in a timely manner. And by identifying constraints, it can propose modalities for overcoming them. At the top in this agenda is to link it to investment. Is our investment constrained by credit? We need to know more. Ladies and Gentlemen: The body of research work arising from the Conference’s theme will obviously not be definitive; but it will surely provide a good platform for reflection on the many ways through which the banking industry is readying itself towards further enhancing its role in the economy’s progress. There is also a possibility that ideas will emerge which have a quick response that can be put into practice in the short run; furthermore, there is an opportunity to pick areas for further investigation. I am confident that the banking industry, that has remained stable on the back of the steady growth seen over the past decade, will continue to play an important role in supporting the various economic sectors through provision of credit. With an asset base of Ksh.2.70 trillion as at the end of December 2013 compared to Ksh.2.33 trillion as at the end of 2012, the industry is clearly maintaining the growth path. Similarly, customer deposits grew by 14 percent in the period from Ksh.1.71 trillion to Ksh.1.94 trillion. The banking industry’s asset growth of 16 percent between 2012 and 2013 at a time when the economy’s real growth rate was less than 5 percent points to the possibility of the acceleration of the growth momentum emanating from finance. That growth will be accelerated once the overall cost of doing business that is being addressed, declines. This will ensure that the underlying asset quality accompanying the growth in the banking industry remains good. As a country, we are making strides in ensuring that financial inclusion is enhanced. The FinAccess 2013 survey results revealed that Kenya’s financial inclusion landscape has undergone considerable improvement. The proportion of the adult population using different BIS central bankers’ speeches forms of formal financial services was at 66.7 percent in 2013 compared to 26.4 percent in 2006. This is a notable achievement. The proportion of the adult population totally excluded from financial services has declined to 25.3 percent in 2013 from 38.4 percent in 2006. Similarly, the proportion of Kenyans accessing informal financial sources dropped from 35.2 percent in 2006 to 7.8 percent in 2013. This is a reflection of the positive outcomes of policy initiatives by the Government and the Central Bank as well as the initiatives of the financial sector players and their innovations. There is scope for further deepening of the financial sector, and especially the banking industry, and as a result, this will lead to further financial inclusion. Even with the industry’s assets looking impressive at the levels I highlighted earlier, they still remain below 50 percent of our GDP. Economies that have achieved higher levels of development, accompanied by high levels of financial inclusion have a higher banking assets to GDP ratio, with some well over 100 percent. With the level of innovation and dynamism in our banking space, there is no reason why we cannot aspire to be like those economies and grow our assets with strong banks and a strong policy drive to financial inclusion for financial development. I see research being at the centre of such growth. As a researcher myself, I know that collaboration will remain core. I commend the KBA for seeking collaboration with other institutions, among them the Central Bank, in its research efforts. I see that collaboration in this research Conference manifested in the diversity of paper authorship. I look forward to seeing the Conference papers reviewed and put in the public domain so that the intended purpose of promoting an idea-based engagement is realized as well as development based on a certainty policy path. With those remarks, I declare this Conference officially open, and wish all the participants fruitful engagements over the next two days. Thank you for your kind attention. BIS central bankers’ speeches
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Remarks by Professor Njuguna Ndung'u, Governor of the Central Bank of Kenya, at the Association Cambiste Internationale (ACI) Markets Information Sharing Forum, Nairobi, 17 September 2014.
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Njuguna Ndung’u: The Kenyan fixed income market (primary pricing) and the role of secondary market and automation for market integrity Remarks by Professor Njuguna Ndung’u, Governor of the Central Bank of Kenya, at the Association Cambiste Internationale (ACI) Markets Information Sharing Forum, Nairobi, 17 September 2014. * * * Distinguished Delegates, I am delighted by the invitation to speak to members of the ACI during today’s market information sharing forum. I do acknowledge that the Forum brings together key market players and interested parties, both from the African continent and beyond to share experiences and discuss important issues relevant to financial market development. Ladies and Gentlemen: I will speak about the Kenyan fixed income market (primary pricing) and the role of secondary market and automation for market integrity. Bond markets have always played a key role in financial markets globally; in fact bond markets are seen as the backbone of financial markets all over the world. Bond markets provide governments and corporate entities with funds for investments and grow the economies, provide investment vehicles for asset managers and provide a basis for evaluating other market products. For us here in Kenya and Africa in general, it is the market for long term finance. The impact of the recent global financial crisis and the subsequent downturn in developed countries’ economies and yields shifted investors to review other options such as developing and emerging markets. We need to position our markets strategically in order to take advantage of these options. By playing close attention to developments in both local and overseas financial markets we can innovate ways that will place our markets at the forefront of the emerging markets. Over the past decade, Kenya has witnessed tremendous growth and diversification of the financial system especially in the fixed income securities market. This began in 2001 when the Central Bank re-launched the Treasury Bonds programme. At that time the proportion of Treasury Bonds to Bills was heavily skewed in favour of Treasury Bills at the ratio of 1 to 3 (24% bonds to 76% bills). The aim of the programme re-launch was to restructure the domestic debt portfolio to lengthen the maturity profiles. In 2001, a consultative forum was set up comprising of Key players from the financial sector. The forum, known as Market Leaders Forum was meant to achieve the following objectives; firstly, Marketing of Government Securities through direct linkage with potential investors. Secondly, consult with the Central Bank and Government (Treasury) on various developments in the debt and money markets that have direct bearing on the performance of the new issues. Lastly, propose suitable debt instruments to diversify the range of securities available to investors and to deepen the financial markets as a way of entrenching financial stability. Over the last decade, the Market Leaders Forum has successfully achieved these objectives and continues to set bolder targets for the development of our bonds market. In partnership with various players in the financial system including the Nairobi Securities Exchange, Capital Markets Authority, the National Treasury, KBA, pension funds and stock brokers, we have managed to achieve the following: • Establishment of Benchmark Bonds Portfolio: Through this partnership we have managed to defragment outstanding securities issues by creating liquidity around the selected benchmark tenors leading to development of a firm and reliable yield BIS central bankers’ speeches curve. Benchmark bonds are currently available in maturities of 2, 5, 10, 15, 20, 25 and 30 years. • The Pension sector reforms implemented over the last 10 years have supported the absorption of these bonds. • The Kenyan capital market has gained from the benchmark bonds program in the following ways: – Promoted price discovery for issuers of government securities as well as corporate instruments and investors. – Reduced bond market fragmentation problem (in terms of bond types, tenors, small volumes) – Stimulated robust secondary trading of bonds through increased liquidity around benchmark tenors. – Provided reliable investment choices to investors. – Lengthened the yield curve as benchmark for pricing other financial products. – Facilitated development of other financial market facilities including infrastructure bonds which have been tapped to finance mortgage facilities and long term development projects. b. Refinancing Risk in Domestic Debt Managed – the average maturity profile of government domestic debt rose from 8 months in 2001 to 7 years in August 2014. The ratio of T-bills to T-bonds evolved from a ratio of 4:1 in 2001 to 1:3 in August 2014. With a functioning secondary bond market in place, the Government doesn’t face any significant rollover risks in its domestic debt. c. Financing Kenya’s Development Budget; Building on the success of the debut Infrastructure Bond issued in February 2009, the Bank raised Ksh.32.9bn in the FY 2009/10 and Ksh.30.6bn in the FY 2010/11 through sale of Infrastructure Bonds to fund key infrastructure projects in the Roads, Energy and Water Sectors. d. Market Diversification: As a result of the success of the IFB programme of the central government, big corporate issuers such as KenGen, Safaricom, some commercial banks and mortgage firms have taken advantage of the growing bond market to raise longterm resources to finance their capital projects. In FY 2011/12, the infrastructure bonds programme constituted 30% of total annual funding from domestic borrowing. e. Horizontal Repurchase Transactions (Horizontal Repos) – In September 2008, the interbank repo backed by government securities as collateral was rolled out to facilitate liquidity re-distribution among commercial banks. However, uptake has not been vibrant, but the CBK is working on modalities that will resolve market constraints so far raised by participants. f. Revamping of Bonds Trading in the Secondary Market: Secondary trading is a key channel for re-pricing of securities to provide updated or current benchmarking prices for use in valuation of other securities. This is where the market yield curve is refined. It also provides securities access to many investors who do not make purchases at the primary market. g. Lengthening the Yield Curve: To minimize rollover risks and at the same time provide a benchmark for pricing long term capital, the CBK issued a 30-year bond, the longest security tenor in the region. The bond issued in February 2011 has actively been at the Nairobi Securities Exchange. We called it “Savings and Development bond” to encourage small savers to invest in it and use it as collateral. The Bond was re-opened in August to boost its size, encourage secondary trading and refine the yield curve. BIS central bankers’ speeches With the adoption of the Automated Trading System (ATS) in November 2009 and increased liquidity of benchmark bonds, turnover at the NSE improved from Ksh.108bn in 2009 to Ksh.401bn for the period July 2013 to June 2014. In addition, reduced settlement time using the Kenya Payments and Settlement System (KEPSS) infrastructure delivery versus payment transaction mode (DvP), has ensured efficiency of trading transactions, price discovery and security. This has resulted in improved market confidence in securities trading and increased demand for securities in primary auctions. Those are some of the milestones we have realized through the Market Leaders Forum and in partnership with other players. But this is not to say there are no challenges As I mentioned during the MLF annual dinner in July this year, the MLF has midwifed the emergence of the Kenya Government securities market as the most sophisticated in SubSaharan Africa, second only to the South African market. We are however, now faced with two challenges of dealing with bullet maturities and need to smoothen the redemption profile. Over the Counter Trading (OTC) is not in place though the Capital Markets Authority (CMA) is working on modalities to enable bonds to trade outside of the exchange. Foreign investors hold about Ksh.80bn of total local currency outstanding Government securities. We have been more successful in issuing large volumes in infrastructure bonds than in the conventional benchmark bonds. Ideally, we would have wished to issue at least one bond of each benchmark tenor once in a year to keep on refreshing pricing of money for every tenor along the curve. But to cope with market developments and institutional reforms, we need MLF reforms It is therefore imperative to set up a body that will provide more informed and objective decisions on securities issuance to support not only the annual borrowing program of the National Treasury in line with the rolling national Medium Term Debt Strategy and to support the strategic domestic debt market development that this economy can conveniently tap into in decades to come. MLF can position itself as an adviser to the National Debt Office. Access to government securities As many of you are aware, we have made access to Kenya Government securities easy for anyone, including corporates and individuals, both local and non-resident. All that an investor needs to do is to register a Government securities CDS account at any Branch of the Central Bank of Kenya or through authorized Agents. The details of this are available in the Central Bank of Kenya Website. In spite of these milestones, a lot more remains outstanding or even unexplored. The level of automation for auction management and dissemination is still below best practice. We have neither provided alternative securities trading forums for bonds investors nor clear avenues for sharia compliant securities. The Securities market integration is still far from optimal and market indexation is not elaborate enough to attract foreign capital. It is however, encouraging to see programmes that identify strategies for deepening the local securities markets in the region by way of sensitization and capacity building support. My hope is that as we deliberate on the relevant emerging issues and as we learn from shared experiences, we will work out innovative solutions that we can adapt in our respective financial systems. As has been rightly pointed out, it will take us, Africans to develop Africa; we have to develop our markets for these markets to serve us efficiently. Thank you very much for your attention. BIS central bankers’ speeches
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Remarks by Professor Njuguna Ndung'u, Governor of the Central Bank of Kenya, at the launch of the Strategic Plan for the Association of Kenya Credit Providers (AKCP), Nairobi, 27 October 2014.
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Njuguna Ndung’u: Promoting access to affordable credit in Kenya Remarks by Professor Njuguna Ndung’u, Governor of the Central Bank of Kenya, at the launch of the Strategic Plan for the Association of Kenya Credit Providers (AKCP), Nairobi, 27 October 2014. * * * Mr. Charles Ringera, Chairman, Association of Kenya Credit Providers; Mr. Habil Olaka, Chief Executive Officer, Kenya Bankers Association; Mr. Benjamin Nkungi, Chief Executive Officer, Association of Microfinance Institutions of Kenya; Association of Kenya Credit Providers Governing Council Members; Chief Executive Officers of Credit Reference Bureaus, Microfinance Banks and Development Finance Institutions; Commercial Banks, Representatives of IFC, FSD Kenya and USAID FIRM; Members of the Press; Distinguished Ladies and Gentlemen; Good morning... It is my honour and pleasure to join you this morning to launch the Association of Kenya Credit Providers (AKCP’s) 2015–2019 Strategic Plan. As you may recall, almost exactly one year ago, AKCP was officially launched in this same room. Today marks the start of AKCP’s concrete journey of providing a solid platform through which all credit providers in Kenya can actively engage in the pursuit of a comprehensive and all-embracing credit information sharing mechanism. Ladies and Gentlemen: The success of any entity depends on its strategic orientation. I applaud AKCP for moving with speed to develop a five year strategic plan that maps out its priority focus over the period. The main mandate of AKCP is to promote the development of an effective functioning Credit Information Sharing (CIS) mechanism in Kenya. I note with appreciation that the strategic priorities identified for the five years including: Institution Building, Legal Reform, Capacity Building, Communication & Awareness and Knowledge Generation, are all relevant for AKCP to kick-start the process of strengthening the CIS mechanism in Kenya. This has well defined its place in the financial ecosystem in Kenya as well its viability and sustainability. Ladies and Gentlemen: The rate of a country’s economic growth is driven by investments and these investments are largely dependent on the ease with which productive enterprises access funding to transform their viable ideas and opportunities into productive ventures. That is why I am proud to be associated with AKCP’s tag line: “Towards a more open credit market” because with more transparent credit markets, investors are able to easily access affordable funding. As a result of implementation of several innovative initiatives and reforms in Kenya’s financial sector including introduction of the CIS mechanism, the sector has recorded improved efficiency. Similarly, formal financial inclusion has been on an upward trend from 26.4% in 2006 to 66.7% in 2013. Consequently, financial stability has been strengthened through the enhanced credit risk management systems as well as the improved economic conditions. Despite this progress, the current level of private sector credit in Kenya of about 40% of Gross Domestic Product is still far below the levels recorded in comparable emerging economies such as Malaysia, South Africa and Mauritius. The main factor cited as impeding private sector credit in Kenya is high lending rates, that can be dealt with through concerted BIS central bankers’ speeches efforts of all players in the sector. With AKCP bringing together several categories of credit providers, its voice on this issue and the technology to provide sustainable solutions should be loud enough. Ladies and Gentlemen: As you may be aware, a high level Committee was established under the leadership of the Cabinet Secretary to the National Treasury in January 2014 to explore ways of increasing the supply private sector credit and mortgage finance in Kenya. The main focus of the committee was to make proposals for transparent pricing that should allow competition and movements in the market and thus lower lending rates commensurate to returns on investments as well as reduce the risk profile and premium loaded to market participants. The committee finalized its task in April 2014. Among the recommendations made by the committee was the introduction of a transparent pricing mechanism, where all banks price their loans based on a common reference rate, the Kenya Banks’ Reference Rate (KBRR). KBRR became effective on 8th July 2014 and borrowers are now able to compare lending rates across banks. Prior to this, every bank had its own base rate, whose composition was not known to the borrowers and so not comparable. Banks are now required to explain to their customers and the Central Bank the composition of the premium (k) they charge above the KBRR. The Central Bank will shortly start to periodically publish, on its website, the details of the premiums (k) obtained through returns from banks. This will promote transparency and competition in the pricing of credit. This is one of the avenues of increasing credit to the productive and profitable sectors of our economy. Ladies and Gentlemen: Credit Information Sharing (CIS) plays a critical role in enhancing credit to the private sector. It enables credit providers to undertake effective credit risk assessment based on the available credit histories whereas the borrowers are able to negotiate for better credit terms based on their good credit histories. Since the rollout of the CIS mechanism in 2010, commercial banks and microfinance banks had requested more than 4.8 million credit reports from the two licensed credit reference bureaus as at 30th September 2014. The borrowers have on the other hand accessed 77,422 credit reports over the same period. As the full-file sharing introduced in February 2014 takes root, the usage of the CIS mechanism will continue increasing. Ladies and Gentlemen: As already alluded to, the establishment of AKCP was informed by our desire to optimize the benefits of the CIS mechanism. This is only possible when most of the credit providers are participants. That is why AKCP’s initial task is to recruit credit providers who are not yet members of the Association. We all appreciate that most Kenyans are multi-borrowers and their credit reports can only be complete if all credit providers participate in the CIS mechanism. A wider membership of AKCP enhances a quick optimization of the benefits to be derived from the CIS mechanism. This is only possible when an encompassing regulatory framework for all credit providers, both regulated and nonregulated, is developed. This is the other main task for AKCP. Ladies and Gentlemen: When CIS was launched, the only products on offer were basic credit reports. However, the introduction of full-file credit information sharing in February 2014 enabled credit reference bureaus to introduce value added products such as credit scoring. Credit scoring not only enriches the value of credit reports to the lenders but greatly improves the lenders credit risk management. Credit scores will help borrowers to know their risk profiles and how their loans will be priced. Credit scoring will also go a long way to complement the Kenya Banks Reference Rate (KBRR). This is because credit scores will form an objective basis for credit providers to determine the risk premium to be charged above KBRR. Ladies and gentlemen: As I conclude, I challenge all players represented here today to closely work with AKCP to ensure the realization of its strategic objectives. As identified in BIS central bankers’ speeches the Government Report on Increasing Private Sector Credit and Mortgage Finance in Kenya, CIS has an important role to play in promoting access to affordable credit. The report encourages full implementation of the Credit Reference Bureau Regulations 2013 as well as the expansion of the mechanism to non-banks. In order to ensure sustainability of this new Association, I urge all potential members to support AKCP via membership subscriptions and other avenues as well as also to engage actively through the committees that constitute its governance structures. With these few remarks, Ladies and Gentlemen, it is my pleasure to declare the Association of Kenya Credit Providers (AKCP’s) 2015–2019 Strategic Plan officially launched. Thank You BIS central bankers’ speeches
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Remarks by Professor Njuguna Ndung'u, Governor of the Central Bank of Kenya, at the National Digital Registry Service Financial Services Sector Consultation, Nairobi, 23 October 2014.
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Njuguna Ndung’u: The importance of digital identity to Kenya’s financial sector Remarks by Professor Njuguna Ndung’u, Governor of the Central Bank of Kenya, at the National Digital Registry Service Financial Services Sector Consultation, Nairobi, 23 October 2014. * * * Ms. Mwende Gatabaki, Director General, Kenya Citizens and Foreign Nationals Management Service; Mr. Joshua Oigara, Chairman, Kenya Bankers Association; Mr. Habil Olaka, Chief Executive Officer, Kenya Bankers Association; Distinguished Ladies and Gentlemen; I am delighted to be here today at this important consultative meeting on the National Digital Registry Service to the financial services sector. I am grateful for the invitation and at the outset let me register the Central Bank of Kenya’s support for this important initiative. Ladies and Gentlemen: The national digital registry has three core objectives:• Strengthening national security, reducing crime and improving safety. • Driving efficiency, effectiveness and accountability in service delivery. • Providing citizen centric services that are easy to access, available and affordable. More fundamentally, the register will capture details of people, land, assets and establishments. These are important objectives but of fundamental importance to the financial sector is the provision of a digital identity for individuals and corporate entities. Identity is a prequisite for the stable, efficient, safe and inclusive financial sector that is envisaged pursuant to Vision 2030. It is the process of identification and a host of menu services that can be included that makes an assurance of safety and accessibility of financial services. Without identity, individuals and corporate entities cannot access the financial sector. In Kenya, the use of the identification card has mitigated this challenge. However evolution in the financial sector and growth in fraud has posed serious challenges in the form of fraud perperated through identity theft. We need such a registry service as the repository institution for any verification and cross-checking. Ladies and Gentlemen: Most businesses in Kenya thrive in the informal market and lack the formal identity that is required to in particular access credit. These are mainly the small and medium size enterprises that drive Kenya’s economic growth. These businesses lack the formal identity or track record that is required to access credit. For these businesses to grow to the next level, it is imperative that they acquire a formal identity and a documented track record. Only then, will they be able to access credit and grow their business. But how do we make it easier for them to register formally? I leave this to this Registry Service. The Central Bank has in this regard been supportive of the Integrated Population Registry Service (IPRS). The IPRS has been a useful tool for financial institutions to validate the identity of their customers. We have asked all banks to utilise the IPRS in their Know Your Customer checks and mitigate fraud risk. The National Digital Registry will build on the IPRS and provide an even more powerful tool for the Financial Sector and especially for SMEs. The Central Bank therefore stands ready to support this important initiative and work with the financial sector to utilise it. Through the register, financial institutions will be able to meet the statutory legal and regulatory requirements for Anti-Money Laundering (AML) and BIS central bankers’ speeches Combatting the Financing of Terrorism (CFT) and the common frauds in banks that we see every day. AML/CFT has become an issue of global concern and mitigating measures are important to ensure the integrity of Kenya’s financial sector. Ladies and Gentlemen: Of importance also is the ease of access to credit. A central repository of personal and corporate information will facilitate banks in their credit risk appraisal. This should not only ease access to credit but also reduce the cost of credit given the lower search costs. Finally the register will also reduce the risk of fraud particularly identity theft and reduce the operational cost of fraud to the financial sector. These are but a few of the benefits of the national digital registry that I can enumerate and also stress that personal and corporate information and identification in the National Digital Registry Service is a major milestone in completing the financial infrastructure requirements in our country. I am sure that this will be a useful consultation forum and you can count on the Central Banks’ support and together we develop a stable and vibrant financial sector. Thank You. BIS central bankers’ speeches
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Remarks by Professor Njuguna Ndung'u, Governor of the Central Bank of Kenya, at the Anti-Money Laundering (AML) AMLOCK event, Nairobi, 28 October 2014.
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Njuguna Ndung’u: Brief remarks on Kenya’s Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) regime Remarks by Professor Njuguna Ndung’u, Governor of the Central Bank of Kenya, at the AntiMoney Laundering (AML) AMLOCK event, Nairobi, 28 October 2014. * * * Mr. Sandeep Khapre, Group CEO of BDO East Africa; Chief Executive Officers of Commercial Banks and other Financial Institutions; Distinguished Ladies and Gentlemen: I am indeed honoured to be with you at this important event convened by BDO and 3i InfoTech. Before I make my remarks allow me to thank the management of BDO for inviting me to this conference as a guest speaker. This event will showcase one of the globally known Anti-Money Laundering solutions “AMLOCK” which is offered by 3i InfoTech. I have also been made aware that AMLOCK has been implemented by more than 80 clients in over 20 countries across the globe that also includes some of the Kenyan banks. Ladies and Gentlemen; as you may be aware, Kenya’s Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) regime since June 2009 had been under review by the International Cooperation Review Group (ICRG). Kenya was initially referred to the ICRG for being a high risk area/jurisdiction and the absence of anti-money laundering and terrorist financing laws. Over time Kenya has addressed the deficiencies that led to the Financial Action Task Force (FATF) review process. Some of the measures that have been undertaken include: Enactment and amendments of the Proceeds of Crime and Anti-Money Laundering Act (POCAMLA), 2009 and its regulations – which among other issues provides for the criminalization of money laundering, establishment of an independent institution responsible for AML/CFT issues – the Financial Reporting Centre (FRC). The FRC’s objective among others includes assisting in the identification of proceeds of crime and the combating of money laundering. Enactment of the Prevention of Terrorism Act (POTA), 2012 and its regulations – which among other issues provides for the criminalization of terrorism financing and the mechanism for implementing United Nations Security Council Resolutions with regard to terrorism financing. In May 2014, Kenya underwent an onsite assessment by the Africa/Middle East Regional Review Group to ascertain the extent to which the country had addressed AML/CFT identified deficiencies. The onsite team observed that Kenya had a clear commitment at both the political and technical levels to continue the development of its AML/CFT regime and there was an adequate institutional framework to pursue the reforms going forward. Ladies and Gentlemen; it is on the basis of the on-site visit report that the FATF concluded that Kenya has established the legal and regulatory framework to address the strategic deficiencies that had been identified. In view of these positive developments, Kenya was subsequently removed from the FATF’s monitoring process under its on-going global AML/CFT compliance process. However, Kenya will continue addressing and improving on its AML/CFT regime under the Eastern and Southern Africa Anti-Money Laundering Group (ESAAMLG). Ladies and Gentlemen: On its part, the Central Bank has continually enhanced the regulation and supervision of the financial system in order to improve the sector’s integrity. As part of our efforts in ensuring appropriate and effective oversight, the Central Bank first issued AML Guidelines in 1996. These Guidelines were revised in 2000, 2006 and BIS central bankers’ speeches subsequently overhauled in 2012 to reflect the prevailing international best practice and to align them with the proceeds of Crime and Anti-Money Laundering Act, 2009 (POCAMLA). Ladies and Gentlemen; in 2013, FRC entered into Memorandum of Understanding (MOU) with the respective domestic financial sector regulators comprising the Central Bank of Kenya, Capital Markets Authority, Insurance Regulatory Authority and the Retirement Benefits Authority. The MOU provides for supervision and enforcement of POCAMLA by the supervisors with respect to institutions under their purview. The MOU also provides for the exchange of information that is necessary to support effective anti-money laundering supervision of financial institutions. Ladies and Gentlemen; money laundering and terrorism financing have far reaching implications on the credibility and stability of the financial system as well as to national security. I therefore applaud BDO and its partner 3i InfoTech for their pro-activeness in developing AML/CFT solutions. These solutions and others in the market will facilitate financial institutions in meeting their AML/CFT legal and regulatory requirements effectively and efficiently. This will in turn foster the integrity of Kenya’s financial sector putting it in good standing globally. With those few remarks I wish you fruitful deliberations. Thank you. BIS central bankers’ speeches
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Remarks by Professor Njuguna Ndung'u, Governor of the Central Bank of Kenya, at the launch of MPESA Moneygram Partnership, Nairobi, 5 November 2014.
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Njuguna Ndung’u: Enhancing the quality of financial inclusion in Kenya Remarks by Professor Njuguna Ndung’u, Governor of the Central Bank of Kenya, at the launch of MPESA Moneygram Partnership, Nairobi, 5 November 2014. * * * Mr. Bob Collymore – CEO Safaricom; Ms. Pam Patsley CEO – Moneygram International; Mr. Herve Chomel – Vice President Moneygram Africa; H.E. Robert Godec – US Ambassador to Kenya; Dignitaries; Distinguished Guests; Ladies and Gentlemen: I am pleased to join you today on this auspicious launch of Safaricom MPesa and MoneyGram International Money Transfer Partnership. It is a great honour to be here with you this morning. I thank the CEO and Management of Safaricom for inviting me to this occasion. Ladies and Gentlemen: I recall with pleasure back in 2009 when I witnessed the first partnership in international money remittance between Safaricom and Western Union. This created a much needed avenue for the safety of remittances and efficiency through easily accessible channels. And today, we are gathered here to celebrate another milestone in the deepening of Kenya’s financial sector. The partnership between Safaricom and MoneyGram International is not only an opportunity for Safaricom to satisfy the needs of its customers but also to contribute in enhancing the quality of financial inclusion. I commend the Board, Management and Staff of Safaricom and MoneyGram International for their decision to operationalise this partnership. This partnership will benefit both parties through expansion of network of outlets. As I continually to encourage and advocate, it is such partnerships that discover market opportunities and allow further competition to enlarge the space. As everyone attending this launch is aware, Kenyans have spread their reach worldwide in both business and in practising their professions. Kenya being a small open economy, it has liberalised its markets to promote and enhance growth. These professional and business people within and outside Kenya send substantial shares of their earnings to family members back home perhaps for consumption smoothing and investment. Ladies and Gentlemen, the mobile phone financial services sector in Kenya has experienced phenomenal growth since its inception in 2007. This sector is served by over 120,000 agents handling more than 2.5 million transactions daily valued at Ksh.6.3 billion. This partnership will expand opportunities for business and increase the global outreach to more than 90 countries and interlink more than 20 million customers in those countries already served by MoneyGram International. Innovations and partnerships in the mobile phone money transfer industry, as we are seeing today, have given impetus to access to financial services to Kenyans. Besides the revolutionary impact on financial systems, mobile phone technology has also provided access to services for the previously unbanked and created thousands of job opportunities. The provision of remittance services is a potentially effective method by which service providers can attract the unbanked for sending or receiving purposes. In this regard, it is an emerging market leadership platform to be consolidated for enhanced financial inclusion. Distinguished Guests: There has been tremendous growth in international remittances in recent years, a trend that is expected to continue as the World becomes increasingly BIS central bankers’ speeches interlinked. The World Bank estimated remittance flows to developing countries in 2013 to have amounted to USD414 billion, and projections to USD540 billion by 2016. In Kenya, the annual remittance inflows from Kenyans in the Diaspora, officially recorded from banks’ returns, rose from USD338 million in 2004 to USD1.3 billion in 2013. This is a commendable growth of more than 285%. These remittances, that are playing a vital role in supporting both consumption and investment needs of the recipients, have also become an important source of foreign exchange inflows to the country. Ladies and Gentlemen, the Kenya Government recognizes the role and importance of remittances in boosting economic development. In this regard, CBK has worked closely with stakeholders in the mobile phone money transfer industry in implementing regulatory reforms aimed at guiding the market to prosperity. The National Payment System Regulations 2014 were formulated and gazetted to guide mobile phone money transfers within the country while the Money Remittance Regulations 2013 have been operationalized to introduce standalone money remittance providers in Kenya. Previously all international remittances were made through commercial banks platforms. Ladies and Gentlemen: Despite the significant progress made in making remittance services accessible and efficient in Kenya, as in the rest of the developing world, there are still some challenges that we need to address. Chief among these are the high transaction costs, integrity of the services and need for effective competition. The practice has been to charge a fee for transfer and fix the exchange rate for the amount to be received. However, the question remains “How do we provide services for international money remittances at competitive costs?” To address this, CBK has approved partnerships between local financial institutions and international money transfer operators, the latest being between Safaricom Mpesa and MoneyGram International Money Transfer. Ladies and Gentlemen, I have alluded to how sending and receiving of remittances is an important type of financial transaction to the country, for many people and their families. This fact engenders both a challenge and an opportunity. The challenge for us as regulators is to ensure that remitters can send funds to their recipients conveniently, safely, and at a reasonable cost. The opportunity, primarily for mobile phone money transfer service providers and other mainstream financial institutions, is to find ways to leverage users’ need for remittance services into a broader relationship, one that will be both profitable for the service provider and will also provide remitters and their families greater financial access. This will increase the participants in the money remittance market considering costs are a major barrier to entry in any market. Lastly, Ladies and Gentlemen, as we enjoy the benefits of expanding money remittance business, let us comply with the Anti-Money Laundering and Combating the Financing of Terrorism requirements. I am sure that these transactions are easy to monitor on both ends. But the benefit is to discourage those who use the wallet or hand luggage to remit – since we cannot effectively monitor such. This will facilitate lowering of the country risk that we should take advantage of in reducing costs of money transfers. With these few remarks, Ladies and Gentlemen, it is now my distinct honour and pleasure to declare the Safaricom and Moneygram Money Transfer Partnership officially launched. Thank you. BIS central bankers’ speeches
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Remarks by Professor Njuguna Ndung'u, Governor of the Central Bank of Kenya, at the Regional Course on "The methodology of collection, compilation and analysis of international remittances statistics", Nairobi, 17 November 2014.
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Njuguna Ndung’u: The methodology of collection, compilation and analysis of international remittances statistics Remarks by Professor Njuguna Ndung’u, Governor of the Central Bank of Kenya, at the Regional Course on “The methodology of collection, compilation and analysis of international remittances statistics”, Nairobi, 17 November 2014. * * * Dr. Sehliselo Mpofu, Director, Macroeconomic Management Programme – MEFMI; Distinguished Facilitators and MEFMI Staff; Delegates; Ladies and Gentlemen: It is a privilege for me to join you on this important occasion of the official opening of this regional course on “Methodology for Collection, Compilation and Analysis of International Remittances Statistics”. Allow me from the onset, to extend a cordial welcome to you all on behalf of the Government of Kenya. We are indeed honoured and happy to host this important activity here in Nairobi, Kenya. I would like also to extend a very special welcome to the delegation from MEFMI. We are honoured to host one of your capacity building events this year. As always this has attracted a high level of interest and attendance, an indication of the perceived need to bridge the existing capacity gaps in the compilation of remittances statistics. Let me also thank the distinguished resource persons, Dr. Emmanuel Kumah, who was formally of the IMF Statistics Department, and Mr. Moris Mpofu from the Reserve Bank of Zimbabwe for accepting to bring their expertise to this course. I am confident that their vast knowledge will enable them to share experiences in this critical policy area and contribute immensely to the enhancement of skills in the MEFMI region. As you are all aware, international remittances have grown to become significantly important in providing foreign exchange and financing. They, particularly, support millions of poor recipients. We cannot therefore afford to ignore the quality of data for such an important contributor to economic growth and development. Until recently, unlike other countries with significant numbers in the diaspora, we in Africa have paid little attention to the role of remittances in our development thinking. This must now change. There is increasing awareness of the importance of these remittances due to the fact that, unlike other financial flows, remittances mostly go directly to households, either for investment or consumption smoothing. Therefore, they have important poverty alleviation benefits. The critical questions are therefore how much of this money is coming into our economies and through what channels? In Kenya, for instance, estimates of remittances captured only from formal channels that include commercial banks and other authorized international remittances service providers, have averaged USD118.2 million per month so far in 2014, from USD107.5 million per month in 2013. This places remittances as an important source of foreign exchange. Indeed they have grown exponentially in recent years to surpass some of the major traditional sources. In Sub-Saharan Africa, remittances have become one of the important enablers of economic growth and of poverty reduction. As such, remittances contributed up to 3% of GDP over the last five years and to more than 20% of international flows. For example, in Nigeria, remittances account for more than a quarter of GDP, while in Lesotho they account for more than 20 percent of GDP. There are indications that international remittances to Africa exceed BIS central bankers’ speeches USD30 billion annually, affect 25 million recipient households, and have the potential to stimulate economic growth and reduce poverty. International remittance flows often exceed Foreign Direct Investment in Africa and account for more than twice as much as the world’s total Official Development Aid. In this regard, there is no doubt that the capture of timely, reliable, accurate and comprehensive statistics is pivotal to the region’s macroeconomic policy management and deliberate policy must be designed to attract more inflows from our compatriots abroad. It is therefore important to increase transparency and make it easier and more cost effective for remitters to use legitimate channels, particularly in our region. While a majority of developed economies are largely compliant with the acceptable best practices, many developing countries, including MEFMI member countries still have work to do, mainly due to inadequate technical capacity among some data compilers. Without an adequate pool of skilled personnel, our efforts to bridge the capacity gaps in data compilation in the region will be futile. The importance of regular capacity building activities, interactions and sharing of experiences amongst ourselves, and benchmarking to international best practice therefore, cannot be overemphasized. I am happy to note that this course will make an important contribution to improving our understanding on how to collect, compile and analyse international remittances statistics in line with the 6th Edition of IMF’s Balance of Payments Manual (BPM 6) and the IMF International Remittances Guide. This is indeed, in line with IMF’s and MEFMI’s mandate of imparting hands-on skills. I therefore, expect the course to bring together information on key statistical activities currently undertaken by the statistical organizations in our respective countries and to identify what more can be done to further improve the quality and timely availability of statistics in this area. May I urge you all to make the most out of this rare opportunity so that when you return to your respective institutions, you can take the lead in ensuring that our region benefits fully from this invaluable initiative. This, however, can only be realized through individual commitment, free exchange of ideas, sharing of experiences and a good sense of openmindedness among all participants. It is also my hope that strong networking links will emerge out of this course to foster a longrun exchange of ideas and experiences among professionals in the region. Once we have the correct classification of data, then we can open another chapter of how to use it in policy making. This will also inform us on how to target the diaspora to channel investments in specific areas – like Diaspora Bonds. As I conclude, I appeal to you to take some time out of your densely packed schedule to enjoy the hospitality of Nairobi. Freely explore the boundless beauty of our country, sample local cuisine and explore the attractive tourism products on offer. It is now my singular honour to declare this course officially open, and I wish you fruitful discussions and a memorable stay in Nairobi. I thank you all for your attention. BIS central bankers’ speeches
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Remarks by Professor Njuguna Ndung'u, Governor of the Central Bank of Kenya, at the regional course on "The methodology of collection, compilation and analysis of international remittances statistics", Nairobi, 17 November 2014.
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Njuguna Ndung’u: The methodology of collection, compilation and analysis of international remittances statistics Remarks by Professor Njuguna Ndung’u, Governor of the Central Bank of Kenya, at the regional course on “The methodology of collection, compilation and analysis of international remittances statistics”, Nairobi, 17 November 2014. * * * Dr. Sehliselo Mpofu, Director, Macroeconomic Management Programme – MEFMI; Distinguished Facilitators and MEFMI Staff; Delegates; Ladies and Gentlemen: It is a privilege for me to join you on this important occasion of the official opening of this regional course on “Methodology for Collection, Compilation and Analysis of International Remittances Statistics”. Allow me from the onset, to extend a cordial welcome to you all on behalf of the Government of Kenya. We are indeed honoured and happy to host this important activity here in Nairobi, Kenya. I would like also to extend a very special welcome to the delegation from MEFMI. We are honoured to host one of your capacity building events this year. As always this has attracted a high level of interest and attendance, an indication of the perceived need to bridge the existing capacity gaps in the compilation of remittances statistics. Let me also thank the distinguished resource persons, Dr. Emmanuel Kumah, who was formally of the IMF Statistics Department, and Mr. Moris Mpofu from the Reserve Bank of Zimbabwe for accepting to bring their expertise to this course. I am confident that their vast knowledge will enable them to share experiences in this critical policy area and contribute immensely to the enhancement of skills in the MEFMI region. As you are all aware, international remittances have grown to become significantly important in providing foreign exchange and financing. They, particularly, support millions of poor recipients. We cannot therefore afford to ignore the quality of data for such an important contributor to economic growth and development. Until recently, unlike other countries with significant numbers in the diaspora, we in Africa have paid little attention to the role of remittances in our development thinking. This must now change. There is increasing awareness of the importance of these remittances due to the fact that, unlike other financial flows, remittances mostly go directly to households, either for investment or consumption smoothing. Therefore, they have important poverty alleviation benefits. The critical questions are therefore how much of this money is coming into our economies and through what channels? In Kenya, for instance, estimates of remittances captured only from formal channels that include commercial banks and other authorized international remittances service providers, have averaged USD118.2 million per month so far in 2014, from USD107.5 million per month in 2013. This places remittances as an important source of foreign exchange. Indeed they have grown exponentially in recent years to surpass some of the major traditional sources. In Sub-Saharan Africa, remittances have become one of the important enablers of economic growth and of poverty reduction. As such, remittances contributed up to 3% of GDP over the last five years and to more than 20% of international flows. For example, in Nigeria, remittances account for more than a quarter of GDP, while in Lesotho they account for more than 20 percent of GDP. There are indications that international remittances to Africa exceed BIS central bankers’ speeches USD30 billion annually, affect 25 million recipient households, and have the potential to stimulate economic growth and reduce poverty. International remittance flows often exceed Foreign Direct Investment in Africa and account for more than twice as much as the world’s total Official Development Aid. In this regard, there is no doubt that the capture of timely, reliable, accurate and comprehensive statistics is pivotal to the region’s macroeconomic policy management and deliberate policy must be designed to attract more inflows from our compatriots abroad. It is therefore important to increase transparency and make it easier and more cost effective for remitters to use legitimate channels, particularly in our region. While a majority of developed economies are largely compliant with the acceptable best practices, many developing countries, including MEFMI member countries still have work to do, mainly due to inadequate technical capacity among some data compilers. Without an adequate pool of skilled personnel, our efforts to bridge the capacity gaps in data compilation in the region will be futile. The importance of regular capacity building activities, interactions and sharing of experiences amongst ourselves, and benchmarking to international best practice therefore, cannot be overemphasized. I am happy to note that this course will make an important contribution to improving our understanding on how to collect, compile and analyse international remittances statistics in line with the 6th Edition of IMF’s Balance of Payments Manual (BPM 6) and the IMF International Remittances Guide. This is indeed, in line with IMF’s and MEFMI’s mandate of imparting hands-on skills. I therefore, expect the course to bring together information on key statistical activities currently undertaken by the statistical organizations in our respective countries and to identify what more can be done to further improve the quality and timely availability of statistics in this area. May I urge you all to make the most out of this rare opportunity so that when you return to your respective institutions, you can take the lead in ensuring that our region benefits fully from this invaluable initiative. This, however, can only be realized through individual commitment, free exchange of ideas, sharing of experiences and a good sense of openmindedness among all participants. It is also my hope that strong networking links will emerge out of this course to foster a longrun exchange of ideas and experiences among professionals in the region. Once we have the correct classification of data, then we can open another chapter of how to use it in policy making. This will also inform us on how to target the diaspora to channel investments in specific areas – like Diaspora Bonds. As I conclude, I appeal to you to take some time out of your densely packed schedule to enjoy the hospitality of Nairobi. Freely explore the boundless beauty of our country, sample local cuisine and explore the attractive tourism products on offer. It is now my singular honour to declare this course officially open, and I wish you fruitful discussions and a memorable stay in Nairobi. I thank you all for your attention. BIS central bankers’ speeches
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central bank of kenya
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Keynote address by Professor Njuguna Ndung'u, Governor of the Central Bank of Kenya, at the 2nd Annual Research Seminar of the Kenya School of Monetary Studies Research Centre, Kenya School of Monetary Studies, Nairobi, 18 November 2014.
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Njuguna Ndung’u: Public debt, fiscal policy and forward looking monetary policy Keynote address by Professor Njuguna Ndung’u, Governor of the Central Bank of Kenya, at the 2nd Annual Research Seminar of the Kenya School of Monetary Studies Research Centre, Kenya School of Monetary Studies, Nairobi, 18 November 2014. * * * Invited Guests; Chairman of the Central Bank of Kenya Board of Directors; Members of the Monetary Policy Committee; Researchers; Distinguished Guests; Ladies and Gentlemen: Good Morning. It gives me great pleasure to be here this morning at the official opening of the Research Seminar on “Public Debt, Fiscal Policy and Forward Looking Monetary Policy ” organized by the Research Centre at KSMS. As you are aware this is the second time we are gathered here to discuss the research findings of our researchers. A look at the papers in today’s program shows that they are as a result of collaborative effort of researchers in the Bank and other esteemed institutions. Collaborative and comprehensive research is key to good policy advice work. Ladies and Gentlemen, the title of this research seminar touches on a very important and current topic. Looking globally, a number of countries are going through a time of hardship. Public debt is a real economy problem when not sustainable. When public debt is unsustainable, it creates a debt overhang problem with the effect that the private sector believes the government will raise taxes in future to pay the public debt. The effect is on private investment since the private sector acquires a waiting option and finally, these effects slow down growth. Thus, the most important challenge to debt sustainability and this will restore growth trajectory to dislodge the market from this waiting option. To achieve this objective many difficult and far-reaching decisions have to be taken. Against this backdrop, forums such as this one are essential for sharing ideas. After all, scientific research is a central pillar of good decision-making. Therefore, I would like to thank the Kenya School of Monetary Studies for organising this event. Why public debt, fiscal policy and forward looking monetary policy? My starting point is to draw our attention to the principal objective of macroeconomic policy, which is to achieve sustainable economic growth in a context of macro stability. To achieve this, monetary and fiscal policies have to play their roles and their success is largely dependent on how they anchor public expectations. Ladies and gentlemen, there are interesting studies on fiscal policy and economy growing with debt; and monetary policy and fiscal dominance. They come to interesting conclusions, but the most important is policy coordination. Why is policy coordination important? • Monetary policy is about short-run decisions on the direction of prices, and affects nominal variables; while fiscal policy affects real variables. • It makes it easier for policy makers to achieve their stated policy objectives in a coherent and efficient manner. BIS central bankers’ speeches • Ensures commitment to mutually agreed upon objectives, thus helping to eliminate the problem of time inconsistency in the design of policy. • It enhances the credibility, anchors public expectations, ensures sustainability of fiscal and monetary policies, thus promoting macroeconomic stability. Ladies and gentlemen, to ensure success of policy coordination we need either of the following: • A continuous interaction between the fiscal and monetary authorities to decide jointly on aspects relating to policy design and implementation, or; • A set of rules and procedures that minimize the need for frequent interaction. But we know all these, why was the EU zone not successful? As noted by Sargent and Wallace in their famous article “Some unpleasant monetarist arithmetic”, “tighter money today leads to higher inflation not only eventually but starting today”. The paradox for tight monetary policy and heavy debt expansion will lead to economic stagnation, Eddie Buffie has demonstrated this for a number of countries in this region. Moreover, ladies and gentlemen, the lack of credibility of the overall policy framework caused by the long-term inconsistency of such mix in signals diminishes the effectiveness of monetary policy. Our experience with fighting inflation in Kenya suggests that inflation may be occasioned by demand side as well as supply side factors. Monetary policy uses interest rate as an instrument to fight inflation and anchor inflationary expectations. Fiscal policy on the other hand raising debt domestically and using a mix of debt instruments drives the domestic interest rate structure. How policy makers coordinate and consolidate their efforts not only affects expectations concerning future policies and outcomes but can also affect the outcome of economic activity. Ladies and gentlemen, several papers that link fiscal policy, monetary policy and inflation have been lined up for presentation today. As you listen to the presentations and the discussions, it is important that we filter the conclusions first to reach to the frontier of this subject matter and provide renewed thinking in the policy arena. The recommendations of these papers should fit in the policy dialogue and policy making process to support growth and employment as envisaged in Vision 2030 in Kenya. As I conclude, I would like to thank all the participants present. I hope the issues addressed in today’s contributions will provide the basis for a rewarding discussion. Once again – you are all very welcome! It is my pleasure to declare this workshop officially open. Thank you. BIS central bankers’ speeches
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Keynote address by Professor Njuguna Ndung'u, Governor of the Central Bank of Kenya, at the AON Kenya Insurance Brokers seminar on "Financial sector contributions towards vision 2030 goals" Nairobi, 20 November 2014.
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Njuguna Ndung’u: Financial sector contributions towards vision 2030 goals Keynote address by Professor Njuguna Ndung’u, Governor of the Central Bank of Kenya, at the AON Kenya Insurance Brokers seminar on “Financial sector contributions towards vision 2030 goals” Nairobi, 20 November 2014. * * * Mr. Joseph Onsando, Chief Executive Officer, AON Sub-Saharan Africa; Directors and Management of AON Kenya Insurance Brokers Limited here present; Distinguished Participants; Ladies and Gentlemen; It gives me great pleasure to be part of this important seminar themed “Financial Sector Contribution Towards Vision 2030 Goals”. Before I make my remarks, let me take this opportunity to thank AON Kenya Insurance Brokers Limited, for organising this important seminar to highlight the achievements of the financial sector under Kenya’s long term development blueprint, Vision 2030. This seminar provides an excellent platform to examine our successes, challenges and map the way forward to increase the financial sector’s contribution to Kenya’s economic development. As you are aware, the financial sector, the world over, plays a vital role in the socio-economic development process of a nation. In recent years, there has been increasing evidence showing that financial sector development is important not only for economic growth and development, but also for poverty reduction. Inclusive finance is good for sustainable inclusive growth. The financial sector intermediates between savers and borrowers by providing a wide range of financial services essential for productive economic activities. The financial sector also offers a wide range of products for risk mitigation, whose absence would impede entrepreneurship. The financial sector therefore allows for mobilization and allocation of financial resources for investment and wealth creation. The development of a welldiversified and accessible financial sector is imperative to meet the varied financial needs within the economy. Ladies and Gentlemen: The anchor Vision 2030 is to transform Kenya into an industrialized middle-income country that provides high quality of life to its citizenry. Vision 2030 defines the financial sector as vibrant and globally competitive that will promote high level of savings to finance Kenya’s investment needs. The key objectives for the financial sector in Vision 2030 are to enhance financial stability, efficient transformation and accessibility to all Kenyans. Ladies and Gentlemen: The long-term policy objectives of the financial sector in Vision 2030 include: i. Improved access and deepening of financial services and products for a much larger number of Kenyan households and small businesses; ii. Mobilising higher levels of savings to support higher investment rates; iii. Greater efficiency in the delivery of financial services to ensure that the cost of mobilising resources and allocating these resources becomes increasingly affordable and that the range and quality of services better caters to the needs of both savers and investors; iv. Enhanced stability in the system to ensure that all banks and other deposit-taking financial institutions can safely handle the public’s savings and ensure that the BIS central bankers’ speeches chances of a financial crisis – with all the costs that this would imply – are kept to a minimum; and v. To make Kenya one of the ranked financial centres in “emerging markets” by 2030. Ladies and Gentlemen: In the first five years of Vision 2030, 2008 – 2013, the major reforms and initiatives undertaken in the financial sector to enhance financial stability, efficiency and access include:• Licensing of deposit taking microfinance banks; • Introduction of agency banking to increase reach with least cost; • Automation of bond trading and lengthening the maturity of Treasury bonds to 30 years; • Development of a capital markets master plan to chart the development of Kenya’s securities markets for 10 years; • Introduction of credit information sharing and licensing of two credit reference bureaus; • Introduction of bancassurance products; • Enactment of the Proceeds of Crime and Anti-Money Laundering Act in 2009 and the establishment of the Anti-Money Laundering Board in June 2011; • The development of a regulatory framework for deposit taking savings and credit cooperatives (SACCOs); and • Strengthened oversight of the insurance sector following the adoption of risk based supervision by the Insurance Regulatory Authority (IRA). Ladies and Gentlemen: The financial sector has started to register significant achievements out of the outlined reforms and initiatives among others. Allow me to briefly mention some of these achievements. The contribution of the financial services sector to Kenya’s economic growth has been on an upward trend from 3.7% of GDP in 2009 to 9.2% of GDP in 2013. Over the same period, the sector grew faster than the economy. The financial sector grew by 9.3% in 2013 as compared to the economy which grew by 5.7%. This was an improvement from 4.9% growth by the sector in 2008 compared to the GDP growth of 0.2%. As a result, the financial services sector is one of the main drivers of Kenya’s economic growth. The national financial access surveys conducted in 2006, 2009 and 2013 revealed that the level of adult Kenyans accessing formal financial services has increased tremendously. This is from 27.4% in 2006 to 41.3% in 2009 and 66.7% in 2013. It is also worth noting that the level of Kenyans who access informal financial services has declined from 35.2% in 2006 to 26.8% in 2009 and to 7.8% in 2013. The increase in the level of financial access in Kenya is testimony to the success of the reforms and initiatives implemented by the players in the financial sector. Ladies and Gentlemen: In 2013, Geospatial Surveys to map financial access points were undertaken in Kenya, Nigeria, Uganda and Tanzania. The survey results indicate that Kenya is ahead of the other countries in terms of financial access. • 76.7% of the Kenyan population is now within 5 kilometres of a financial service touch point as compared to 47.3%, 42.7% and 35.1% in Nigeria, Uganda and Tanzania, respectively. • Kenya has 65,353 financial service touch points as compared to 21,206; 20,229 and 17,212 financial touch points in Uganda, Tanzania and Nigeria respectively. BIS central bankers’ speeches Kenya has 161.9 financial access touch points serving 100,000 people as compared to 63.1, 48.9 and 11.4 financial access touch points serving 100,000 people in Uganda, Tanzania and Nigeria, respectively. • Ladies and Gentlemen: The automation of bond trading and lengthening of maturity profiles has enabled the country to mobilise substantial resources for the desired infrastructure projects. Several infrastructure bonds, which have all recorded unprecedented oversubscription levels, have demonstrated the Kenya financial sector’s capacity to finance longer term public investment projects, but more importantly, has deepened the financial sector. Kenya also successfully issued a debut Sovereign Bond in 2014 to finance infrastructure projects, ease pressure on domestic interest rates and establish a benchmark for Kenyan issuers to tap into the international capital markets. The overwhelming oversubscription recorded in the Sovereign Bond demonstrates the confidence that foreign investors have on Kenya’s economy. The 10-year and 5-year tranches of the Sovereign Bond were issued at very competitive interest rates. Kenya’s aspiration of becoming an international financial centre is on course. Following Cabinet approval of a broad policy proposal for establishment of the Nairobi International Financial Centre in 2013, H.E. the President through an Executive Order set up the Nairobi International Financial Centre Authority (NIFCA). NIFCA will drive the process of establishing Nairobi International Financial Centre (NIFC). Consequently, an interim Secretariat for Nairobi International Financial Centre Authority (NIFCA) was established at the National Treasury. The Secretariat is currently engaging public and private sector players to inform the development of a comprehensive legal and regulatory framework for NIFC. This is one of the pillars making Kenya the Financial Hub of Eastern Africa. These successes notwithstanding, there remain challenges for us to address. First, 25% of adult Kenyans are still excluded from financial services. As a result, we need to re-energise our efforts to address any remaining barriers for the majority of Kenyans to access financial services. The main barriers are the cost of financial services and the use and quality of financial services. The use and quality challenges pinpoint the need for enhanced consumer protection, financial education and above all information symmetry across the divide. Ladies and Gentlemen: In order to address the existing challenges in the financial sector, the Vision 2030’s Medium Term Plan for 2013–2017 has outlined the following flagship projects: i. Establishment of the Nairobi International Financial Centre to raise funds for projects and tap into new investments coming to Africa. ii. Deepening of Capital Markets through a robust policy and regulatory framework to stimulate long-term savings to finance investments by the Government and private sector. iii. Promoting East African Community financial services integration to facilitate trade, enable cross-border operations and movement of capital. iv. Facilitating the expansion of electronic payments to significantly reduce transaction costs across the financial system, especially in the provision of retail financial services. v. Development of a national financial education and consumer protection strategy and framework to enhance usage and quality of financial services. Given that most of you are from the insurance sector, you appreciate its importance in raising long-term funds to support economic development. This is particularly important in the capital markets that provide suitable long-term investment vehicles for insurance products. Kenya’s insurance sector has played a pivotal role in development of the domestic bonds market. It is therefore important that we upscale the insurance penetration to mobilise additional longterm funds. The FinAccess Survey for 2013 indicated that just about 7% of adult Kenyans BIS central bankers’ speeches access insurance products. There is hence a huge market in Kenya waiting to be discovered by insurance players. The challenge is to design suitable, affordable and accessible products to tap this nascent market. Ladies and Gentlemen: As the financial sector players, we have our work cut out to meet the needs of Kenyan households and businesses. We must put our best foot forward to understand the needs of our customers and offer suitably tailored products. Only then will Kenya meet its aspirations of being a middle income industrialized country that provides a high quality of life to its citizenry. I have championed financial inclusion in Kenya and beyond and I am sure that this seminar will provide some solutions and I therefore look forward to your proposals. With these few remarks, Ladies and Gentlemen, I wish you all fruitful deliberations in this worthwhile seminar. Thank you. BIS central bankers’ speeches
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Remarks by Professor Njuguna Ndung'u, Governor of the Central Bank of Kenya, at the launch of the Funds Settlement System for Equities and Corporate Bonds through KEPSS, Nairobi, 27 January 2015.
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Njuguna Ndung’u: Kenya’s financial markets and payment systems developments Remarks by Professor Njuguna Ndung’u, Governor of the Central Bank of Kenya, at the launch of the Funds Settlement System for Equities and Corporate Bonds through KEPSS, Nairobi, 27 January 2015. * * * Ms. Rose Mambo, Chief Executive, Central Depository & Settlement Corporation; Mr. Paul Muthaura, Ag. Chief Executive, Capital Markets Authority; Mr. Andrew Wachira, Acting Chief Executive, Nairobi Securities Exchange; Chief Executives of the Central Depository Agents; Chief Executive, Kenya Bankers Association; CEOs of Commercial Banks here present; Chief Executive, Kenya Association of Stockbrokers & Investment Banks; Distinguished Participants; Ladies and Gentlemen: I am pleased to join you today on this auspicious occasion to launch the Settlement System for Equities and Corporate Bonds through the Real Time Gross Settlement platform of the Central Bank of Kenya, commonly referred to as KEPSS. At the outset, I congratulate the technical teams from the CDSC, CMA and CBK that ensured the success of this process. Ladies and Gentlemen: We are gathered here today to celebrate another milestone in the development of Kenya’s financial markets and the developments in the payment systems. As you are all aware, the financial landscape has changed considerably in Kenya and the countries in the region. For the region to attract foreign investors and deepen its markets, there is need to enhance our financial markets systems and processes to meet international standards. In this regard, I wish to recognize the East African Community (EAC) Financial Sector Development Regionalization Project (FSDRP), for spearheading an assessment of EAC Partner States’ compliance to the International Organization of Securities Commissions (IOSCO) objectives and principles of securities regulation, particularly Principle 38 on clearing and settlement. The project assessed the levels of development of the securities markets payments and settlement system as well as existing capacity to comply with principle 38, and developed action plans for compliance with the principle of Delivery Versus Payment (DvP) that formed the basis for the current developments. Ladies and Gentlemen: Kenya’s development blueprint, Vision 2030, envisages a financial sector that is vibrant and globally competitive in driving high levels of savings and financing the country’s investment needs. To achieve this goal, the Clearing and Settlement systems should be subject to regulatory and supervisory requirements that are designed to ensure that they are fair, effective and efficient while reducing credit, settlement and the possibility of systemic risk. This partnership between CDSC, CMA and CBK is not only an opportunity for CDSC to meet the needs of its customers but also contributes in addressing systemic risks in the settlement of securities. But it is also important that the payment and settlement system and the infrastructure that accompanies it is the driving force in financial markets today. Ladies and Gentlemen: We implemented a Real Time Gross Settlement System in 2005, a development that significantly enhanced efficiency in the settlement of payments to “Real Time” basis. In addition, one of the greatest payments innovations of our time is the mobile BIS central bankers’ speeches phone money revolution; Kenya was the first country in Africa to introduce Mobile Money Financial Services. We later introduced the Cheque Truncation System in the clearing of cheques, reducing the clearing cycle from T+7 to T+1. Today we witness yet another momentous milestone where equities and corporate bonds traded at the Nairobi Securities Exchange (NSE) will henceforth be settled through KEPSS at the Central Bank. This landmark accomplishment is one that is fraught with immediate and future benefits that I shall allude to shortly. Ladies and Gentlemen: KEPSS is a systemically important payment and settlement system drawing participation from 41 local commercial banks. The modernization of KEPSS has incorporated regional payment systems – the East African Payment System (EAPS) for EAC and the Regional Electronic Payment and Settlement System (REPSS) for COMESA countries. Indeed, it is a very secure payment system that delivers financial settlements in real time using SWIFT as the message carrier. During the year 2014, KEPSS successfully settled 2.5 million transactions valued at Ksh.25.6 trillion; which is to say it clears more than 10,000 transactions worth over Ksh.100 billion on a daily basis. These figures in themselves tell the story of success and so more enhancement will provide the platform for more success. Ladies and Gentlemen: The Central Bank has expended substantial amounts of time and energy developing the building blocks and enabling environment for clearing and settlement of transactions to flow freely. The KEPSS platform will allow local, intra-regional and interregional trade to progress efficiently and cost effectively. I am happy to note that CDSC will be joining this settlement community, a development that presents an opportunity for expanding the scope and reach of KEPSS. Let me reiterate that KEPSS simplifies payment processes as well as enabling cross border payment and transfer of value within the region in an easier, safer and more efficient way. Ladies and Gentlemen: In a new system and a new way of doing business, better is always resisted – we went through the same motion with the cheque truncation system. I challenge the Central Depository Agents to impress upon their clients the immense benefits accruing from the use of the KEPSS for settlement of NSE transactions. These benefits include: • Enhanced efficiency in the settlement process and risk control mechanisms; • Enhanced safety through use of the SWIFT infrastructure; • Increased accessibility through commercial banks; • Improved investor confidence leading to increased activities at the NSE; • An efficient audit trail. Today’s launch therefore marks another milestone in revolutionising the payments ecosystem in Kenya and in particular in the Securities Exchange market. The system successfully went live on 15th January with the settlement of transactions concluded at the Nairobi Securities Exchange (NSE) being executed through the Central Bank’s KEPSS system. Therefore, as we celebrate with the CDSC, CMA, NSE and indeed the entire capital markets fraternity, we are also affirming the potential for more innovativeness and enhancement of safety and efficiency through collaborations and innovation in payment and settlement systems. In doing so, we shall play our role in enabling the attainment of the national economic goals envisaged under Vision 2030. Distinguished Guests, Ladies and Gentlemen: Let me conclude my remarks by emphasising the important role that an efficient settlements system plays in enhancing the deepening of capital markets. As Kenya aspires to become a regional and international financial centre, the centrality of efficient payments and settlements system cannot be gainsaid. The model we are about to launch is one more step towards achieving that goal. Thank you BIS central bankers’ speeches
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Remarks by Professor Njuguna Ndung'u, Governor of the Central Bank of Kenya, at the 18th Ordinary Monetary Affairs Committee Meeting, Arusha, 6 February 2015.
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Njuguna Ndung’u: Establishing the policy, legal and institutional frameworks to support the creation of a single currency area Remarks by Professor Njuguna Ndung’u, Governor of the Central Bank of Kenya, at the 18th Ordinary Monetary Affairs Committee Meeting, Arusha, 6 February 2015. * * * My Fellow EAC Central Bank Governors; Delegates from the EAC Central Banks; EAC Secretariat Officials; Distinguished Guests; Ladies and Gentlemen: Good morning. First of all, I would like to extend my sincere appreciation to the Governor and the entire management of the Bank of Tanzania for the excellent organization and hospitality extended to me and my team from Central Bank of Kenya. Fellow Governors, we are meeting for the first time since the ratification of the East Africa Monetary Union (EAMU) Protocol by all the Partner States. This not only demonstrates the political will and commitment of our respective Governments but places a weighty responsibility on all stakeholders involved in implementation of the roadmap towards the single currency. In this regard, EAC central banks are expected to identify and deliver on activities within their mandate as well as collaborate with other stakeholders to ensure all the critical ingredients for a monetary union, as proposed in the EAMU Protocol, are well articulated and implemented. Fellow Governors, the Extra-Ordinary MAC meeting held in Naivasha in November 2014 identified strategic objectives and priority areas towards operationalization of the EAMU Protocol that fall under the mandate of Central Banks and developed an action plan for implementation. We now have the onerous task of taking this to the next level especially now that the EAMU Protocol has been ratified by all Partners States. Fellow Governors, the ratification of the EAMU Protocol set the stage for the establishment of the policy, legal and institutional frameworks to support the creation of a single currency area. EAC Central Banks are expected to play a pivotal role in the process leading to the establishment of the four institutions responsible for the implementation of the EAMU Roadmap. These institutions include the East African Monetary Institute (EAMI) to undertake the preparatory work for the Monetary Union – this will fall heavily on the Central Banks; The East African Surveillance, Compliance and Enforcement Commission – this will require some input from us; The East African Statistics Bureau – we have a role to pay here; and The East African Financial Services Commission. S0, time management and planning is important. I note that the timeline for the establishment of EAMI is 2015 while the other three institutions are to be established by 2018. Given that banks dominate, our regulatory capacity and technology will be required. Fellow Governors, Central Banks are also expected to support the development and integration of the financial system as well as the implementation of other priority areas of the EAMU Protocol including the attainment of Macroeconomic Convergence (by 2021), Harmonization of Monetary and Exchange rate Operations (by 2022) and Introduction of the Single Currency (by 2024). Realization of these milestones takes time and in some cases may require review of the policy, legal and regulatory frameworks governing the financial system, payments and settlement systems as well as adoption of common principles and rules for the regulation and supervision of the financial system. In this regard, we need to BIS central bankers’ speeches develop requisite capacity, within Central Banks and the region at large, to undertake preparatory work for the EAMU. I wish to commend our technical staff who have worked tirelessly over the past few days to produce a very comprehensive report. I also extend appreciation to the EAC Secretariat for their support in our activities as well as reaching out to Development Partners who have continued to support the EAMU process. In particular I take cognizance of the IMF’s continued partnership with EAC countries in the modernization of our policy frameworks. Fellow Governors, I assure you of the Central Bank of Kenya’s commitment to operationalization of the EAMU Protocol. As you very well know we have to open and close many doors of our working life. Time has come for me to close the central banking one, which was a special one for me in the sense that my engagement as Governor of the CBK gave me a rare opportunity to conduct monetary policy in practice. Some theories we held so dear have been put to the test and they were found to work even better in practice. I leave the Central Bank with a great sense of pride and accomplishment, which I can not do ample justice to highlight within the short space of time that I have now. I am sure another forum will open where I will share more broadly my experience while serving at the helm of Kenya’s financial sector. But one important accomplishment for us all is that we have transformed our Central Banks into strong institutions. They have promoted operations by defining the appropriate rules and developed the financial markets using a combination of appropriate rules of the game and appropriate incentives/(penalties) to encourage prudent behavior in the market. I enjoyed your trust and warm companionship, and notably your commitment in driving and modernizing the financial sector in the region over the last 8 years of my term. Let me conclude by once again, thanking the Bank of Tanzania for the warm welcome and hospitality. With these few remarks, I look forward to fruitful engagement in discharging our mandate in this meeting. Thank you. BIS central bankers’ speeches
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Remarks by Professor Njuguna Ndung'u, Governor of the Central Bank of Kenya, at the Technical Experts Convening on Long-Term Sustainable Finance in Kenya, Nairobi, 11 February 2015.
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Njuguna Ndung’u: Sustainable finance initiatives across the Kenyan financial sector Remarks by Professor Njuguna Ndung’u, Governor of the Central Bank of Kenya, at the Technical Experts Convening on Long-Term Sustainable Finance in Kenya, Nairobi, 11 February 2015. * * * Dr. Achim Steiner, Executive Director, UNEP; Mr. Manuel Moses, Regional Head, IFC Africa; Distinguished Participants; Ladies and Gentlemen: It is my pleasure to welcome you to this convening together with my co-host, Dr Achim Steiner. My thanks go to Dr. Steiner and Mr. Manuel Moses for putting together this forum. Our meeting today follows yesterday’s convening with Chief Executive Officers and leaders of regulatory agencies from the financial sector. Ladies and Gentlemen: I was impressed at the level of enthusiasm and ownership of sustainable finance by the CEOs at yesterday’s convening. We should also be proud of the already budding sustainable finance initiatives across the Kenyan financial sector ranging from banking, insurance, capital markets, retirement benefits and asset management. These initiatives will be shared with you in the course of today. My key takeaway from yesterday’s convening is that there is high level support at CEO level for sustainable finance in the institutions represented here today. Ladies and Gentlemen: Wearing my dual hats as a central banker and regulator, let me underscore that sustainability lies at the heart of our decision making. As a central bank, we take the view that we need to go beyond our traditional mandate of price and financial stability. In emerging economies such as Kenya, it is imperative that Central Banks also act as market development agents. In this role, Central Banks support development of financial infrastructure, strong institutions and a conducive policy environment. It is this underlying philosophy that has guided us in execution of our mandates that I will now turn to. First, stability of domestic prices creates an environment of certainty. The market formulates long term solutions based on this certainty. When there is uncertainty, the market develops a waiting option and slows down economic activity. A waiting option is not sustainable. Ladies and Gentlemen: Second, we can only talk about financial sustainability when the financial markets are accessible. Financial inclusion will lead to financial development and open discussions about policies for financial sustainability. Several initiatives in Kenya for financial inclusion include: • introduction of mobile phone financial services, • introduction of the Agency Banking Model and Currency Centres to lower the cost of doing business for banks, • licensing of microfinance banks, which target lower-income segments, and expanding institutional branch network countrywide, • allowing banks to introduce Shariah compliant (or participatory) banking products, and • the Credit Information Sharing mechanism to build Information Capital to solve information asymmetry problems in the financial sector. But also a mechanism that BIS central bankers’ speeches can develop templates for ratings either for individuals or projects – where sustainability can be an indicator. The evidence so far indicates that these reforms and initiatives have had an appreciable impact in expanding financial access. According to Geospatial Surveys conducted in 2013, Kenya was ranked ahead of peer countries, Tanzania, Uganda and Nigeria. Most fundamentally, 76.7% of Kenyans live within 5 kilometres of a financial services touch point compared to 47.3%, 42.7% and 35.1% for Nigeria, Uganda and Tanzania respectively. Ladies and Gentlemen: Third, the CBK mandate of financial stability where the overarching goal is to promote existence of strong banks. Without strong banks, we cannot talk about long term and sustainable finance. In this regard, CBK has adopted a flexible risk management framework for the banking sector, which can accommodate, among other areas, the management of environmental and societal concerns. Ladies and Gentlemen: Fourth, since 2009, the Kenya Government through the CBK as its fiscal agent has issued 7 long-term infrastructure bonds. Proceeds have been used to fund sustainable infrastructural solutions including clean and renewable energy plants, like the geo-thermal power generation. The deployment of these funds towards eco-friendly projects serves as a benchmark for private sector institutions in their project appraisal and implementation decisions. Ladies and Gentlemen: It is not in doubt that there is a case for sustainable finance in Kenya. Kenya has ambitious plans to transition to a green economy. This comes with tremendous financing opportunities for both domestic and foreign financiers. For instance, the substantial financing required in scaling up Kenya’s renewable energy output requires imaginative solutions. The banking sector alone cannot meet these needs and other emerging opportunities as Kenya goes green. We must therefore seek solutions that straddle the banking, insurance, pension funds and capital markets spheres. As we design a roadmap this morning, we should take cognisance of the enormous opportunities that sustainable finance offers. Working in silos as is the case currently will not scale up sustainable finance. We should therefore come up with a holistic roadmap that incorporates the financial sector players, regulators, development partners and the Government. Let us also formulate clear deliverables, performance indicators and a roadmap that will facilitate Kenya’s aspiration of being a green economy. With these remarks, Ladies and Gentlemen, I look forward to fruitful deliberations. Thank you. BIS central bankers’ speeches
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Remarks by Dr Haron Sirima, Deputy Governor of the Central Bank of Kenya, at the launch of the 2015 Foreign Investments Survey, Nairobi, 12 May 2015.
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Haron Sirima: Improving the quality of data through statistical surveys Remarks by Dr Haron Sirima, Deputy Governor of the Central Bank of Kenya, at the launch of the 2015 Foreign Investments Survey, Nairobi, 12 May 2015. * * * Cabinet Secretary to the National Treasury; Chief Executives of State Agencies and Private Enterprises; Representatives of Media Houses; Ladies and Gentlemen. 1. Welcome to the breakfast meeting to kick off the 2015 Foreign Investment Survey under the Enhanced Data Dissemination Initiative Project. This project was initiated in 2010 with the objective to improve the quality of data through statistical surveys, such as the one we are launching this morning. 2. The purpose of this meeting is to raise awareness among the enterprises that will be covered by the survey to ensure its success. It also provides an opportunity to share our experience on past surveys and receive feedback. 3. Comprehensive, accurate and timely data is a prerequisite for better policy and strategic decision making, particularly in the quest to attract foreign direct investment to Kenya. It is therefore important that the exercise is carried out flawlessly. The data collected through past surveys has been incorporated in the Balance of Payments statistics and also enabled the compilation of Kenya’s International Investment Position (i.e. the stock position foreign assets and liabilities). 4. Ladies and Gentlemen, Kenya has made good progress in improving the quality of its Balance of Payments statistics. This would not have been achieved within the set timeframe without the technical and financial support extended by the World Bank, the International Monetary Fund and the Department for International Development (DfID). The Macroeconomic and Financial Management Institute of Eastern and Southern Africa (MEFMI) has also been instrumental in providing the necessary software for processing the data generated through the surveys and in capacity building both at the Kenya National Bureau of Statistics (KNBS) and the Central Bank (CBK). Indeed, the 2015 Foreign Investment Survey will be conducted and financed exclusively by both KNBS and CBK. 5. While the overall position on Kenya’s Balance of Payments has been positive, the current account has weakened over time on account of both rapidly growing capital imports associated with the momentum of economic growth. Kenya’s export growth has been sluggish while the tourism sector, our traditional source of foreign exchange earnings, has been reflecting negative growth rate. According to the latest Economic Survey, Kenya’s current account deficit stands at 10 percent of GDP, financed mainly through capital and financial inflows. The widening current account deficit continues to exert pressure on the Kenya Shilling exchange rate. 6. Over the past four months, the Kenya Shilling exchange rate to the US Dollar has come under unusually intense pressure on account of a strong US Dollar and enhanced seasonal corporate demands. The strengthening of the US Dollar globally largely reflects the strong recovery of the USA economy, the uncertainty around the timing of the first interest rate increase in the US following the tapering of Quantitative Easing (QE), expectations of lower interest rates in the Eurozone following adoption of QE by the European Central Bank in late January 2015, and BIS central bankers’ speeches the weak Eurozone growth recovery. During the period, the Kenya Shilling exchange rate against the US Dollar depreciated by 5 percent. At the Global Market it is quite volatile with many countries experiencing strong capital outflows. The Nigerian Naira (9%), Uganda Shilling (9%), Tanzania Shilling (4%), Ghanian Cedi (20%) and even the Euro (11%) were hard hit. 7. What is the Central Bank doing to stem volatility? First, the Bank adopted a tight monetary policy operations stance to minimise any likelihood of arbitrage activities between the interbank and foreign exchange markets – the average interbank rate now stands at 10.4 percent. This is in excess of 250 basis points above the CBR. Second, the Bank continues to intervene in the foreign exchange market through direct sale of foreign exchange to commercial banks both to ease demand pressures and drain Kenya Shilling liquidity. In addition to dampening volatility, the interventions slowed down the rate of depreciation of the exchange rate. The Bank also enhanced the prudential guidelines of banks on foreign exchange dealings to promote transparency and safeguard the integrity of the financial market. The Bank has and will continue to actively use moral suasion with the banking industry to stem expectations. 8. Going forward, the intense seasonal demand pressure on the Kenya Shilling exchange rate is slowly dissipating though there is evidence of speculation in the foreign exchange market. In response, the Bank will scale-up OMO to tighten liquidity further to stem expectations. The resilient diaspora remittances and recovery of the global economy will support exchange rate stability. In addition, the Central Bank’s foreign exchange reserves coupled with a precautionary facility from the IMF are adequate to stem volatility. The Central Bank will continue to monitor developments in the foreign exchange market but allow genuine demand and supply factors to determine the level of the Kenya Shilling exchange rate. Finally, measures to promote exports including foreign direct investment are critical to the long term stability of the Kenya Shilling exchange rate. 9. In closing, let me take this opportunity to thank the over 300 private enterprises that responded to the year 2013 foreign investment survey questionnaires. The response rate of 75 percent was impressive and we look forward to better this performance in this year’s survey. The time spent building this critical information base is for our mutual benefit and the people of Kenya. 10. It is now my pleasure to invite the Cabinet Secretary, National Treasury to make his remarks and official launch the 2015 Foreign Investment Survey. Thank you. BIS central bankers’ speeches
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Speech by Dr Patrick Njoroge, Governor of the Central Bank of Kenya, at the 9th Financial Sector Regulators' Forum Joint Boards of Directors Retreat, Mombasa, 26 August 2015.
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Patrick Njoroge: Empowering consumers of financial services through financial education Speech by Dr Patrick Njoroge, Governor of the Central Bank of Kenya, at the 9th Financial Sector Regulators’ Forum Joint Boards of Directors’ Retreat, Mombasa, 26 August 2015. * * * I am delighted and honoured to be here today, on the occasion of the 9th Financial Sector Regulators’ Joint Boards of Directors’ Retreat. I am particularly grateful for the warm welcome and strong support that I have received from you. It is great to be part of this great community. The theme of the retreat – Empowering Consumers of Financial Services through Financial Education – is appropriate and timely. At the outset, let me thank our Keynote speaker, Ms Gerda Piprek, for an excellent presentation. Her expert views on how financially literacy serves the broader goals of increasing uptake of financial services and enhancing financial stability and policy effectiveness, are quite insightful. Indeed, the rapidly increasing financial innovations and the complexity of new financial products make it an essential skill for participating in a modern society. Thanks Gerda! Since the inception of our formal collaboration, much progress has been made in strengthening the bonds that bind us together. As you are all aware, we entered into a Memorandum of Understanding (MOU) in August 2009, realizing that collaboration can increase performance in our respective responsibilities of promoting a safe, efficient, sound and stable financial system. That said, there is scope for enhancing our current collaborative efforts in several areas. Let me highlight a few of these areas; 1. Information Sharing: Information sharing is critical to the success of our collaboration and I support fast tracking the establishment of a shared information sharing platform and database, for effective and evidence-based decision making. This would bolster surveillance of the financial system. I therefore expect the Technical Committee to fast-track this activity and submit a preliminary report to the Chief Executive Officers at the earliest opportunity. 2. SMART regulation to Foster Stability of the Financial System: The wave of innovations in the financial sector has resulted in increased cross industry, cross sector and cross border operations, and interconnectedness within the financial sector. While this is laudable, it equally raises concerns about the potential for financial contagion, which could lead to economic instability and damage to society. This calls for vigilance and more collaboration in prudential surveillance, data analysis and sharpening of supervisory tools. In particular, I want to underscore the need to enhance data quality, harmonize regulatory and reporting practices, and building adequate capacity among the Regulators. This requires moving swiftly to develop SMART – Standardized, Measurable, Actionable, Reliable and Transparent Regulatory and Supervisory Frameworks – surveillance supervisory approaches, and assessment tools. This would effectively safeguard the soundness, integrity, efficiency, and stability of the financial system in Kenya and the region. I believe SMART regulation is the way to go because its very architecture minimises regulatory burden, focuses on outcomes rather that processes, and applies regulatory measures in proportion to the risk profile of individual institutions. SMART regulations allow regulators to enforce more efficiently and allow regulated entities to comply cheaply and reliably. 3. Stress Testing: Stress testing has become a cornerstone of prudential supervision and risk assessment across the world. The Central Bank has strengthened its capacity and has conducted banking system stress testing exercise using the Cihak Framework since January 2015. We have drawn important lessons from the results of these exercises and I BIS central bankers’ speeches urge other Regulators to adopt similar tools, which clearly demonstrate the value of forwardlooking assessments of risks and vulnerabilities to the financial system. 4. Financial Innovations and consumer protection: New technologies have expanded the possibilities of financial services and products some of which have brought tremendous benefits to consumers, and resulted in measurable improvements in financial and greater access to the mainstream banking system. However, along with the rapid growth of these financial services is the emergence of complex financial products requiring enhanced consumer protection measures. I see the need to prioritise consumer protection in ways that will reduce if not eliminate consumer susceptibility to abuse or fraudulent activities. An effective consumer protection regime is essential and should broadly entail: • transparency and accountability in pricing; • clarity on charges and terms of financial products and services; • avoiding reckless and fraudulent lending practices; • protection of financial service consumers against over-indebtedness; • fair debt collections and transparent marketing practices; • privacy of client data including credit information sharing arrangement amongst all credit providers through credit reference bureaus; • ethical standards and staff behaviour in credit lending and screening practices; and • alternative dispute resolution mechanism. In this regard, we should engage with our stakeholders to promote effective financial services consumer protection mechanisms through innovate financial education programmes and regulatory reforms. 5. Recovery, Crisis Management and Resolution Frameworks: The global financial crisis that has affected us all since 2007, offers important lessons in crisis management and resolution frameworks. An important lesson from that experience is the centrality of a crisis communication strategy. Markets need certainty and assurance that competent authorities have the facts and means to resolve crises if and when they arise. As we ponder the whole subject of crisis management and resolution frameworks, let us work to ensure that we have in place a crisis communication strategy embedded within the broader Crisis Management and Resolution Frameworks. Best practise also demands that regular simulation exercises be undertaken to review their efficacy. I urge the Technical Committee to move with speed and develop proposals for discussion in subsequent Forum meetings. Finally, I would like, at this juncture, to share some reflections on the East African Community (EAC) Monetary Affairs Committee (MAC) of Central Bank Governors, with regard to the implementation of the East African Monetary Union (EAMU) Protocol. I am happy to report that significant progress has been made to harmonize monetary policies & frameworks, and macroeconomic statistics. Similarly, much effort has gone into modernizing and integrating payment systems, including financial markets infrastructure. We are now moving on towards full convertibility of EAC currencies. We therefore need to work very hard during the 10-year transition window provided by the EAC Summit beginning 2014, to establish the following EAC institutions; i. East African Central Bank; ii. Surveillance, Compliance and Enforcement Commission; iii. Financial Services Commission; iv. Statistics Commission; and v. Any other institution necessary for the proper functioning of the Monetary Union. BIS central bankers’ speeches As we journey on the road to a Monetary Union, I wish to underscore the importance of undivided commitment to those deliverables within the ambit of EAC Partner States. I am sure that the full implementation of EAMU Protocol will change the way we do business as Domestic Financial Sector Regulators. Already, a draft Bill on the establishing the East African Monetary Institute (EAMI), a precursor to the establishment of the above four institution, has been drafted. Let us therefore continue with the collaboration to support the EAMU protocol implementation. In concluding, it is my conviction that our consolidated synergies will result in better delivery of the Forum’s objectives. Thank you! BIS central bankers’ speeches
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Opening remarks by Dr Patrick Njoroge, Governor of the Central Bank of Kenya, at the 4th KBA (Kenya Bankers Association) Annual Banking Research Conference, Nairobi, 24 September 2015.
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Patrick Njoroge: Kenya’s experience and prospects in banking and economic infrastructure development Opening remarks by Dr Patrick Njoroge, Governor of the Central Bank of Kenya, at the 4th KBA (Kenya Bankers Association) Annual Banking Research Conference, Nairobi, 24 September 2015. * * * Good morning! I am very pleased to be here at this opening of the 4th KBA Annual Banking Research Conference. I am grateful to KBA for inviting me to this important forum and appreciate the presence of all the participants. This Conference’s theme, Kenya’s Experience and Prospects in Banking and Economic Infrastructure Development is indeed relevant to our current context. This is because most of the countries across Africa and the world are experiencing huge infrastructure gaps, and Governments are grappling with the challenges of coming up with innovative solutions to financing these investments. The importance of reliable infrastructure in raising the economy’s growth potential cannot be overemphasized. In most Sub-Saharan African countries, the infrastructure deficit is in critical sectors such as energy, transportation, health, water, sewerage, and telecommunications, and is a significant drawback to the continent’s economic performance. Vision 2030, Kenya’s development blueprint, gives prominence to infrastructure development as a key driver of long-term growth. In recognition of the important role the private sector can play, the Government is committed to creating an enabling environment to facilitate private participation. With support from the World Bank, the Government initiated the Infrastructure Finance and Public Private Partnership (IFPPP) Project and has put in place a supportive legal and regulatory framework through the PPP Act, 2013 and the related Regulations, giving private participation a central role in the Government’s long-term development strategy. The complementary roles of the Government and private sector in infrastructure funding were most recently highlighted at the UN’s 3rd International Conference on Financing for Development, held in July 2015 in Addis Ababa, Ethiopia. At this summit, participants reiterated the vital roles both Governments and the private sector can play in infrastructure delivery, sustainable development and poverty eradication. Involving the private sector, not only eases the fiscal and administrative burden on Governments but also enhances efficiency in the delivery of key public services. In this regard, Public-Private Partnerships (PPPs) are an increasingly popular mechanism by which the private sector has been brought in. PPPs are therefore among the options that have been sought by Governments to address this funding challenge. It is clear that there is interest in PPP projects in Kenya. As of July 2015, the National Treasury had approved 71 projects in transport, energy, education, water, health, agriculture and the hospitality sectors. Whereas many of these projects are still at the negotiation and feasibility stage, a number have reached financial closure, with several banks participating through syndicated lending. The 71 PPP projects so far identified present a pipeline of investable opportunities for the Kenyan financial sector. In addition, the Government’s efforts in recent years to tap into other sources of infrastructure finance, include: • Direct borrowing from foreign governments and multilateral lenders such as the African Development Bank (AfDB) to fund specific projects. • Issuance of tax-free infrastructure bonds targeting investors to finance capital projects. BIS central bankers’ speeches • Issuance of a USD 2 billion sovereign bond (Eurobond) in 2014 to raise development funds from the international market. As of June 2015, the Government had raised approximately Ksh.250 billion through infrastructure bonds, which have drawn both domestic and international participation. In a bid to widen potential sources of funding even further, the Government is also considering Sukuk and Samurai bonds as options for further sovereign bond issuance. These will further widen investor participation and deepen the market. There is clearly a case for participation in PPPs by banks and other private financial institutions. However, there are a number of challenges that could arise from such participation, which I would like to highlight for your consideration in this forum. First, many infrastructure investments are long-term in nature, generating cash-flows many years after project inception. However, the maturity of most bank deposits is short-term. There is therefore a need for banks to manage this intermediation, taking a more long-term view about the economy, which we flag as the single most-important constraint. Additionally, alternate sources of longer-term funding could be sought. I am happy to note that banks in Kenya have started to explore solutions such as collaboration with multilateral lenders and development finance institutions to obtain long-term funding for infrastructure projects. Secondly, given the huge scale and long duration of many infrastructure projects, lenders are likely to find themselves exposed to significant credit, liquidity and political risks. It is therefore vital that all project proposals be thoroughly and reliably assessed for their economic, financial and technical viability before loans are disbursed. More importantly for banks, projects should have a clear and equitable contractual structure that optimally allocates project risks among participants. Such risks should be well-mitigated at the outset to make projects bankable. Thirdly, participation in infrastructure projects by banks would also be constrained by legal and prudential limits on the proportion of banks’ lending as a share of their core capital. Given the considerable financial outlays involved in infrastructure projects, commercial banks would need to enhance their capital base to participate in PPPs while remaining compliant with regulatory requirements. Finally, given the increased investments in infrastructure and the environmental implications, I do hope that the studies lined up for discussion in this conference will give consideration to the green economy (green growth) aspects. This proactive discussion by the Kenyan banking industry will no doubt contribute towards adopting sustainable finance principles as per the commitments of the Addis Ababa Financing for Development Summit earlier mentioned. In view of the large size, huge cost and complexity of infrastructure projects, I would urge banks and other financial institutions to build the requisite legal and technical capacities to evaluate the value for money of PPPs relative to traditional asset classes. This will assist in identifying the potential risks and the risk mitigation to be put in place in advance before the commitments are undertaken. I take that the engagement you will have for the next two days will be an on-going conversation and the research work arising from this conference’s theme will inform future research in the area. I am optimistic that the banking industry will continue to play an important role in supporting the various sectors of the economy and in particular, the challenge to address the nation’s infrastructure gap. The Central Bank is committed to creating an enabling regulatory environment that facilitates the banking sector to effectively execute its intermediation function. With those remarks, it is my honour to declare the 4th KBA Annual Banking Research Conference officially open. I wish you fruitful deliberations. Thank you. BIS central bankers’ speeches
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Speech by Dr Patrick Njoroge, Governor of the Central Bank of Kenya, at the 4th Annual Citi Micro-Entrepreneurship Awards (CMA), Nairobi, 27 October 2015.
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Patrick Njoroge: Entrepreneurial initiatives in Kenya Speech by Dr Patrick Njoroge, Governor of the Central Bank of Kenya, at the 4th Annual Citi Micro-Entrepreneurship Awards (CMA), Nairobi, 27 October 2015. * * * I am delighted to join you today for this important celebration, the 4th Annual Citi MicroEntrepreneurship Awards (CMA). I would like to thank the organisers of the Awards ceremony, Citibank N.A. Kenya, and the Association of Microfinance Institutions (AMFI), for providing an appropriate platform to celebrate extraordinary entrepreneurs in Kenya. I also take this opportunity to appreciate all Award nominees and participants of this event. You are all winners as the efforts you individually and collectively make in providing services to your fellow citizens are hallmarks of outstanding service. I commend Citibank for the concept of the CMA awards, and for consistency in hosting them. The objectives of the Awards are noteworthy – not just celebrating innovative contributions of micro-entrepreneurs in Kenya, but also showcasing the effective role that microfinance plays in supporting poverty alleviation, social empowerment and economic development within the broader context of financial inclusion. Financial inclusion continues to play a critical role in the global development agenda given that over half of the world adult population does not have access to basic financial services, and is essential for developing strong financial institutions, reducing poverty, and financing broader economic development. In fact, there is ample evidence that financial inclusion is key in reducing the economic vulnerability of households, promoting economic growth, alleviating poverty and improving the quality of peoples’ lives. The extraordinary narratives shared today confirm this. I am privileged to have heard the wonderful success stories of transformative growth and development that are being feted today. With regard to micro-small- and medium-sized enterprises (MSME’s), there is a direct correlation between MSME development and financial inclusion efforts. MSMEs represent over 90 percent of private business and contribute more than 50 percent of employment and of GDP in most African countries 1. Nevertheless, MSMEs face several challenges, including access to finance, which is often considered the most significant constraint for this sector. For instance, the World Bank Enterprise Surveys indicate that 41 percent of SMEs in low income countries report that access to finance is a major constraint to their growth and development, compared with 30 percent in middle-income countries, and only 15 percent in high-income countries. 2 These constraints are not absent in Kenya despite the increased lending to SMEs. A recent study [by Financial Sector Deepening Trust Kenya (FSD Kenya) and the World Bank in collaboration with the Central Bank of Kenya (CBK)] has established that the share of lending to SMEs by Kenyan banks has grown over the last few years, from 19.5 percent of the total loan portfolio in 2009, to 23.4 percent of the total loan portfolio in December 2013. This increase is rather impressive, especially when compared to SME lending in other SubSaharan African economies like Nigeria (SME lending is 5 percent), South Africa (8 percent), Rwanda (17 percent) and Tanzania (14 percent). However a lot more needs to be done to address the long-standing constraint of financing of MSMEs. An important channel in Kenya is the microfinance industry, which is playing a larger role in deepening the financial markets, expanding access to affordable and appropriate financial http://www.afdb.org/en/topics-and-sectors/sectors/private-sector/activities/. http://www.worldbank.org/en/results/2013/04/05/msme-finance-expanding-opportunities-and-creating-jobs. BIS central bankers’ speeches services and products to MSMEs and low income households. In recognition of this, the Central Bank has initiated and supported numerous reforms to develop a robust and effective microfinance legal, regulatory and supervisory framework that supports innovations to enhance the development of MSME financing and growth, and boost overall inclusion. This is part of CBK efforts towards intentionally developing an all-inclusive financial system that reduces the impediments to accessing finance for majority of Kenyans. The operationalisation of the Microfinance Act in 2008 and subsequent amendments over the years point to game changing efforts to providing an enabling environment for microfinance banks to grow and develop. Through these efforts, microfinance banks have been able to: • Expand their footprints to the remote and far flung parts of the country using innovative delivery channels and payment systems; • Enhance the soundness of their credit appraisals through participation in credit information sharing mechanism; • Ensure financial integrity; and, • Offer an expanded and diversified product range to better serve their clients. These initiatives and reforms have led to an increase and diversification of the financial sector infrastructure and innovative instruments targeting the MSMEs and the lower segments of the population. Microfinance banks have been able to expand their reach and depth cost effectively while ensuring the stability and soundness of the financial system. As the microfinance sector in Kenya continues to grow and empower more microentrepreneurs across Kenya, it is the success stories behind the numbers that prove the power of access to finance to transform and improve lives. It is a pleasure to see tangible proof that our collective public and private sector efforts have a powerful impact on Kenyan households and MSMEs. Therefore, as we celebrate the 4th Annual Citi MicroEntrepreneurship Award winners today, we celebrate efforts made by the key players in the financial sector in enhancing inclusive financial systems to serve Kenyans with appropriate and sustainable financial services. In closing, let me salute all the worthy award winners. The recognition today should provide further impetus to deepen your commitment in your entrepreneurial initiatives. Thank you BIS central bankers’ speeches
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Speech by Dr Patrick Njoroge, Governor of the Central Bank of Kenya, at the launch of the FinAccess Geospatial Mapping Survey, 2015, Nairobi, 29 October 2015.
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Patrick Njoroge: Improving financial services for the Kenyan population Speech by Dr Patrick Njoroge, Governor of the Central Bank of Kenya, at the launch of the FinAccess Geospatial Mapping Survey, 2015, Nairobi, 29 October 2015. * * * I am delighted to join you today, to launch the key findings of the FinAccess Geospatial Mapping Survey, 2015. The Survey was conducted by the FinAccess Management Team, comprising of the Central Bank of Kenya (CBK), Financial Sector Deepening Trust (FSD), and the Kenya National Bureau of Statistics (KNBS), with funding from the Bill & Melinda Gates Foundation (B&MGF). The fieldwork was conducted by Brand Fusion Limited, a Research House contracted by B&MGF. I wish to thank the Bill and Melinda Gates Foundation for funding this Survey and all those who, in one way or another, participated and made this Survey a success. 1. Policy Goal: One of the goals of Kenya’s Vision 2030 is to foster greater efficiency and delivery of financial services to a wider population. In order to achieve this, all stakeholders and associated financial sector players, both in the private and public sectors, have been working towards increasing financial inclusion through offering appropriate and affordable financial products and services. There is more focus on low-income households and Micro-, Small-, and Medium- Sized Enterprises, who are, as a whole, benefitting from these positive and significant endeavours. The CBK in collaboration with FSD Kenya, KNBS, and other key stakeholders has taken a leading role in fostering Kenya’s financial inclusion agenda. It has also taken the lead in improving the measurement of financial inclusion and tracking its dynamics, thereby identifying evidence-based strategies to promote an inclusive and stable financial system. 2. Existing Financial Inclusion Landscape: The promotion of financial inclusion has been an area of focus of the Government over the past decade. Recent FinAccess Surveys indicated that Kenya has made significant progress in fostering financial inclusion since the first baseline survey in 2006. The three national FinAccess Household Surveys of 2006, 2009 and 2013 and the FinAccess Geospatial Mapping Survey, 2013 have clearly demonstrated that Kenya’s financial inclusion landscape has changed considerably over the period 2006 – 2013. The proportion of adult population using formal financial services rose to 66.7 percent in 2013, from 27.4 percent in 2006, and 41.3 percent in 2009. The proportion of the financially excluded on the other hand has been falling steadily from 39.3 percent in 2006, to 31.4 percent in 2009, and 25.4 percent in 2013. In a nutshell, Kenyans have enjoyed better financial access over that period. Kenya committed in 2012 at the G-20 Los Cabos Summit to achieve a higher level of financial inclusion through targeted interventions and strategies. To this end, a range of policies, strategies, products and technology-enabled delivery channels have been rolled-out by the public and private sectors. Ensuring the success of these endeavours is key, as financial inclusion is a vital component of sustained inclusive financial sector development, thus contributing significantly to inclusive growth and poverty reduction. Our efforts towards ensuring improved financial inclusion to majority of the Kenyan population have not gone unnoticed. I am pleased to note that the Brookings Financial and Digital Inclusion Project Report, 2015 ranked Kenya as the top-scoring country in financial inclusion world-wide. We are, however, cognizant that enhanced financial inclusion anchored on dynamic innovations brings forth some risks that we need to manage so that they do not negate the success so far achieved. 3. Key Findings: The first FinAccess Geospatial Mapping Survey took place in 2013 and collected Geographical Information System (GIS) data on all the financial services access touch points as well as some operational and transactional data through interviewing the financial service providers. The current FinAccess Geospatial Mapping Survey, 2015, BIS central bankers’ speeches whose results I am pleased to launch today, collected GIS data on both financial and agricultural services access touch points as well as some operational and transactional data. This Survey, therefore, provides an update of datasets collected in the baseline survey in 2013 and enhanced understanding of the financial inclusion landscape in Kenya and its dynamics over time. In particular: • The 2013 and 2015 GIS data provides a visual spatial distribution of the mapped financial and agricultural services access touch points. Analysis of the survey data provides better understanding of the financial inclusion constraints, potential opportunities and evidence-based strategies to expand inclusion. The success of these endeavours is well captured in the 2013 and 2015 Survey results. • As the results to be launched shortly will show, the financial system is now offering a wider range of financial services and products to more Kenyans, while covering a wider geographical spread. Compared to the 2013 Survey, which captured 64,740 financial services access touch points, the 2015 Survey captured 91,186 financial access touch points and 27,684 agricultural services access touch points, which represents a growth of 40.8 percent financial services access touch points over a period of two years. • The fieldwork interviews gave some interesting feedback, with some of the key issues that emerged indicating instances of fraud. Mobile money service providers reported the highest instances of fraud at 37 percent as compared to 10 percent of bank agents. Counterfeit money was the greatest reported type of fraud amongst service providers in forex bureaus and mobile money providers, while fake identification was the highest reported type of fraud amongst insurance providers and capital markets service providers. • The results we are releasing today are derived from developments in the wider economy, infrastructural facilities, technological innovations, institutional developments as well as financial sector policy and regulatory reforms and financial markets innovations. I am delighted that the sector now has such a useful information resource at its disposal. 4. Uses: For policy makers and regulators, the application of GIS analysis to assess the spatial distribution of financial service access points relative to population and other parameters is clear. Such data can be used towards identifying the underserved geographical areas and instituting strategies and interventions that will address the identified bottlenecks to bring those populations who are otherwise excluded into the formal financial system. On the other hand, for the private sector players, GIS data can be used to identify opportunities for expansion as well as boosting their marketing strategies to be more geographically targeted for maximum effectiveness. It will also help to create rapid feedback loops about customer usage patterns and corridors of need. The analysis can also be used to better understand fraud events, profile of access touch points and determine risk profiles of clients. Moreover, the presentations will show that GIS analysis by private sector players can comprehensively identify those agents where cash shortfalls are likely to manifest themselves, and therefore, proactively build liquidity management infrastructure where it is needed most. At this point, let me invite you to learn from today’s presentations and urge you to make use of the opportunity offered and build-upon this information platform. The sustainability and growth of GIS data collection and usage will be driven by on-boarding amongst you, both public and private sectors stakeholders. Be assured that we in the FinAccess Management Team in collaboration with B&MGF among other partners will champion such efforts and will facilitate learning opportunities with you. This effort will facilitate modalities of self-reporting GIS data as well as assisting you in capacity building towards usage of the datasets to inform policy and business strategies. Already B&MGF has initiated a pilot in self-reporting of GIS data in order to achieve sustainability and we welcome you all to participate. BIS central bankers’ speeches Finally, I would like at this juncture to inform you that we have just concluded conducting the fourth round of the FinAccess Household Surveys, 2015 and data cleaning is on-going. In this regard, we shall be inviting you to the launch of the top-line findings early next year around February 2016. We, therefore, urge you to diarise this activity as triangulation of datasets from both FinAccess Geospatial Mapping Survey, 2015 and FinAccess Household surveys, 2015 will provide deeper understanding of Kenya’s financial inclusion landscape. With these few remarks, I welcome you to this breakfast event and launch the Survey key findings and wish you fruitful deliberations. Thank You! BIS central bankers’ speeches
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Speech by Dr Patrick Njoroge, Governor of the Central Bank of Kenya, at the launch of Barclays Centennial Celebrations, Nairobi, 12 February 2016.
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Patrick Njoroge: Transforming Kenya’s financial sector Speech by Dr Patrick Njoroge, Governor of the Central Bank of Kenya, at the launch of Barclays Centennial Celebrations, Nairobi, 12 February 2016. * * * Good morning! I am honoured by your invitation to witness this epic milestone. Today I proudly join Barclays Bank of Kenya (BBK) in celebrating 100 years in Kenya, a century of transformative contribution to the financial sector. It is indeed no mean feat and I congratulate you on this historic occasion. I envision the courage and tenacity of your founders on Nkrumah Road in Mombasa, armed with no more than capital and belief in the promise of this then remote frontier territory with rudimentary links to the rest of the world. This celebration is indeed a vindication of the faith and vision of those pioneers, from which later generations have benefitted enormously. Over these 100 years, the world has changed, Kenya has changed, and Barclays has changed. From an enterprise largely geared towards serving the interests of the British colonial settlers, Barclays has grown into a modern and integrated financial services provider. In your middle age during the 1960s, you witnessed Kenya take its initial steps towards self-determination and eventual independence. Today, you serve a wide clientele through products and services that exemplify innovation and support the Kenyan entrepreneurial spirit. At end-2015, Barclays was ranked fifth out of 42 banks, with a market share of 6.83 percent. Today the bank has more than 100 branches and 180 agents through strategic partnerships. These indicators capture the long and winding path that Barclays has traversed from its beginnings a century ago. I salute the board, management, staff and indeed all Barclays’ customers, for these remarkable achievements. To survive and thrive, Barclays has had to cope with global turmoil and numerous shocks. When your founders landed in Kenya, the First World War was raging, and the Second War would break out 23 years later. More recently, we have had to deal with the Global Financial Crisis, refugees, and terrorism. But the world has also shrunk with globalization and advances in technology. When Barclays opened its first office, the Wright brothers had flown the first powered airplane in 1903, but the first non-stop transatlantic flight was still more than 10 years away. Since then, we have broken the speed of sound, put a man on the moon, and landed a robot on a comet after a 10-year journey covering 6.4 billion kilometres. Barclays has kept pace with the changing world and now has a truly global reach through its interaction with a network of other banks around the world. As we celebrate the 100-year journey, we ask what the next 100 years will bring. Will Barclays continue to be inspired by the spirit and vision of its pioneers, or will it fizzle leaving behind no more than a memory of its glory days? Today more than ever, the spirit of the pioneers is needed. Paraphrasing Prince Faisal in the movie “Lawrence of Arabia,” young men make wars, and the virtues of war are the virtues of young men – courage and hope for the future. Old men make peace. And the vices of peace are the vices of old men – mistrust and caution. Kenya is at a turning point, with vast opportunities but also significant risks. The banking sector has a critical role to play in taking a long-term bet on the country and supporting Kenya’s economic transformation. This epic occasion offers the Barclays family an opportunity to recommit to a shared future, with hope and courage. The financial sector in Kenya and in the region is at a critical juncture, and the challenges that it will face in the 21st century are truly herculean. Will Barclays rise to these challenges with the responsibility of a leader, treading boldly where others have not trodden? Today, questions abound about the cost of borrowing and banking services, enhancing transparency and BIS central bankers’ speeches information disclosures, strengthening corporate governance and business models. Appropriate responses to these questions require courage and hope for the future, not mistrust and caution. Ladies and gentlemen, the age of average is over. A globalized world is unforgiving and there is no room for mediocrity. A single rogue trader can bring about the collapse of a hundred-year institution. A globalized world allows only the thinnest of margins, and each customer has to be dealt with as if this was the only customer in the world. Each of us and our institutions have to be the best that we can be, renewing ourselves relentlessly as the pioneers did. We have to be nimble, quick to adapt to the rapidly changing world. In this, I again underscore the need for innovation. But you know you are in the right place – Kenya is and should remain a hotbed of innovation. Ultimately, the greatest asset that Barclays has is its staff. Most of them are unsung heroes in the backrooms, cleaning crews, far-flung branches, etc. All dedicate themselves with professionalism, integrity, and a spirit of service. This is what all our institutions, including those in our banking sector, need to see and adopt. I applaud Barclays for its excellent staff and anchoring its business on a set of strong values, without which it would have been impossible to sustain growth and stability over a century. Before I finish, I would be remiss if I did not mention that the Central Bank of Kenya (CBK) will this year mark its 50th anniversary. At this juncture, the Central Bank is at a point of reflection on its past successes and challenges in delivering on its key mandates including promoting the stability, access, efficiency and integrity of the banking sector. CBK will continue to take steps to further strengthen prudential regulation and supervision, with a view to supporting the continued safety, soundness and growth of the banking sector. This is in line with Kenya’s aspirations under Vision 2030 of promoting a sound, safe and inclusive financial system to progress towards a regional financial services hub. As I close, I see Barclays standing with two roads diverging in front of it, and the last verse of Robert Frost’s poem “The Road Not Taken” comes to mind: I shall be telling this with a sigh Somewhere ages and ages hence: Two roads diverged in a wood, and I – I took the one less traveled by, And that has made all the difference. I wish once again to congratulate Barclays on this milestone and look forward to many more successful years ahead. I wish you fruitful centennial celebrations. Thank you! BIS central bankers’ speeches
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Speech by Ms Sheila M'Mbijjewe, Deputy Governor of the Central Bank of Kenya, at the launch of the 2016 FinAccess Household Survey, Nairobi, 18 February 2016.
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Sheila M’Mbijjewe: Launch of the 2016 FinAccess Household Survey Speech by Ms Sheila M’Mbijjewe, Deputy Governor of the Central Bank of Kenya, at the launch of the 2016 FinAccess Household Survey, Nairobi, 18 February 2016. * * * 1. I am delighted and honoured to join you today at this launch of the Key Findings of the 2016 FinAccess Household survey that also marks the 10th anniversary of the FinAccess Surveys in Kenya. 2. Policy Goal: The creation of a vibrant, efficient, stable and globally competitive and inclusive financial system to drive savings and investments necessary to achieve our development agenda as outlined in Kenya’s Vision 2030 is crucial. • There cannot be meaningful financial sector development if finance is not accessible and inclusive. • Financial inclusion in terms of Access, Usage, Quality and Welfare remains one of the priority areas for the Government. 3. Financial Inclusion Landscape: I am pleased to be part of this financial inclusion agenda of improving the measurement, understanding, tracking progress and its dynamics overtime. This has been done mainly through undertaking FinAccess Suite of Surveys since 2006. 4. Key Findings: The results we are releasing today reflect developments in the wider economy, infrastructural facilities, technological innovations, financial sector developments, policy and regulatory reforms as well as financial markets innovations. I am delighted to announce that Kenya has made a lot of progress towards the Kenya Vision 2030 financial sector development agenda. In terms of financial inclusion, we have far exceeded the Government target to increase the proportion of the population with access to finance to over 70% by 2018 under the Second Medium Term Plan, 2013–2018. • The proportion of adult population using formal financial services rose to 75.3% in 2016. • The rural-urban formal financial access gap has narrowed since 2006. • Kenyans are increasingly using a combinations of a variety of financial services providers and new innovations reflecting the importance of a diversified financial system with 59.7% of the adult population using two or more types of financial services providers compared with 18.8% in 2006. BIS central bankers’ speeches 5. There is need to foster appropriate and proportional regulation and supervision of the different financial services providers to enhance access to a broader mix of providers and products that meet the needs of different consumers. With this growing demand from consumers for a diverse mix of products and innovations, the financial sector requires an enabling environment to foster innovations to the changing financial market environment. However, we need to take appropriate measures to address any emerging risks and mitigate any potential impact to the financial system stability. 6. Uses: The survey data and findings can be used by various stakeholders’ to further enhance financial inclusion and promote the sector’s development. I urge you all to design ways to enhance dissemination to minimize administrative burden and ease access to allow majority of Kenyans to use the information. 7. Despite the progress made in the financial inclusion front in the last 10 years, I believe that large gaps still remain in formal financial inclusion across regions, income groups, age, education and gender in the country. • In order to enhance financial inclusion to reach a wider population across the country, supportive policy strategies and innovations coupled with a strong and proportionate supervisory and risk management frameworks are necessary. • Moreover, the need for financial education and literacy programmes to the population by both the public and private sector is vital, which should be underpinned by sound market conduct practices including financial services consumer protection measures. 8. At this point, let me invite you to listen and learn from today’s presentations of the survey findings and urge you to make use of the information and build-upon the same to expand the financial inclusion landscape. With these few remarks, I welcome you to this breakfast launch event of the Key Findings of the 2016 FinAccess Household Survey and wish you fruitful deliberations. The survey report is, therefore, officially launched. Thank You! BIS central bankers’ speeches
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Speech by Dr Patrick c, Governor of the Central Bank of Kenya, at the 3rd Regional Credit Information Sharing (CIS) Conference, Nairobi, 23 February 2016.
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Patrick Njoroge: Credit Information Sharing for innovation and financial inclusion Speech by Dr Patrick Njoroge, Governor of the Central Bank of Kenya, at the 3rd Regional Credit Information Sharing (CIS) Conference, Nairobi, 23 February 2016. * * * Mr. Henry Rotich, Cabinet Secretary, The National Treasury; Dr. Louis Kasekende, Deputy Governor, Bank of Uganda; Dr. Charity Dhliwayo, Deputy Governor, Reserve Bank of Zimbabwe; Mr. Wagara Melchior, 1st Vice Governor, Bank of Burundi; Representatives of the Bank of Mexico, Bank of Zambia, BCEAO; Representatives of the World Bank and IFC; Mr. Habil Olaka, CEO, Kenya Bankers Association; Mr. Charles Ringera, CEO Higher Education Loans Board & Chairman, CIS Kenya Distinguished Guests, Ladies and Gentlemen: Good morning. It is a great pleasure to be here with you today, to welcome all of you to the 3rd Regional Credit Information Sharing (CIS) Conference. In particular, I extend a special welcome to representatives of central banks from various countries around Africa and from Mexico. That we gather once again for the third regional conference is evidence that CIS is increasingly becoming a critical aspect of the financial system. Ladies and Gentlemen: The theme of this conference “CIS for Innovation and Financial Inclusion-Mikopo Kisasa!” is indeed timely as it resonates with the objectives we have set to drive the Kenyan financial sector. These objectives include innovation, lower cost of credit, transparency and disclosure. Having an inclusive financial sector goes beyond mere access to financial services to include consumer protection and making sure that the duty of care owed by financial institutions to their customers is well executed. In addition, the provision of sufficient information to assist consumers in making informed financial decisions is a fundamental enabler in enhancing financial inclusion. As you are all aware, information asymmetry in the financial sector is very prominent and as such one of the hindrances to deeper financial inclusion. To eradicate this, transparency in the pricing of credit by commercial banks and other financial institutions cannot be over emphasized. It is in this regard that the Central Bank of Kenya has started publishing the average lending rates for various loan products as well as the overall average weighted lending rates by commercial banks. This will enable the borrowing public to make informed borrowing decisions, which in turn will facilitate a competitive banking sector with high quality and reasonably priced products. I know that the topic of low cost of credit has been over-analysed. However, this conference brings together creative minds that can innovate new affordable products designed to suit the needs of the customers at the bottom of the pyramid. This would also require financial institutions to align business models to support, especially, Small and Medium Enterprises (SME) lending. Further, lower cost of credit can also be achieved through continued collaborative efforts between actors in the sector to develop innovative distribution channels. It is therefore paramount that financial institutions embrace financial innovation in order to enhance coverage of financial services and reduce transaction costs, particularly through electronic and mobile money transfers. BIS central bankers’ speeches With regard to innovation, I would like to note that CIS is one of the most inventive mechanisms in Kenya that has contributed immensely to the development of the financial sector. Despite being a young concept, the success achieved by CIS is remarkable. This has been duly recognized in Kenya’s enhanced rankings in the World Bank Doing Business Report, 2016. In the Ease of Getting Credit Indicator, Kenya emerged position 28 globally. This is a significant improvement from position 118 in 2015, largely attributed to the developments in the CIS environment such as the sharing of full file data by both Commercial and Microfinance Banks. However, ladies and gentlemen, despite this remarkable progress, we have three critical concerns that I present as challenges to the credit market regarding CIS. First, it is said that lenders are quick to inform consumers when their credit profile is poor, but are mute when the score is good. Consequently, borrowers only know about the credit bureau when there is a problem. This needs to change. Banks in Kenya have been sharing positive data for two years now, and therefore must begin to inform and reward their low risk customers with better terms. Secondly, lenders must be willing to invest in efforts to ensure highest standards of data quality. This is important because a borrower’s credit report is a score-card on the character of individuals and corporates. It is imperative that every effort is made to provide accurate and updated information on each of their customers, without regard to status or social standing. Thirdly, there is need to address consumer complaints associated with credit information as promptly as possible. Where these issues escalate to disputes, lenders should explore alternative dispute resolution mechanisms. I am confident that the deliberations regarding Alternative Dispute Resolution, which are part of this conference, will provide insights into the critical aspects of consumer protection that are needed to ensure credibility of the whole mechanism. On our part as the Central Bank, we will continue to play our supervisory role effectively, and ensure that we monitor very closely compliance with CIS reporting requirements, given that sharing comprehensive information on a timely basis is the only way this mechanism can reach its full potential. It is important to note that central banks are also beginning to explore effective use of credit information to strengthen banking supervision. I am informed that the Bank of Mexico offers a useful case study that will be discussed in the first session of this Conference. It is important that central banks invest in the analytical skills needed for effective utilization of the data for supervision and monetary policy. I wish you all very fruitful discussions as you share experiences that will shape the future of CIS in Kenya, Africa and beyond. It is now my distinct pleasure to welcome Cabinet Secretary Henry Rotich to officially open the conference. Karibu Bwana Waziri! Thank you. BIS central bankers’ speeches
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Opening remarks by Dr Patrick Njoroge, Governor of the Central Bank of Kenya, at the Microfinance Training Course for Policy and Development 2016, organised by the Alliance Forum Foundation, held at the Kenya School of Monetary Studies, Nairobi, 24 February 2016.
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Patrick Njoroge: Developing robust and sustainable strategies for microfinance in Kenya Opening remarks by Dr Patrick Njoroge, Governor of the Central Bank of Kenya, at the Microfinance Training Course for Policy and Development 2016, organised by the Alliance Forum Foundation, held at the Kenya School of Monetary Studies, Nairobi, 24 February 2016. * * * Distinguished Guests; Ladies and Gentlemen: On behalf of the Central Bank of Kenya, let me join my colleagues in welcoming you to this workshop aimed at developing a strategy to enhance financial inclusion in the COMESA region. The strategy will be underpinned by an enabling regulatory and supervisory framework for Microfinance Institutions. I understand that the strategy is based on the draft proceedings of Microfinance Training Course for Policy and Development, which was held in December 2014 in Lusaka. At the outset, let me commend the COMESA Monetary Institute, the African Development Bank and the Alliance Forum Foundation, for the work done so far. Establishing a financially inclusive ecosystem that does not marginalize people on the basis of income or geographical location has become a policy concern for many countries in the world, including COMESA member countries. Financial inclusion has gained traction over the recent years as a priority area for policymakers and regulators within the financial services sector. The various initiatives that have been undertaken by different stakeholders, to enhance access and usage of formal financial services, have led to a significant reduction in the global population that is financially excluded. The Global Findex Report (2014), spearheaded by the World Bank, estimates that between 2011 and 2014, the number of adults without a bank account dropped by 20 percent, to 2 billion. The enhanced access is attributed largely to a significant growth in account penetration and innovations in technology, especially mobile money and agency banking. However, it is time now to shift the focus away from access and towards quality breadth of services. In Kenya, the outcomes of the various initiatives, some of which will be highlighted in this workshop, have been remarkable. Noteworthy progress includes, the increase in the banked population from 24 percent to 67 percent between 2006 and 2013 as highlighted by the FinAccess Surveys conducted by FSD Kenya between 2006 and 2013. A Geospatial Survey that was conducted in 2013 also estimates that 76.7 percent of the Kenyan population is within a 5km radius of a financial access point. However, despite the noticeable progress in recent years, 25 percent of the Kenyan population still remains unbanked. The existence of national strategies that promote financial inclusion are critical to enhancing access to a diverse range of financial products to the unbanked in Kenya, the mandate of the Government to enhance the deepening of financial markets by fostering access, efficiency and stability is captured under Kenya’s Vision 2030. The Central Bank’s approach to achieving its role under Vision 2030, is centered on the promotion of an enabling legal and regulatory framework that fosters the development of a diverse range of financial service providers, while guaranteeing its dual mandate of financial stability and financial integrity. Central to this objective has been the licensing and regulation of microfinance banks. The first microfinance bank in Kenya was licensed in May, 2009. This paved the way for 11 other microfinance banks which have been licenced to date. The 12 licenced microfinance banks have made a significant contribution to financial inclusion in Kenya. This is evidenced by the number of active deposit and loan accounts as at December 2015 which was 931,585 and 342,481 respectively. In value terms, this represented BIS central bankers’ speeches Ksh.40.5 billion in deposits and Ksh.46.9 billion in advances. Further, Microfinance Banks had a footprint of 109 branches and 1,154 agents as at December 2015. While commendable achievements have been made in the past 6 years, the microfinance sector in Kenya still has considerable opportunities and challenges that institutions need to tackle in order to realize their full potential. Key amongst these challenges include the high cost of credit, inadequate products and services, and weak consumer protection frameworks. Microfinance institutions must be willing to make a difference if the full benefits of microfinance and financial inclusion are to be realized. Microfinance institutions must be prepared to employ innovative delivery channels to reduce their operational costs, and thereby enhance their reach and efficiency. An essential element in this process is recognizing the characteristics of the customers of these institutions and tailoring lending mechanisms to meet their situations. Policymakers, on their part, should support the development of appropriate support infrastructure to facilitate the last mile delivery of suitable financial services. Therefore, the development of proportionate, risk-based, regulations by policymakers is critical to guaranteeing the development of a dynamic, robust and sustainable microfinance framework for a country. The starting point towards this collaborative structure is a consultative process to developing a forward-looking framework for regulation and supervision of microfinance institutions. Developing laws and regulations that facilitate financial inclusion and the involvement of diverse institutions in the microfinance sector will go a long way to enhance provision of diversified microfinance services in a sustainable basis for the economically active poor and low income households. As I conclude, my expectation is that the ideas to be presented and discussed over the next few days will form the basis for development of robust and sustainable national strategies for microfinance. I hope that by the end of this workshop, you will have come up with a Model COMESA Strategy for Microfinance Regulation and Supervision that will enhance financial inclusion in the region. Such a model strategy will not only provide a yardstick for microfinance regulation and supervision but will also go a long way in the harmonization and convergence of these practices, and ultimately contribute to monetary integration in the COMESA region. You have an opportunity to share experiences and assess a range of novel policy interventions that allow the unlocking of the benefits of financial services innovations. I wish you fruitful deliberations over the next few days and I look forward to the outcomes of your deliberations. Thank you. BIS central bankers’ speeches
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Keynote speech by Dr Patrick Njoroge, Governor of the Central Bank of Kenya, at the Government Borrowers Forum, Paris, 3 May 2016.
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Patrick Njoroge: Strengthening Kenya’s sovereign borrowing program – challenges and initiatives Keynote speech by Dr Patrick Njoroge, Governor of the Central Bank of Kenya, at the Government Borrowers Forum, Paris, 3 May 2016. * * * Honorable Minister, World Bank Vice President and Treasurer, Madame Commissioner, Excellencies, Distinguished Guests. Good morning! It is a great pleasure to speak before this distinguished group today. I would like to express my thanks to the organizers and our French hosts for their gracious hospitality. This meeting brings together public sector representatives facing common challenges and opportunities relating to their public sector borrowing programs. It takes place at a crucial time, given the current state of the global recovery and the increased downside risks. In its communiqué three weeks ago, the IMFC noted that the global outlook had weakened and summarized the situation as follows: “Although recent developments point to some improvements in sentiment, financial market volatility and risk aversion have risen […] Downside risks to the global economic outlook have increased since October, raising the possibility of a more generalized slowdown and a sudden pull-back of capital flows. […] Against this backdrop, it is important to buttress confidence in our policies.” Allow me to elaborate on how we are addressing these challenges, and the initiatives we are undertaking to strengthen our sovereign borrowing program. Like other central banks around the world, we are agents of the government with respect to its borrowing program, but we have lead some of the reforms in this area due to the close connection with other aspects of our mandate. I will conclude with a few words about the status of our banking sector. Macroeconomic stability In the second half of 2015, the Central Bank of Kenya moved decisively to deal with the emerging risks, particularly, rising inflation expectations and pressures in the foreign exchange market. This was against a backdrop of increased instability in the global financial markets, with uncertainty around the timing of the increase in U.S. interest rates, coupled with pressures from China’s financial markets and the debt crisis in Greece. Significant stress was also observed in our domestic government securities market in August to October 2015, due to the tighter liquidity conditions and a perception of increased borrowing requirements. Market conditions stabilized and then improved towards the end of 2015 – inflation expectations are now better anchored, interest rates have fallen to normal levels, and the foreign exchange market has remained stable. Developments in the foreign exchange market are supported by a narrowing of the current account deficit with improved exports, strong diaspora remittances, and a lower oil import bill. Turning to fiscal policy, Kenya’s fiscal position is set to adjust gradually through a combination of lower expenditures and higher revenue collection. The fiscal deficit is targeted to narrow to 4.1 percent of GDP by 2018/19, from an estimated 8.0 percent of GDP in FY 2015/16. Public sector debt, having risen in the recent period to 53 percent of GDP in March 2016, remains sustainable. This recent experience has underscored the importance of a strong macroeconomic framework, in addition to the following: • Timely communication with the market players is essential. There are significant benefits in announcing a detailed advance borrowing plans by the government. We have also re-established a high-level “Market Leaders Forum” where representatives of the Central Bank, National Treasury, and the large BIS central bankers’ speeches commercial banks and custodial investors, discuss freely the government’s domestic borrowing plans. • Close policy coordination between the monetary and fiscal authorities is also important. This would minimize the risk of stress in the financial markets. • Increased differentiation by investors of the economies where they invest is urged. Kenya has differentiated itself from other destination economies by pointing to the sources of its resilience – e.g., highly diversified exports and external markets, strong regional bias, low level of investment by foreigners in government securities (4 percent in March 2016) and equities (22 percent in March 2016). In addition, more granular assessments by investors of the destination economies would support their differentiated investment decisions. There is a strong commitment to implement policies that sustain macroeconomic stability and to ensure availability of policy buffers to address adverse effects of global shocks. Nevertheless, the impact on Kenya of these external shocks is expected to be minimal due to the diversification of its export products and markets, and stable financial linkages. However, the shock of a potential U.K. exit from the European Union remains of great concern. Looking ahead, we expect that our level of foreign exchange reserves – currently equivalent to 5.0 months of import cover – and the new IMF precautionary arrangements amounting to US$1.5 billion, will provide adequate buffers against short-term shocks. Strengthening the government borrowing program Let me now highlight the significant steps that have been taken in recent years to expand and enhance the efficiency of the government borrowing program. Kenya is proud of the progress thus far, which has resulted in substantial growth in the size, depth, and liquidity of the government bond market. The accomplishments include: • Lengthening the maturity profile of domestic debt and mitigating the refinancing risk. • Successful issuance of 9 Infrastructure Bonds, raising domestically US$2.6billion over asix-year period, to help close the existing infrastructure gaps; • Benchmark building by the re-opening of benchmark tenors, which has reduced bond fragmentation; • A well-established and reliable yield curve that now extends to 26 years; • The emergence of a vibrant secondary market, largely attributed to issuance of more liquid benchmark bonds, attractive infrastructure bonds and improvement in the trading infrastructure. In addition to providing a reliable channel of financing the government’s needs, Kenya’s bond market has facilitated improvements in financial intermediation through better financial infrastructure, products, and services. It has also catalyzed the emergence of a local corporate bond market as an alternative to bank financing. Let me also mention a number of other reforms that we are undertaking to further revamp the growth of the domestic debt market, including; launching of over-the-counter markets for government securities, introduction of electronic platforms for both primary and secondary markets, and launching of repo facilities and short selling. An important question relates to how infrastructure investment can be supported, to become a key driver of long-term growth. Countries across Africa and the world are experiencing huge infrastructure gaps, and governments are grappling with the challenge of coming up with innovative solutions for the needed financing. To raise these resources, governments have engaged in direct borrowing from other governments, multilateral lenders, and the international market – e.g., by issuing Eurobonds, Sukuk and Samurai bonds. Kenya has BIS central bankers’ speeches issued tax-free infrastructure bonds, which have drawn both domestic and international investors. But these efforts fall short of the objective, and alternative sources of long-term funding need to be sought. On the one hand, domestic banks would need to step up their participation, but this is constrained by legal and prudential limits on the proportion of banks’ lending as a share of their core capital. Commercial banks would therefore need to enhance their capital base, to remain compliant with the regulatory requirements. On the other hand, external lenders are likely to be more concerned about the credit, liquidity and political risks that these projects would carry, given their size and long duration. It is therefore important that these projects have a clear and equitable contractual structure that optimally allocates project risks across participants. More innovative solutions to deal with these questions would be highly beneficial. Mobile financial services revolution A very exciting area of focus for Kenya and other similarly-situated countries is mobile financial services (MFS), where the Central Bank has played a critical role in promoting financial inclusion through the regulation of these services. Specifically, the CBK facilitated the rollout of innovative products driven by mobile phone technological platforms that are integrated with banking platforms. A pilot “test-and-learn approach” was adopted, allowing innovations while ensuring that necessary safeguards were in place to mitigate the potential risks. The CBK continues to engage with financial service providers and telecommunication companies as they seek to introduce innovative solutions or products in the market. We have witnessed great success since 2007 when mobile money service providers begun to operate. These have allowed banks to avail their services more conveniently and cost effectively, which has not only revolutionized the delivery channels for financial services, but has also enhanced the satisfaction from utilizing financial services. • Kenya has one of the fastest mobile phone service adoption rates in Africa. As at December 2015, there were 37.7 million mobile phone subscribers (penetration of 88 percent). There were also 31.6 million mobile money service subscribers, and 143,946 mobile money agents. • Mobile financial services have boosted financial inclusion, with 75.3 percent of the adult population now using formal financial services. • The range of financial services accessible on mobile phones is increasing, with new innovations that reflect the benefits of a diversified financial system. Mobile payments account for over 80 percent of the volume of payment transactions, but 7.4 percent of the total value of transactions. Ladies and gentlemen, we are proud of two related products that will soon be fully operational, through which public debt operations will leverage on the growth of mobile financial services. The first is Treasury Mobile Direct (TMD), which was rolled out in November 2015. By offering a channel to access small denomination government securities through the mobile phone, this product leverages mobile-phone technology to improve the efficiency of the existing domestic debt issuance operations, in addition to increasing retail investors’ participation in the primary auctions for government securities. The services that will be provided under TMD include information dissemination, account status inquiry, bidding for government securities, and payment/settlement through mobile money platforms. TMD will facilitate the growth of government securities by broadening significantly the investor base to retail investors. The second product is M-Akiba. This is a critical government initiative, which seeks to increase the public’s participation in government securities through the existing mobile-phone BIS central bankers’ speeches money transfer services, and with a low minimum investment amount of US$30. The first M-Akiba infrastructure bond will be launched shortly as the necessary arrangements are in the final stages, and is expected to mobilize Ksh.5 billion (about US$50 million). Retail investors will be able to register, bid and pay for government securities through the existing mobile platforms. This will provide alternative investment options to retail investors who have long been poorly remunerated especially for their deposits held by banks. These products will be transformational – in addition to promoting financial inclusion, they will facilitate a change in the population’s savings culture, and ultimately lead to an increase in national savings. However, as the digital platforms continue to evolve, there are challenges and risks that need to be addressed. It is therefore important that countries continue to share experiences and strengthen partnerships based on best practices to address these challenges. The state of the banking sector in Kenya Finally, I would be remiss if I did not say a few words about the recent developments in our banking sector. In the main, concerns have been raised following the placing of three banks in receivership, since August 2015. We have underscored that the Central Bank’s actions were necessitated by unique circumstances in each of these banks, and that these were carried out in the interest of the depositors, creditors, and the wider public interest. We have also indicated that the weaknesses revealed by these cases are not systemic and the banking sector remains strong and stable. The capital-adequacy ratio stood at 18.8 percent in March 2016, well above the statutory minimum of 14.5 percent. The average liquidity ratio rose to 39.8 percent in March 2016, above the statutory minimum of 20 percent and higher than 38.1 percent in December 2015. Nevertheless, some challenges remain. For instance, interest rates spread remain very high: The spread between the average commercial banks’ lending rate and deposit rate stood at 10.3 percent in March 2016.Poor liquidity management and distribution remains a key concern, for which remedial actions are being taken. Bank supervision is also being strengthened urgently. The Central Bank remains committed to fostering banking system stability and will continue to exercise its supervisory mandate in a fair and even-handed manner. Importantly, we have seized the opportunity occasioned by these events and ushered in “the new normal” in the banking sector, underpinned by the following: • Greater transparency, which is supported by accurate data. • Stronger governance, with clear demarcation of responsibilities, greater accountability, fair market conduct, and stronger supervision. • Effective business models, aimed at strengthening the resilience of banks, reducing costs, and supporting innovation. In closing, I wish to express our gratitude to the various institutions that have assisted Kenya achieve the significant growth and deepening of financial markets. Specifically, I wish to recognize; the World Bank, which has supported us through a range of projects, the IFC, the IMF, and local stakeholders who have contributed useful ideas for developing the domestic debt market. I look forward to hearing of the experiences from other countries, and learning from your insights on how to resolve the issues raised. Thank you. BIS central bankers’ speeches
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Remarks by Dr Patrick Njoroge, Governor of the Central Bank of Kenya, at the workshop "Developing a Strategic Framework for Affordable Housing Finance", co-hosted by the National Treasury and the World Bank, Nairobi, 27 April 2016.
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Patrick Njoroge: Affordable housing finance in Kenya – developing a strategic framework Remarks by Dr Patrick Njoroge, Governor of the Central Bank of Kenya, at the workshop “Developing a Strategic Framework for Affordable Housing Finance“, co-hosted by the National Treasury and the World Bank, Nairobi, 27 April 2016. * * * Good morning! I am indeed honoured to be here today at the opening of this workshop on Affordable Housing Finance, and I thank The National Treasury and the World Bank for co-hosting it. The theme of this workshop – developing a Strategic Framework for Affordable Housing Finance – is timely given the state of the real estate sector in Kenya. The country continues to experience acute problems of affordable housing and to deal with this, there is need for higher investment, both private and public. As you may be aware the country needs approximately 240,000 new housing units per year to meet the ever growing need. This is a big challenge given the high cost of construction material and other related expenses. In addition, shelter without the supporting infrastructure of water, sewerage, electricity, and social services fails to achieve the desired benefit. Affordable housing therefore is a herculean and multi-faceted objective for which practical solutions are needed. In the words of Nelson Mandela, “it always seems impossible until it is done”. Allow me to share with you some statistics on the real estate sector: • The sector continues to receive a small but rising share of bank credit. This now accounts for 13 percent of credit to the private sector, rising from 7 percent in 2010. • The real estate and construction sectors contributed approximately 13 percent to GDP in 2015. • The residential mortgage finance market has more than tripled in the last five years, from Ksh.61 billion in 2010 to Ksh.203 billion in 2015. • The number of mortgages in the banking sector has grown from 13,800 to 24,500 over the same period. • Though the data is weak, we understand that SACCOs have provided substantial support to the sector. A critical piece in the puzzle is the role of the financial sector in driving this objective. It is important that this be probed, also highlighting the opportunities but also the significant risks. In particular, the seemingly perennial issue of high interest rates, in addition to high property prices and transaction costs, are often cited as key drawbacks. Evidently, the mortgage industry does not seem to provide adequate solutions for affordable housing. However, Kenya’s outstanding mortgage debt to GDP ratio at about 4.2 percent in 2014 is still low compared to peers such as South Africa and Namibia where the ratio is above 20 percent, and developed countries such as the U.S. market where the ratio is over 70 percent. This may be attributed to the high mortgage rates averaging 17.5 percent in 2015, collateral requirements, difficulties with property registration and high incidental costs of borrowing among other factors. Nevertheless, there is reason for optimism. I am pleased to note that players in the real estate sector have embraced the aspirations engraved in Kenya’s Economic Development Blueprint Vision 2030 on attaining “adequately and decently-housed nation in a sustainable environment”. This will ensure that the real estate sector and other players remain vibrant in provision of affordable and adequate housing; enhancing access to finance for developers BIS central bankers’ speeches and buyers; pursuing targeted reforms to unlock the potential of housing and initiating nationwide urban plans and development campaigns. A number of initiatives have been undertaken to enhance the uptake of mortgage in Kenya. Allow me to mention a few; • Amendment of the Banking Act in 2010, which allowed mortgage finance companies to advance up to 40 percent of their total deposit liabilities, from the previous limit of 25 percent for purchase, improvement or alterations of land. This unlocked funding to finance the real estate sector. • Enabling issuance of corporate/housing bonds, through which commercial banks can mobilize long term funding to strengthen the mortgage market. • Implementing Credit Information Sharing mechanisms. Commercial banks and microfinance banks are now able to access the credit history of borrowers on a real time basis, helping address information asymmetry which often stifled lending. • Greater transparency and competitive pricing of loans and mortgages. The Central Bank of Kenya (CBK) continues to urge banks to reduce their operating costs and enhance transparency in the pricing of credit. In this respect, the CBK has commenced the quarterly publication of individual banks’ lending rates across loan categories and maturities. The housing sector in Kenya has also attracted the attention of the diaspora who have been remitting funds to acquire or build assets for their retirement or their future housing. Along with this dynamism, is the major increase in demand associated with the expansion of the towns housing County capitals. Much more work needs to be done. I am sure your deliberations will offer many useful ideas and innovative solutions. On our part, the CBK will continue to support initiatives and innovations aimed at reducing cost of doing business for financial institutions with the main aim of bringing down the cost of financial services. Further, the CBK will pursue better regulation as opposed to more regulation so as to create room for more innovations by financial institutions and also be ready with effective tools to deal with any system vulnerabilities and emerging risks. It is my hope that a Strategic Framework for Affordable Housing Finance will provide solutions on some of the pertinent problems in the housing market in Kenya, sensitive to the immediate demands and the need to have a sustainable vision. Ladies and gentlemen, it is now my pleasure to welcome Mr. Henry Rotich, Cabinet Secretary to The National Treasury, to make his remarks and officially open the workshop. Welcome Bwana Waziri BIS central bankers’ speeches
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Remarks by Dr Patrick Njoroge, Governor of the Central Bank of Kenya, at the launch of the Foreign Investment Survey 2016, Nairobi, 4 August 2016.
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Patrick Njoroge: Launch of the Foreign Investment Survey 2016 Remarks by Dr Patrick Njoroge, Governor of the Central Bank of Kenya, at the launch of the Foreign Investment Survey 2016, Nairobi, 4 August 2016. * * * Good morning! It is a great honor to welcome you this morning to the launch of Foreign Investment Survey (FIS) 2016, the fourth since the launch of the project in 2010. I am grateful to each one of you for your attendance. I also thank the Cabinet Secretary, Ministry of Devolution and Planning, for finding time to be with us. I acknowledge the support from the Government, and the strong partnership between the key collaborating institutions in funding and organizing the FIS. This year’s FIS theme improving the quality of cross-border financial flows for better decision making is quite relevant to our circumstance and in the context of the current global developments, which I will shortly turn to. It is a fact that globalization and interconnectedness of the world economy has become an integral part of policymaking today. The challenges we face in the current economic climate, call for data-driven policymaking, requiring accurate and timely data for effective policy action. Financial integration is bringing about steadily rising cross-border financial flows and the accumulation of such inward and outward foreign direct investment (FDI), portfolio investment and financial derivatives. Today, we seek to raise awareness among the private enterprises that will be covered during the FIS 2016, on the importance of quality data and information, and also on achieving broader coverage. This exercise is significant as it will enable us collect the relevant disaggregated data for analysis, and also to understand the dynamics of cross border financial flows. Examining the details behind the aggregate statistics enriches our understanding of economic developments, and at the same time increases our flexibility in responding to unforeseen challenges in an appropriate manner. According to UNCTAD’s 2016 World Investment Report, global FDI flows increased by 38 percent to US$ 1.76 trillion in 2015, though still 10 percent below the peak in 2007. This improvement mostly reflects increased cross-border mergers and acquisitions. In 2016, FDI flows are expected to decline by between 10 and 15 percent against the backdrop of weak global growth which has had a direct impact on the profitability of enterprises. Kenya continues to be a top destination for FDI flows and is now ranked third by project numbers among countries in the Middle East and Africa in the 2016 FDI Intelligence Report published by the Financial Times. FDI into Kenya by project numbers increased by 47 percent, reaching 84 announced projects, compared with increases in Ghana (21 percent), Nigeria (19 percent), Egypt (14 percent) and South Africa (3 percent). Likewise Kenya ranks high as a home country for FDI. In particular, FDI out of Kenya by capital investment reached US$1 billion in 2015 placing it tenth in the Middle East and Africa region compared with U.A.E. (US$21.8 billion), South Africa (US$2.5 billion), Mauritius (US$2.1 billion), and Egypt (US$1.7 billion). Key trends on foreign inflows in 2015, reported in the Economic Survey, include: • FDI into Kenya increased by 8.4 percent to US$1.5 billion in 2015 • Portfolio investments declined from US$3.4 billion to US$34 million in 2015 on the backdrop of the sovereign bond issuance in 2014 • Other investment flows more than doubled from US$2.2 billion to US$4.6 billion in BIS central bankers’ speeches Analysis by sector indicates that the top five recipient sectors of FDI inflows include: wholesale and retail trade, financial and insurance, manufacturing, construction, and electricity and gas supply. Allow me now to touch on three global developments that are likely to have implications for foreign investment flows to our country. • First, the subdued global economic growth that has been worsened by the prolonged period of uncertainty relating to the slowdown and rebalancing of the Chinese economy, lower commodity prices, and geopolitical developments and concerns surrounding “Brexit”. Consequently, global growth is now projected at a worrisome 3.1 percent in 2016.The fact that central banks in advanced economies are maintaining an accommodative stance is a clear indication that the global economy has not yet recovered to sustainable levels. In addition, most of the emerging economies have faced volatile capital flows and exchange rates attributable to the accommodative policies, and the prospects of unwinding the unconventional monetary policies. • Second, the ongoing divestiture of major international companies around Africa, as reflected in a number of multinational enterprises downsizing their assets through outright sale and transfer to domestic companies, otherwise referred to as derisking. The main problem we observe with this process is the ambiguity and poor information flow on the measures by these enterprises to facilitate proper supervision and regulation, especially in the financial sector. • Third, the implication of “Brexit” on trade and investment. Whereas the first round effects have had minimal impact on our financial market, we expect longer-term implications on economic growth and development, given that Kenya has significant trade links with Europe, as our main foreign exchange earners notably tea, horticulture and tourism exports, are to the EU region. In addition, there are several European companies that have invested in Kenya. Available data shows that the stock of inward foreign direct investment from Europe to Kenya stands at 45 percent of total FDI. The UK alone accounts for 23 percent. A reduction though unlikely in the short term in both trade and investment from Europe may have negative implications on the Kenyan economy. In light of these concerns, regulators, particularly of the financial sector around the world have embarked on regulatory reform programs to minimize the envisaged spill-over effects of these crises on financial and real sector of the economy. Policy measures being undertaken by the Central Bank of Kenya and the other financial sector regulators are intended to build confidence in investors and the general public. The intended outcome of the policy measures is to improve the domestic macroeconomic environment; in particular, overall price and financial sector stability, narrowing the current account balance as well as maintaining adequate reserve buffers. Finally, the survey embodies inputs from many teams – designing the survey, respondents and analysts. I want to pay tribute to these unsung heroes, without who we would have no hope for quality data. With these remarks, Ladies and Gentlemen, let me once again welcome you to this breakfast launch event. Thank you. BIS central bankers’ speeches
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Remarks by Dr Patrick Njoroge, Governor of the Central Bank of Kenya, at the stakeholders workshop on deposit insurance "Instilling confidence in the financial sector", Nairobi, 20 July 2016.
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Patrick Njoroge: Instilling confidence in the financial sector Remarks by Dr Patrick Njoroge, Governor of the Central Bank of Kenya, at the stakeholders workshop on deposit insurance “Instilling confidence in the financial sector”, Nairobi, 20 July 2016. * * * Good morning! It gives me great pleasure to be here with you this morning to take stock on the role of the Kenya Deposit Insurance Corporation (KDIC) in the financial sector. At the outset, I am very grateful to KDIC for organizing this workshop. I also thank the Cabinet Secretary, National Treasury, for finding time to be with us this morning. I also acknowledge each one of you for your attendance. The role of the financial sector in every economy need not be overemphasized. It performs a lubricating role in every economic activity just as oil does in machinery. A critical ingredient for the financial sector to effectively perform its roles is financial stability, which also underpins public confidence in the sector. This brings me to the role played by KDIC in the financial sector. By being an insurer of bank deposits, its existence encourages depositors entrust their hard-earned savings to the deposit-taking institutions. Unlike the traditional Deposit Protection Fund, KDIC as currently constituted has an additional mandate of ensuring the going concern of its premium payers, the banks. This explains the close working relationship between CBK and KDIC. They both have complementary mandates of financial stability. Kenya’s financial sector remains sound and resilient, supported by strong macroeconomic fundamentals. This is evident from the positive trend in key performance indicators of the banking system: • The net assets grew by 5.6 percent from Ksh.3.6 trillion in June 2015 to Ksh.3.8 trillion in June 2016. This has been driven by increased lending. • The total capital to total risk weighted assets ratio for the banking system stood at 18.1 percent as at the end June 2016, above the statutory minimum of 14.5 percent. • The liquidity ratio for the sector has improved to 40.4 percent as at the end of June 2016 from 38.7 percent in June 2015. This is above the statutory minimum limit of 20 percent. • The sector’s profit before tax increased by 2.1 percent from Ksh.76.9 billion in June 2015 to Ksh.78.5 billion in June 2016. Nevertheless, despite the sector’s resilience, some difficulties emerged over the last year culminating in the placement under receivership of three banks (Dubai Bank, Imperial Bank, and Chase Bank). It is worth noting that none of these three banks was systemic, and the causes of the difficulties were unique to each of these banks. CBK, in liaison with KDIC, has been working towards resolution of these banks. Additionally, the CBK seized this opportunity to further strengthen the banking sector. These efforts have placed us in “the New Normal” which is premised on three pillars: First, greater transparency on the part of banks. The CBK is requiring greater transparency on the part of banks to ensure public confidence. This entails among others ensuring that banks’ financial statements are credible and reflect a true and fair view. Transparency also extends to other disclosures by banks on their corporate governance and risk management structures. In this regard, CBK has enhanced the disclosures by banks on their significant shareholders. Banks are now required to disclose details of significant shareholders who own 5 percent or more shareholding on their websites. BIS central bankers’ speeches Shareholders are at the core of instilling corporate governance in banks. The disclosure of bank shareholders signals adherence to corporate governance as well as instilling confidence and stability in specific banks and the sector as a whole. At a minimum, the names, shareholding levels, composition of local and foreign ownership as well as group structures, for banking groups, should be disclosed. Second, stronger governance with clearly demarcated responsibilities. It is only when all stakeholders of banks (shareholders, board of directors, management and external auditors) play their roles effectively that the performance of banks will continue on a positive trend. CBK has therefore insisted on clear demarcation of roles among bank stakeholders. On its part, CBK has been strengthening its supervisory practices including off-site surveillance to ensure that banks are truly practicing effective corporate governance. In 2015, CBK directed external auditors of banks to review the effectiveness of banks’ ICT infrastructure as well as insider lending practices. The feedback from these reviews has formed a good base for focused supervision on the sector. Further, CBK will shortly be issuing a consultative paper for review and comments on proposals to limit tenures of non-executive directors and Chief Executive Officers of banks. We all appreciate that unlimited tenures may breed complacency. We therefore encourage banks and all stakeholders to review our proposals when released, to ensure that the final guidelines are well-placed, useful and relevant to the sector. Third, encouraging effective business models. Continued resilience of banks can only be realised when banks ensure that their business models are sound. The business models should be strengthened to accommodate new business lines and innovations rolled out by the banks. This informs the drive by CBK to ensure that they maintain sufficient capital to cater for existing and potential risks they are exposed to and their market niche. This informed the introduction of a 2.5 percent capital conservation buffer effective January 2015. CBK also required banks effective 2013 to develop Internal Capital Adequacy Processes (ICAAP) to inform their capital management. Though most of the banks have embraced the requirement, we have noted that there is wide disparity on the ICAAP documents submitted to CBK. To this end, CBK will shortly be issuing a proposed ICAAP Guidance Note for comments. The Guidance Note is expected to strengthen ICAAP management with capital holdings that are aligned to banks’ risk profiles and business requirements. As I conclude, it is also worth touching on Brexit. While the economic impact thus far has been muted, Brexit has created a lot of uncertainty in the financial markets globally. We are also aware of the likely impact on trade, since countries such as Kenya may be required to negotiate new bilateral agreements with the United Kingdom once it exits the EU. This may have an impact over the medium term, with reduced foreign direct investments as well as export earnings from the UK and EU. CBK is keenly following these developments and is ready to take appropriate actions to safeguard the stability of our economy and the banking sector in particular. With these remarks, Ladies and Gentlemen, it is now my distinct honour to invite the Cabinet Secretary, National Treasury, Mr. Henry Rotich to officially open the Workshop. Karibu Bwana Waziri! BIS central bankers’ speeches
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Keynote address by Dr Patrick Njoroge, Governor of the Central Bank of Kenya, at the TICAD VI/Alliance Forum Foundation & Comesa, Nairobi, 26 August 2016.
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Patrick Njoroge: Financial inclusion in Sub-Saharan Africa Keynote address by Dr Patrick Njoroge, Governor of the Central Bank of Kenya, at the TICAD VI/Alliance Forum Foundation & Comesa, Nairobi, 26 August 2016. * * * Good Afternoon! It is my pleasure to be here today, to speak to such a distinguished group about financial inclusion in Sub-Saharan Africa. History teaches us that every nation in every epoch faces many challenges but also opportunities. Africa faces many challenges, including realizing sustainable growth to reduce poverty and provide meaningful employment to its young population. At the same time, there are opportunities that are provided by two significant trends – globalization and the IT revolution. As we see it, in the financial sphere, financial inclusion combines these two trends to provide great promise in dealing with the present-day challenges. Financial inclusion holds the promise of harnessing collaboration between financial service providers and technology service providers to achieve social ends such as inclusive economic growth, sustainable development and poverty alleviation. This forum provides an excellent occasion to reflect on the achievements made, the challenges that remain, and the opportunities that lie ahead in actualizing this promise. My focus today will be to highlight the role that innovation and related policies play in establishing financially inclusive ecosystems that do not marginalize people on the basis of income or geographical location. As is well recognized, Kenya has leveraged mobile phone technology and made remarkable strides in financial inclusion. There are currently 38.3 million mobile phone subscribers in Kenya. This has allowed access to formal financial services to grow from 26 percent in 2006 to over 75 percent currently. Similarly, other countries in the region have increased financial inclusion; recently reported numbers are Mauritius at 88 percent, South Africa at 83 percent, Tanzania at 57 percent, and Nigeria at 48 percent. While efforts need to be sustained to further increase inclusion and access, the focus has now turned to the products and services that are available. The question at hand is how to expand the digital financial services ecosystem beyond basic money transfer, savings, and micro-credit. Innovative solutions are needed to provide a range of digital financial services, from simple money transfer platforms to payment solutions, savings, micro-insurance, financial planning and access to capital markets securities. What framework would ensure that the benefit of financial inclusion are sustained? Let me turn to a few considerations to help set a framework for the path ahead. First, there is the perennial question of the cost of such services. Developing sustainable digital services that are affordable by low-income households and vulnerable groups is imperative. While prices of phone sets continue to fall, the transition by financial service providers from Unstructured Supplementary Service Data (USSD)-based SMS services to proprietary apps is not without concerns. Consumers should also benefit from reduced marginal cost of additional digital financial services, as provided by the underlying technologies. However, it is also true that the reliability of the services provided is crucial for consumers. For instance, recent studies on enhancing access to clean water in informal settlements in Kenya (Mathare and Kibera) indicate that low-income households are disposed to pay twice as much to water vendors for reliable water services. This may therefore be an opportune time to start a discussion of the cost of these digital financial services. BIS central bankers’ speeches Secondly, we are seeing increased standardization of processes, structures, and rules, across technological platforms. But do common standards have an impact on innovation? Are they synonymous with interoperability? Technological standards support the production process and market penetration of products, and therefore have a significant collective effect on innovation, productivity, and market structure. However, the existing market dynamics with dominant leaders, coupled with standardization, are bound to have a considerable impact on switching costs and network effects. These would run counter to the long-term objective of enhancing market access with evolving technology. I believe that it is safe to say that the more an industry depends on interoperability, the more the standards will be evidenced. My fear is that standardization has the potential of creating an over reliance on certain technologies, thereby limiting the adoption of new and more efficient technologies. Open digital platforms can improve interoperability and widen consumer choice by expanding the network of available access points for consumers and service providers. Thirdly, the growing adoption of digital financial services also raises a number of consumer protection concerns. These include: a lack of safeguards for funds held by institutions outside the financial regulatory perimeter; limited disclosure of fees, terms and conditions; insufficient agent liquidity; irresponsible lending through digital channels, and agent fraud; system downtime that prevents access to funds; and unclear or limited recourse systems. What is clear is that a sound consumer and data protection framework is essential, especially for vulnerable consumers with limited resources to absorb losses. Questions of data privacy amidst the explosion of cybercrime are of particular concern. Questions about ownership and control of the vast data that is generated through the digital financial services also need urgent attention. Building a sound framework with evolving capabilities will require sound governance and practices at all levels and by all actors in this sector. A pilot “test-and-learn” approach may also be adopted for innovations, through which the necessary safeguards are applied to mitigate the potential risks. Before I conclude, I want to underscore that a great deal of innovation and innovative thinking is needed to ensure that the benefits from greater financial inclusion are fully realized. This forum facilitates progress in this direction. I look forward to interesting and lively interactions and discussions this afternoon. Thank you for your attention. BIS central bankers’ speeches
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Remarks by Dr Patrick Njoroge, Governor of the Central Bank of Kenya, at the 2nd Annual General Meeting and Conference of African Organization of Public Account Committees (AFROPAC), Nairobi, 30 August 2016.
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Patrick Njoroge: The role of banks and the securities markets in curbing the movement of illicit financial flows Remarks by Dr Patrick Njoroge, Governor of the Central Bank of Kenya, at the 2nd Annual General Meeting and Conference of African Organization of Public Account Committees (AFROPAC), Nairobi, 30 August 2016. * * * It is a privilege for me to join this panel to discuss the role of banks and the securities markets in curbing the movement of illicit financial flows. I would like to take this opportunity to thank the African Organization for Public Account Committees (AFROPAC) for inviting me to speak on this topical issue. I would also like to recognize and appreciate AFROPAC’s role in promoting transparency and accountability in the governance of public resources. It is apt to note that the topic of illicit financial flows was recently highlighted at the 14th Session of the United Nations Conference on Trade and Development (UNCTAD) that recently convened in Nairobi about a month ago, a meeting that brought together Heads of States and Governments, and key stakeholders from the business world and civil society. The damaging effects of illicit financial flows on the African continent are now welldocumented and it is only fitting that AFROPAC has brought the issue to the fore. Stemming illicit financial flows from developing countries has emerged as one of the key issues shaping the global development agenda. As you are aware, Goal No. 16 of the Sustainable Development Goals (SDGs) under the United Nations 2030 Agenda for Sustainable Development, commits to “significantly reduce illicit financial and arms flows, strengthen the recovery and return of stolen assets and combat all forms of organised crime” 1. There are good reasons for this: • First, the amounts involved are massive. With assistance from the IMF and the World Bank, the advocacy group Global Financial Integrity (GFI) has estimated that Africa loses about US$50 billion annually to illicit financial flows 2. Additionally, According to the Report of the High Level Panel on Illicit Financial Flows, between 1970 and 2008, Africa lost an estimated US$854 billion in illicit financial flows. 3 This amount is equivalent to the development assistance received by the continent over the same period. • Second, illicit financial flows have far-reaching effects, particularly on the African continent. These flows and the activities that support them have been shown to lead to increasing inequality in the source countries, in addition to undermining the economic and social institutions, discouraging transparency, and undermining international development cooperation. • Third, all countries are involved in this fight, and there are no winners if illicit financial flows are not dealt with. It is noteworthy that the financial sector is the most common conduit for illicit financial flows. This is largely attributed to the interconnection between national and international financial United Nations Sustainable Development Goals (September 2015). Available at: https://sustainable development.un.org/?menu=1300. Global Financial Integrity (2010) Illicit Financial Flows From Africa Hidden Resource for Development. Available at http://www.gfintegrity.org/storage/gfip/documents/reports/gfi_africareport_web.pdf. Stop it! Track it! Get it! Report of the High Level Panel on Illicit Financial Flows From Africa (2015). Available at http://www.uneca.org/sites/default/files/PublicationFiles/iff_main_report_26feb_en.pdf. BIS central bankers’ speeches systems, which can thereby provide a wider geographical reach through which illicit financial assets are moved and laundered. The financial sector, therefore, has to be at the forefront of the agenda to stem illicit financial flows. Nevertheless, in order to develop and implement policies that would appropriately address the issue of illicit financial flows it is important to appreciate the vulnerabilities of African financial systems. More importantly, to understand how they enable or facilitate the movement of illicit financial flows. Most of our economies are characterized by the presence of informal financial systems that are primarily cash based. However, significant gains have been made in increasing the level of financial inclusion, most notably in Sub-Saharan Africa, where countries like Kenya and Tanzania have embraced mobile and financial products and services. But the overall level of financial inclusion in Africa remains low. Only a small percentage of the population has bank accounts, and the percentage of those owning insurance policies and securities is even lower. This is relevant given that it serves to hamper efforts to trace illicit financial flows from the continent. Weak banking regulatory and supervisory frameworks has largely hindered the effective implementation of initiatives aimed at reducing illicit financial flows from Africa. This is reflected at the national level, given that most African countries are yet to fully adopt and implement the 2012 Financial Action Taskforce (FATF) recommendations, the international standards on combating money laundering and the financing of terrorism. The FATF standards are a comprehensive framework of preventive measures that financial institutions are required to implement to address threats to the financial system including illicit financial flows. Recent assessments of several African countries Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) regimes conducted by the Eastern and Southern Africa Anti-Money Laundering Group (ESAAMLG), a FATF regional body, revealed that most countries generally exhibit a low level of compliance with preventive measures. 4 The implementation of the customer due diligence, in particular the identification and verification of beneficial owners of corporate entities remains a significant challenge. Closer international cooperation is also needed. The lack of institutional, technical and human capacity also hampers financial sector regulators’ ability to curtail the movement of illicit financial outflows from financial institutions in Africa. The necessary infrastructure that would support regulators efforts to combat illicit financial flows such as Financial Intelligence Units (FIUs), beneficial ownership registries or asset recovery units are either non-existent or in the early stages of development. As a result, the requisite skills required for tracking illicit financial flows, including the ability to profile money laundering risks and analyse suspicious transactions, are severely lacking and in short supply within the continent. New technologies can help but could also facilitate illicit financial flows. I cannot overemphasise the need for African countries to develop mechanisms that will facilitate transparency. Adoption of mechanisms such as the Kimberley Process for diamonds or the Extractive Industries Transparency Initiative (EITI) would help. In addition, lifting the veil of secrecy and determining who ultimately owns and controls corporate entities that have established business relationships with financial institutions exposes wrong doing and disrupts a key vehicle for illicit financial flows. In this regard, I would therefore urge the continent’s legislatures to consider implementing changes to our national laws that would Massa I. (2014) ‘Capital Flight and the Financial System’ Overseas Development Institute (ODI) Working Paper 413 Available at: https://www.odi.org/sites/odi.org.uk/files/odi-assets/publications-opinion-files/9392.pdf. BIS central bankers’ speeches enhance our national registries, particularly as relates to the obtaining and sharing of beneficial ownership information. I would be remiss if I did not mention the Kenyan experience and initiatives that the Central Bank of Kenya(CBK)has adopted in order to foster transparency within the Kenyan financial system. In the past year, CBK has adopted the following measures: • Stepped up close collaboration with the Financial Reporting Centre (FRC) – Kenya’s financial intelligence unit (FIU) – to foster a culture of compliance in the banking sector. Emphasis has been placed on the preventive measures outlined in the Proceeds of Crime and Anti-Money Laundering Act(POCAMLA), Kenya’s primary anti-money laundering legislation. • Provided additional clarity on reporting obligations under POCAMLA including the issuance of guidelines on large transactions in January 2016, intended to provide a clear trail of large cash transactions conducted over the counter in banks. • Enhanced AML/CFT on-site inspections. CBK is currently developing a risk based AML/CFT supervisory framework with assistance from the International Monetary Fund (IMF). • Required greater transparency on the part of banks to ensure public confidence. Transparency extends to disclosures by banks on their corporate governance and risk management structures. In this regard, CBK has enhanced the disclosures by banks on their significant shareholders. Banks are now required to disclose on their websites details of significant shareholders who own 5percentor more shareholding. Let me take the few remaining minutes to share with you some of our key lessons relating to money laundering, particularly with respect to illicit financial flows: i) Kenya’s financial sector is very vulnerable given its strategic position in the region, facilitated by easy access through sea ports, airports and land. Kenya is a fast growing economy with high potential especially in the financial sector. It is therefore attractive to both well-intentioned and ill-intentioned investors. ii) Inter-agency cooperation between the financial sector regulators, law enforcement agencies and the financial institutions has had a positive effect in stemming illicit financial flows. iii) The perpetrators of money laundering are very smart and sophisticated, ready to take advantage of any existing loopholes in the law and weaknesses in the internal controls of financial institutions. iv) Regular interaction with international bodies tasked with the responsibility of preventing money laundering is key in shaping or improving a country’s institutional, legal and regulatory framework in combating illicit financial flows. In conclusion, the battle against illicit financial flows in Africa cannot be won singlehandedly. Governments, legislatures, the judiciary and the private sector must come together. Tackling the underlying sources of illicit financial flows is imperative. For the African financial sector, investment must be made in strengthening preventive measures. Surveillance, detection and recovery procedures must be enhanced. With this comprehensive approach, Africa will be well armed to combat the scourge of illicit financial flows. I look forward to benefiting from your thoughts and diverse experiences. Thank you for your attention. BIS central bankers’ speeches
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Speech by Dr Patrick Njoroge, Governor of the Central Bank of Kenya, at the Central Bank of Kenya 50th Anniversary Celebrations, Nairobi, 14 September 2016.
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Patrick Njoroge: Central Bank of Kenya 50th Anniversary Celebrations Speech by Dr Patrick Njoroge, Governor of the Central Bank of Kenya, at the Central Bank of Kenya 50th Anniversary Celebrations, Nairobi, 14 September 2016. * * * I am greatly honoured to welcome you this morning to celebrate 50 years of the Central Bank of Kenya’s existence. I am grateful to all guests for honouring our invitation and joining us to celebrate this milestone. I am particularly grateful to Your Excellency, for graciously accepting to attend this important event despite your extremely busy schedule. I want to pay special tribute to fellow Governors and Deputy Governors from the region, and especially my colleagues from the EAC, who have been with us over the last two days, and over the last 50 years. These celebrations accord us an excellent occasion to reflect on the achievements of the Central Bank, the challenges and opportunities that lie ahead. The history of the Central Bank is very much intertwined with the history of the country, and most of us here today are a part of that history. It is a rich history, and like any other, it is marked by peaks and troughs, shadows and lights, but it is a history that we are proud of. Soon after its establishment, the new Central Bank had to deal with an economic slowdown in the early 70s and the effects of the oil crisis, which put increased pressure on domestic prices and the balance of payments. Kenya’s respite came in the form of a “coffee boom,” following a devastating frost in Brazil and the resulting increase in coffee prices. The 1980s witnessed an increase in the number of indigenous Kenyans investing in the banking sector. But inadequate capacity, weak internal controls and poor funds management led to market indiscipline. The result was significant distress in the banking sector, with the attendant ramifications on the Kenyan population, problems that persisted into the early part of the 90s. Highly accommodative policies in the early 90s also lead to runaway inflation, forcing the Central Bank to undertake massive liquidity mop-up operations to reign-in inflation and restore confidence in the financial system. Nevertheless, these challenges presented opportunities for legislative and institutional reforms to improve the effectiveness of the Central Bank. To this end, a number of reforms were effected, including amending the Central Bank Act to enable the Central Bank exercise greater operational autonomy in the conduct of monetary policy, while maintaining price stability as one of its primary objectives. In this sketch of our history, I would also want to flag the following important achievements. 1. The conduct of monetary policy has been improved in line with global practices, developments in the financial sector, and the changing economic environment. The establishment of the Monetary Policy Committee (MPC) in 2008 has enhanced the legitimacy and transparency of monetary policy decisions, as well as guiding expectations about the policy direction. 2. The prudential regulation and supervision of banks has been strengthened over the years. For instance, risk management guidelines were issued in 2005. In response to the need to strengthen the powers to resolve banks and thereby enhance the sector’s stability, the Kenya Deposit Insurance Act was enacted in 2012. Consolidated supervision and regulation of banks with cross-border operations has also been enhanced. We are grateful to our development partners that have and are helping us in this area. 3. Financial inclusion has increased substantially. Access to formal financial services has increased from 26 percent in 2006 to over 75 percent currently. Conversely, the proportion of the population that are financially excluded has been reduced by half since 2006. Additionally, Kenya’s ranking of access to credit by customers advanced 88 places to 28th among 189 countries in the World Bank’s Doing Business Survey 2016. BIS central bankers’ speeches 4. Innovations in the payment systems and the integration of IT systems have increased efficiency in the payments, clearing, and settlement systems. These innovations include: the Real Time Gross Settlements (RTGS) Systems that allow settlements in real time; full automation of the Clearing House and other improvements – cheques that took 21 days to clear some 10 years ago can now be cleared in just two days. Mobile payments have ballooned and account for over 80 percent of the number of payment transactions. The introduction of internet banking has enabled the Central Government, Ministries and Counties to reduce their paperwork and make payments in an efficient manner from far-flung locations. 5. The CBK continues to support the National Treasury manage its accounts. In conjunction with the National Treasury, the government bond programme has been revitalised and the debt portfolio skewed to the current ratio of 78 percent bonds and 22 percent bills. It is against the background of appreciation of these achievements that we started our journey in September 2015, toward our Golden Jubilee celebrations. The events over the last year have been anchored on the youth, in recognition of their key role in our nation’s growth and great expectations. Subsequently, the CBK launched and supported initiatives targeted at empowering and inspiring the youth. These included: • The Mathare Youth Empowerment Programme that focused on enhancing financial literacy amongst youth groups in Mathare; • The CBK internship programme that offers deserving college graduates an opportunity to be inspired to serve in the financial sector. • Sponsorship of the Kenya Music Festival, which entailed about six million students across the country translating the CBK mandate into poems and choral verses as well as performing the CBK theme song Miaka Hamsini. • A Children’s Art competition in collaboration with the National Museums of Kenya and the Kenya Bankers Association, where children translated their understanding of the CBK’s mandate into creative pieces. The best of these are on display here at the Museum and I trust that everyone will get an opportunity to view them. Ladies and Gentlemen, I would be remiss if I did not mention the Central Bank’s greatest assets—the people of the CBK. Most of them are unsung heroes in the backrooms, banking halls, security posts, branches, cleaning crews, etc. All dedicate themselves with professionalism, integrity, and a spirit of service. The staff of the Bank are not only immensely talented but have also shown exceptional dependability and dedication to the institution. I salute you! Today, we will be presenting long service awards to 14 current and retired staff, who have the longest length of service. As I conclude, Ladies and Gentlemen, the CBK is repositioning itself for the next 50 years, and our aspiration is to be a World-Class Modern Central Bank, reflected in our processes, systems, and our staff. CBK will continue to strengthen prudential regulation and supervision, with a view to supporting the continued safety, soundness and growth of the banking sector. This is in line with Kenya’s aspirations under Vision 2030 of promoting a sound, safe and inclusive financial system to progress towards a regional financial services hub. With these remarks, Ladies and Gentlemen, let me once again thank all Kenyans and our guests for joining us in these celebrations. Hongera kwa mafanikio hadi sasa, tunaomba mema kwa siku za mbele! It is now my pleasure to invite the Cabinet Secretary, National Treasury, Mr. Henry Rotich, to make his remarks. Karibu Waziri! BIS central bankers’ speeches
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Keynote address by Dr Patrick Njoroge, Governor of the Central Bank of Kenya, at the 4th Dutch Development Bank's (FMO) Future of Finance Conference, Katwijk, Netherlands, 26 September 2016.
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4TH FMO’s FUTURE OF FINANCE CONFERENCE TheaterHangaar, Katwijk, Netherlands Keynote Address by Dr. Patrick Njoroge Governor, Central Bank of Kenya September 26, 2016 As Prepared for Delivery Good morning! I am greatly honored to be here today. I would like to thank the Dutch Development Bank (FMO) for organizing this conference on the important theme Future of Finance, their gracious hospitality, and the invitation to speak to such a distinguished audience on the impact of disruptive technology on financial inclusion. New technologies have profoundly transformed societies the world over. In the last decade, we have witnessed an unprecedented upsurge of technology-driven innovations that are transforming Africa’s economic landscape. Coupled with globalization—the other significant trend of our time—these innovations offer immense possibilities for achieving inclusive economic growth, sustainable development, and poverty reduction. The outcomes with respect to financial services in Kenya and the rest of Sub-Saharan Africa, have so far been astounding. In the words of Nelson Mandela, “It always seems impossible until it is done.” This conference provides an excellent opportunity to reflect on Kenya’s journey of embracing innovative and disruptive technology as a tool for financial inclusion, and the challenges and opportunities that lie ahead. An analogous example may be appropriate and illustrative. It is evident how profoundly Dutch Masters changed the art of painting, as their disruptive innovations challenged the existing paradigms and offered new possibilities that were previously unimaginable. It is also significant that Rembrandt and Van Gogh absorbed studiously the methods of the time before launching their careers and developing their own innovative approaches. Embracing this same spirit, let me first turn to a few considerations of the current setting. First, mobile phone technology has allowed Kenya to make substantial progress in financial inclusion. There are some 38.3 million mobile phone subscribers in Kenya, a penetration rate of 89 percent. In addition, the network of mobile money agents has grown significantly, from 527 agents in June 2007 to 164,465 in June 2016. These factors have allowed access to formal financial services to expand from 26 percent in 2006 to over 75 percent currently.1 Similar improvements in financial inclusion have been witnessed in other countries in the region—recently reported numbers are Mauritius at 88 percent, South Africa at 83 percent, Rwanda at 68 percent, Tanzania at 57 percent, and Nigeria at 48 percent, and Democratic Republic of Congo at 36 percent. Second, compared to similarly-situated countries, Kenya has a relatively small gender gap of about 7 percent.2 Additionally, data from a large integrated banking and payments platform in Kenya indicates that 41 percent of users are women. However, 99 percent of these women users are active users, whereas 59 percent of users are men but only 77 percent of them are active users. Similarly, women account for 58 percent of the number of transactions and 51 percent of transaction value. Astonishingly, women account for 82 percent of total savings. The Groupe Speciale Mobile Association (GSMA) study attributes the small gender gap in Kenya to the success of mobile money, which provides women and their families a distinct reason to own and use a mobile phone. The study ranked Kenya’s women among the most connected in the world. In contrast, there is a sizeable gender gap in mobile phone ownership and usage in low- and middle-income countries. There is evidence to suggest that women in those countries are on average 14 percent less likely to own a mobile phone than men. For instance, gender gaps in Mexico and Egypt are 6 percent and 2 percent respectively, and reported at 41 percent in Niger and 21 percent in Jordan. The study noted that countries with higher per capita GDP generally have smaller gender gaps in mobile phone ownership. Jordan, however, is a middle-income country whose high gender gap is likely due to the social barriers women face relative to their male counterparts. More generally, successfully targeting women would not only advance The 2015 FinAccess Geospatial Mapping Survey by FSD Kenya, confirmed that 86 percent of the population were within 5 kilometers of a mobile money agent. The survey also revealed that 73 percent of the population is living within 3 kilometers of a financial services access touch point, increased from 59 percent in 2013. Groupe Speciale Mobile Association (GSMA), “Bridging the Gender Gap: Mobile Access and Usage in Low- and Middle-income Countries”, 2015. women’s digital and financial inclusion, but also deliver significant socio-economic benefits to families and households. Third, mobile phone financial services have supported reduction in poverty. Significantly, low-income households and vulnerable groups have created their own social networks which have enabled them to diversify risk within their social pools, and thereby also enhanced their resilience to unexpected negative shocks.3 Mobile money appears to increase the number of active participants and effective size of risk-sharing networks, without increasing information, monitoring, and commitment costs. Another study has correlated improved access to mobile phones with living standards, which in turn is one of the dimensions of poverty.4 Fourth, the expansion of financial services to small and medium-sized enterprises (SMEs) have been weak. This is in contrast to the remarkable increase in micro-lending to microenterprises. This is of concern as, micro- small- and medium-sized enterprises (MSMEs) account for about 90 percent of business enterprises in sub-Saharan Africa, they account for about a third of GDP, and contribute about 45 percent of employment and job creation.5 Studies from various African countries have established the key impediments to SME financing to include; their perceived high risk profile, information asymmetry, and the lack of traditional collateral. To protect themselves against default, financial institutions place onerous requirements on SMEs including proof of regular income, collateral, and a long credit history. Ladies and Gentlemen, while the gains over the last few years are remarkable, the question at hand is how to sustainably expand digital financial services beyond the basic services of money transfer, savings, and microcredit. With innovation, is it possible to unbundle financial services into their core elements and functions, from settling Suri, T. “The Mobile Money Revolution in Kenya: Can the Promise Be Fulfilled?” 2015, FSD Kenya. Oxford Poverty and Human Development Initiative “Global Multidimensional Poverty Index Databank” 2016, University of Oxford. The MPI is a measure of acute poverty, complementing income-based measures by reflecting the multiple deprivations that people may face. It uses ten indicators across three dimensions (education, health, and living standard), with access to a mobile phone an indicator of “asset ownership” which impacts “living standard”. It reveals that multidimensional poverty in Kenya has fallen, with an MPI of 0.244 in 2009 and 0.187 in 2014. http://www.worldbank.org/en/topic/financialsector/brief/smes-finance payments to risk management, from maturity transformation and intermediation to capital allocation? How will the unique concerns of SMEs be addressed? What framework should be developed to ensure that the benefits of financial inclusion are sustainable and distributed equitably? How should the regulator react in face of the shifts that may occur? Clearly, substantial work remains, and in the words of Rembrandt, “Practice what you know, and it will help to make clear what now you do not know.” I offer some reflections on the way forward. It is important that innovators and financial service providers listen and understand the concerns of their prospective customers. This will generate a wider range of appropriately-designed financial products, based on customers’ diverse needs and characteristics. These services will also need to be affordable by low-income households and vulnerable groups, and the consumers should also benefit from reduced marginal cost of additional digital financial services, as provided by the underlying technologies. Going back to the example of art, the benefits of the artists’ innovations would be felt more widely if more people can see and enjoy these masterpieces. In light of the successes in improving financial inclusion, more attention should be given to expanding financial services in the lagging areas. Of particular importance is the extension of financial services to SMEs, women, and those living on US$2 to 5 per day (the cusp group). The latter group of consumers represent 23 percent of the population in sub-Saharan Africa, comprising of economically active persons in both the formal and informal sectors who lack meaningful assets and remain vulnerable. As an example of such targeted financial services, Kenya will allow the public to purchase government securities through their mobile phone money transfer services, with a minimum investment amount of US$30. This will be transformational—in addition to promoting financial inclusion, it will strengthen the population’s savings culture and ultimately lead to an increase in national savings. Standardization of technologies will likely yield benefits in the short term, but this should not be allowed to stifle the emergence of new technology. Technological standards support the production process and market penetration of products, and thereby has a significant effect on innovation, productivity, and market structure. However, coupled with dominant leaders in the industry, this would increase considerably switching costs and network effects, and conflicting with the long-term objective of greater market access with evolving technology. Innovations need to deal adequately with the risks arising from these financial services. The most significant risks currently relate to cybercrime and data privacy, even as customers navigate a landscape strewn with hidden risks. A number of other consumer protection concerns have also emerged, including: the lack of safeguards for funds held by non-prudentially regulated providers; limited disclosure of fees, terms and conditions; insufficient agent liquidity; irresponsible lending through the digital channels; and unclear or limited recourse in case of disagreement with the provider. What is clear is that building a sound consumer and data protection framework with evolving capabilities is critical. Before I conclude, a few words are in order about the role of regulators in the sector. It is essential that they ensure the innovations in the financial sector are conducted safely, i.e., without jeopardizing financial stability or consumers. This requires that regulators remain knowledgeable of the new and emerging technologies, in addition to being nimble so as to provide timely guidance. Given the unknown risks with these innovations, a pilot “test and learn” approach may be adopted, and through which the necessary safeguards are applied to mitigate the potential risks. This approach worked for us at the Central Bank of Kenya when we took the initial steps with mobile money services. As regulatory perimeters become blurred, financial sector regulators must establish links with other regulators, governments, private sector, and other stakeholders. In this complex scenario, consumers will become more vulnerable and will rely on the regulators to protect them. Regulators will also need to guide the maintenance of sound governance and practices at all levels. In closing, I want to underscore that a great deal of innovation and innovative thinking is needed to ensure that the benefits from greater financial inclusion are fully realized. There are risks, but in the words of Van Gogh, “The fishermen know that the sea is dangerous and the storm terrible, but they have never found these dangers sufficient reason for remaining ashore.” Thank you!
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Remarks by Dr Patrick Njoroge, Governor of the Central Bank of Kenya, at the 1st Annual GenAfrica Asset Managers Limited Conference, Diani, 2 December 2016.
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1ST ANNUAL GENAFRICA ASSET MANAGERS LIMITED CONFERENCE Leisure Lodge, Diani NAVIGATING THROUGH TURBULENT TIMES Remarks by Dr. Patrick Njoroge Governor, Central Bank of Kenya December 2, 2016 As Prepared for Delivery Good morning! I am indeed honored to speak before this distinguished forum. I would like to express my thanks to the organizing committee of this conference for the invitation to participate in this session, and to deliver the keynote address. Let me also acknowledge the important role of the GenAfrica Asset Managers Limited in the economy particularly with respect to pension fund management and property investment advisory. Although your investment philosophy is to achieve investment returns without exposing clients’ assets to unnecessary risk, we have seen heightened uncertainties in the domestic and global economies which require closer monitoring. The theme of this conference – Navigating through Turbulent Times – resonates with the challenges that most emerging and developing economies are going through as they seek to deliver on their mandates of ensuring macroeconomic stability and promoting growth. These economies, Kenya included, have become more integrated with the global economy, and are therefore exposed to external shocks largely through the linkages in the financial markets, foreign direct investment flows, as well as commodity prices. Growth in Sub-Saharan African (SSA) region has been held back in 2016 by the weak global economy, the decline in commodity prices, and uncertainty in the financial markets. In particular, SSA growth is projected to decelerate to 1.4 percent in 2016 from 3.4 percent in 2015, and from an average of 5.3 percent in the period 2010–2014. This is the slowest growth for the region in twenty years. The outlook for the global economy is confounded by uncertainties around the impact of Brexit and political developments in the U.S. Given these risks, and in line with the theme of this forum, I would like to provide some highlights on the outlook for Kenya’s economy, and to outline some of the measures we are implementing to mitigate the risks. Kenya’s economy has remained strong, growing at an average of 5.6 percent during the period 2011-2015, which was higher than the SSA average growth of 4.3 percent. The growth averaged 6.1 percent in the first half of 2016 and is projected at 6.0 percent in 2016, up from 5.6 percent in 2015. This outlook is underpinned by continued public and private sector investment, strong agriculture performance, increased private consumption, and a stable macroeconomic environment. Improved business conditions reflected in a stable macroeconomic environment, security, and infrastructure development have created a conducive and predictable environment for investment, and economic activity. According to the World Bank 2017 Doing Business Report, Kenya climbed 16 ranks to position 92 from 108 in 2016 and is the World’s third most reformed country. These developments reflect the ongoing reform effort by the Government to improve the business environment. Prudent monetary policy has kept inflation within the government target range, and maintained stability in the foreign exchange market. Despite the significant pressures on food prices, inflation was 6.7 percent in November 2016 compared with 7.3 percent in November 2015, and 6.5 percent in October 2016. Non-food non-fuel inflation remains relatively stable. The CBK remains cognisant of the adverse effects of food and oil price shocks on inflation. Kenya’s external position remains resilient despite the weaker global growth prospects. The current account deficit is expected to narrow to 5.5 percent of GDP in 2016 from 6.8 percent in 2015 largely reflecting a decline in the value of imports of petroleum products and machinery and equipment. In addition, export earnings from tea, coffee, and horticulture have stabilised, while diaspora remittances and receipts from tourism have improved. These developments continue to support stability in the foreign exchange market despite the uncertainty in the global financial markets following the U.S. elections, and the potential for a resumption of tightening of U.S. monetary policy. The CBK foreign exchange reserves, which stand at 4.8 months of import cover, together with the Precautionary Arrangements with the IMF totalling USD 1.5 billion continue provide buffers against short term shocks. The continued achievement of the CBK’s price stability objective has provided an adequate policy space for the economy to withstand external shocks. In addition, the floating exchange rate regime has allowed continued adjustment of the exchange rate to shifts in the demand for and supply of foreign exchange, while ensuring that reserves are only used to smoothen short term volatility in the exchange rate. Nevertheless, risks to the economy remain largely with regard to the uncertainty surrounding future trade relationships with the U.K. and E.U. following Brexit, as well as uncertainty over the signing and subsequent ratification of the EU–EAC economic partnership agreements (EPAs). Kenya has significant trade links with Europe, as our main foreign exchange earners notably tea, horticulture and tourism exports are to the EU region. The government has already intensified efforts in the EAC region to renew the EPAs. The diversification in Kenya’s export products and external markets is expected to moderate any adverse effects of external shocks on exports. A significant share of Kenya’s exports, about 40 percent, is exported to Africa, and these economies are not dominantly reliant on commodity exports. We are also closely monitoring the impact of the recent elections in the U.S. on trade given that the U.S. accounts for about 7 percent of Kenya’s total exports; largely through the African Growth and Opportunity Act (AGOA) framework. Before I conclude, I would like to reiterate that the CBK is strengthening the banking sector to ensure greater transparency and stronger governance, and also to promote effective business models and innovation. As you may be aware, the financial sector continues to support the transformation of our economy, and to contribute to economic growth. The CBK is closely monitoring the impact of the recent legislation to cap bank interest rates on the economy, while implementing additional measures to lower the cost of credit on a sustainable basis. These measures include promoting innovation in the banking sector leveraging on ICT, and strengthening the Credit Reference Bureaus to provide for a credit scoring framework. Finally, Ladies and Gentlemen, allow me once again to applaud GenAfrica Asset Managers Limited for organizing this forum. Thank you!
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Remarks by Dr Patrick Njoroge, Governor of the Central Bank of Kenya, at the 3rd Annual Kenya Diaspora Homecoming Convention, Catholic University, Nairobi, 14 December 2016.
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3RD ANNUAL KENYA DIASPORA HOMECOMING CONVENTION Catholic University, Nairobi Remarks by Dr. Patrick Njoroge Governor, Central Bank of Kenya December 14, 2016 As Prepared for Delivery Good afternoon! I am indeed honored to speak before this distinguished diaspora homecoming convention. I would like to express my thanks to the Kenya Diaspora Alliance for the invitation to participate in this session as a Keynote Speaker. Let me begin by acknowledging the important role of the Kenyan diaspora in economic development mainly through remittances. Diaspora remittances are currently one of the main sources of foreign exchange for the country, amounting to USD1.7 billion in the 12 months to October 2016, up from USD1.4 billion in 2015. Apart from remittances, which are an alternative investment financing channel in key sectors of our economy such as real estate, diaspora entrepreneurs are helping create jobs and stimulate trade. As you are aware, the Government has been implementing measures to tap the enormous potential of our diaspora’s knowledge and expertise in order to enhance their contribution to economic development. I also understand that diaspora diplomacy has been mainstreamed in our foreign policy, thereby providing the necessary framework for dialogue between the Government and diaspora on pertinent issues to the economy. The theme of this conference – Diaspora Voting and Youth Empowerment – underscores the importance of the diaspora and youth participation in the overall development of our country. Given this theme, and borrowing from my recent experience as a diaspora returnee, I would like to highlight measures that have been put in place to enhance the economic environment, and the economic opportunities that are available to the diaspora. First, macroeconomic stability remains paramount. The achievement and maintenance of a low and stable inflation facilitates predictability in the economic environment thereby promoting investment and a sustainable growth. Prudent monetary policy has kept inflation within the government target range, and ensured stability in the foreign exchange market. In this regard, the CBK moved decisively in the second half of 2015 to deal with rising inflation expectations largely due to increases in food prices, and pressures in the foreign exchange market reflecting developments in the global financial markets. As a result, overall inflation declined to stand at 6.7 percent in November 2016 from 8.0 percent in December 2015. However, we are closely monitoring developments in the domestic and global economies which could have implications on the price stability objective. Uncertainties remain with respect to the impact of Brexit, potential resumption of tightening of U.S. monetary policy, and the future U.S. policy following the recent political developments. Secondly, other measures are being implemented to improve the business environment, including investments in infrastructure such as the Standard Gauge Railway, advancing the use of information technology in doing business, and ensuring security, among others. These initiatives are key to promoting competitiveness in the economy. In addition, the growing youthful and entrepreneurial population is a boon to the business environment. Kenya is ranked the World’s third most reformed country in the World Bank 2017 Doing Business Report. The performance of the economy has remained strong, with growth expected at 6.0 percent in 2016 from 5.6 percent in 2015. On the contrary, growth in the major African economies has been weighed down in 2016 largely due to the slump in commodity prices. Thirdly, the diversification of the Kenyan economy in terms of export products and external markets is a major source of resilience against adverse external shocks. About 40 percent of Kenya’s exports are to Africa, while the economy is not reliant on commodities. The current account deficit has been narrowing, and is projected at 5.5 percent of GDP in 2016 from 6.8 percent in 2015 and 9.8 percent in 2014. The improvement in the current account balance reflects improved earnings from exports of tea, coffee, and horticulture. Diaspora remittances and receipts from tourism have also been resilient. The CBK foreign exchange reserves, which stand at 4.8 months of import cover, together with the Precautionary Arrangements with the IMF totalling USD1.5 billion continue to provide buffers against short term shocks. Fourthly, as you may be aware, the banking sector has continued to play a key role in the economy through mobilisation of savings and allocation of the resources to key sectors. The CBK is strengthening the banking sector to ensure greater transparency and stronger governance, and also to promote effective business models and innovation. The Central Bank continues to engage with financial service providers to introduce innovative solutions or products in the market in order to boost financial inclusion and lower the cost of financial services. The CBK is also closely monitoring the impact of the recent legislation to cap bank interest rates on the economy, while implementing additional measures to lower the cost of credit on a sustainable basis. Let me now turn to some of the available investment opportunities, which in my view provide the diaspora with an opportunity to participate in the development of our economy. I am happy that these products leverage on mobile financial services thereby making it easier for investors to place their investments. The Treasury Mobile Direct (TMD), which was rolled out in December 2015, offers a channel to access small denomination government securities through the mobile phone. The TMD has improved the efficiency of the existing domestic debt issuance operations, while also increasing retail investors’ participation in the primary auctions for government securities. Additionally, the M-Akiba initiative seeks to increase the public’s participation in government securities through the existing mobile-phone money transfer services, and with a low minimum investment amount of USD30. Plans are underway for the launch of the first M-Akiba infrastructure bond. Additional investment channels in government securities, including diaspora bonds, are also being considered. In particular, infrastructure bonds are a very popular investment channel, tied to the financing of the Government’s long-term infrastructure projects. These bonds were introduced in February 2009, and their success has signaled the launch of similar bonds by corporates. The diaspora youth and women also have an opportunity to participate in the Government gender and youth empowerment programs. Currently, 30 percent of all Government procurements are allocated to the youth, women, and persons living with disabilities. The Government has indicated its intentions to expand the opportunities for the youth in procurement through the Access to Government Procurement Opportunities platform. As I close, I would like to challenge the Kenyan diaspora to take advantage of the improved business environment and the increasing investment opportunities in the country as a way of participating in the macro-management of the economy. Let me once again congratulate the Kenya Diaspora Alliance for organizing this forum. Thank you!
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Remarks by Dr Patrick Njoroge, Governor of the Central Bank of Kenya, at the Euromoney Kenya Conference "Financial inclusion 2.0 - expanding Kenya's digital financial ecosystem", Nairobi, 9 May 2017.
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CENTRAL BANK OF KENYA EUROMONEY KENYA CONFERENCE Financial Inclusion 2.0: Expanding Kenya’s Digital Financial Ecosystem Tuesday 9th May 2017 Welcoming Remarks by Dr. Patrick Njoroge Governor of the Central Bank of Kenya Good Morning! 1. It is my pleasure to warmly welcome all delegates to this inaugural Euromoney Kenya Conference. I am particularly pleased to extend a special welcome to those delegates who are visiting our country for the first time. I hope you will enjoy the excellent Kenyan hospitality, and that you will find time to visit our National Heritage sites within the city before you return to your respective countries. 2. I wish to salute the co-hosts of the Conference—Euromoney Conferences, and the Kenya Bankers Association. I also wish to acknowledge the other institutions that have sponsored and supported the conference: the co-sponsor, Kenya Commercial Bank; the Africa Regional Partner, African Development Bank Group; and the supporting organizations, Oracle and Integrated Payment Services Ltd. (IPSL). 3. The theme of this conference “Financial Inclusion 2.0: Expanding Kenya’s Digital Financial Ecosystem” provides an excellent opportunity for the policymakers, thought leaders, bankers, investors, and entrepreneurs, all gathered here today as distinguished speakers and participants, to deliberate on the economic environment in Africa and the outlook for the financial sector. The sessions will also offer insights on the strategic challenges and opportunities facing digital finance in the region. 4. As is well recognized, Kenya has leveraged mobile phone technology and made remarkable strides in financial inclusion. A decade ago, Kenya was characterized by high poverty incidences and high levels of financial exclusion. With the adoption of mobile financial services and agency banking, among other innovations, financial access has increased from 26.7 percent in 2006 to 75.3 percent in 2016. While this is remarkable, the question at hand remains how to expand the digital financial services ecosystem beyond basic money transfer, savings, and micro-credit. We are equally aware that there are still barriers to financial access that hinder 17.4 percent of population from accessing the (formal or informal) financial system. Further, we very much recognize that financial access does not necessarily translate to better living standards—but a journey of a thousand miles starts with a single step. 5. For Kenya, current innovations have mainly addressed the issue of convenience of financial products and services to the general public. As a regulator in the financial sector, our focus now is to enhance the usage of the existing financial innovations as well as assessing the quality of the products and services offered to the consumers. This will ensure that other barriers to access such as affordability, and significance of the products and services are addressed. For any new innovation that seeks to penetrate the Kenyan market, our first concern is whether it will help bring the excluded population into the formal financial system. This would mean endorsing innovations that are adding value in the financial sector. 6. Ladies and Gentlemen, the future is bright with expectations and we have to face it with resolve. It is my hope that today’s discussions will help point to solutions for some of the challenges in expanding the digital financial ecosystem. It is also my hope that the conference will provide a roadmap for the work ahead of us, especially in discerning and tapping into the existing opportunities. I look forward to interesting and lively discussions on how we can use the challenges and opportunities to enhance financial inclusion in both fintech and mobile communication in the region. 7. With these remarks, Ladies and Gentlemen, it is now my pleasure to welcome Hon. Henry Rotich, Cabinet Secretary to the National Treasury, to deliver the Keynote Address.
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Remarks by Dr Patrick Njoroge, Governor of the Central Bank of Kenya, at the International Money Transfer and Cross Border Payment Conference (IMTC), Nairobi, 21 September 2017.
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CENTRAL BANK OF KENYA INTERNATIONAL MONEY TRANSFER AND CROSS BORDER PAYMENT CONFERENCE (IMTC) Crowne Plaza Hotel, Nairobi Remarks by Dr. Patrick Njoroge Governor of the Central Bank of Kenya September 21, 2017 As Prepared for Delivery Good morning, ladies and gentlemen! It is a great pleasure for me to join you at this conference. Let me begin by thanking the conference organizers for the invitation, and for giving me the opportunity to interact with the distinguished participants. We feel particularly privileged to host this inaugural IMTC Africa Conference in Nairobi. It is equally significant for the East African region, which increasingly is viewed as an attractive destination for business and investments. This conference therefore provides an excellent opportunity to reflect on the important topics of remittances and crossborder payments, the challenges and opportunities that lie ahead. The beginnings of our banking system is intertwined with remittances and cross border payments. The first bank in Kenya was established in 1896, to facilitate sending money home by Indian workers that were building the railway through Kenya, and also to support trade in the Europe-South Africa-India axis. A lot has changed since then. A hundred years ago, remittances depended on the movement of a written instruction over sea and land. It could take months and the transaction faced many perils. Today, transfers are virtually instantaneous and current protocols ensure certainty of the transfer. Customers’ interest in a secure and inexpensive remittance channel remain unchanged. The importance of cross border payments cannot be overemphasized. Remittance flows to developing countries amounted to US$429 billion in 2016, more than twice the amount of foreign aid that these countries received, and have become an important source of foreign exchange.1 Similarly, remittance to Sub-Saharan Africa (SSA) amounted to US$33 billion in 2016. These remittances are a critical source of income for many households and provide a highly beneficial insurance function. Innovations in digital financial services have been transforming the remittance industry. For Kenya, prior to 2013 when Money Remittance Regulations were issued, remittance flows were largely through informal channels as banks were deemed prohibitively expensive. Since then domestic money transfer products such as M-Pesa have evolved to become convenient and reliable platforms which with the expansion of mobile phone technology are now available to large segments of the population. For instance, Kenya has a mobile phone penetration rate of 89 percent compared to the Sub-Sahara Africa average of 43 percent, and 85 percent of all financial transactions are conducted through the mobile transfer platforms though they comprise only 9 percent of the total value. These providers are now broadening the channels of international money transfers, and the Central Bank of Kenya (CBK) has approved their partnering with various international money transfer institutions. Nevertheless, there are some issues of concern alongside these positive developments. These need to be kept in mind and addressed in a concerted manner, and I offer some reflections on a few of them. First, the cost of remittances remains very high, at an estimated 7.32 percent globally and 9.42 percent for SSA, and needs to be lowered quickly.2 These costs are charged largely by the originating institutions in countries where the traditional structures and institutions such as banks remain dominant. However, the ease and cost of remittance transfers also has a significant impact on the welfare of the many households that rely on these flows. The regionalization of money remittance services and modernization of cross border payment platforms would certainly facilitate a lowering of the cost of remittances. Nevertheless, it is imperative that innovative ways be found to further lower these cost towards the Sustainable Development Goal (SDG) target of 3 percent. Therefore the fundamental question is what will each agent along the transfer chain do so as to reduce the overall cost to the consumer and how will innovations assist in this process? 1 World Bank Group, Migration and Remittances: Recent Developments and Outlook, April 2017 2 World Bank Group, Remittance Prices Worldwide, June 2017 Second, the Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) framework needs to be improved continuously. This would ensure the adoption of best practices and, inter alia, lead to compliance with the AML/CFT requirements and the fostering of an enabling environment for remittances. On the other hand, if progress in this area is not forthcoming, those jurisdictions would face the prospect of de-risking—a termination of their correspondent banking relationships, a withdrawal of foreign banks, or the imposition of other restrictions due to the perceived risks to money laundering and terrorism financing. In many ways de-risking has been attributed to the misapplication of AML/CFT measures and to address this concern the Financial Action Task Force (FATF), the international standard setter, has advocated that countries fully implement a riskbased approach to combating money laundering and terrorism financing. To this end, the CBK has adopted a Risk-Based Supervisory Framework for AML/CFT. This framework complements the existing framework on prudential supervision and legal compliance with special attention directed to anti-money laundering and combating financing of terrorism. Nevertheless, all agents have a responsibility in reducing AML/CFT risks and building a robust framework for cross-border payments. Third, financial sector regulators need to remain vigilant on potential risks, while safeguarding an effective processing of payments and ensuring that a consumerfocused environment is maintained. As a regulator, financial stability continues to be our primary objective, regardless of the transaction channels that are deployed. However, cyber security and data privacy continue to pose the greatest concerns in terms of the efficacy of regulatory protections, and further concerted work is called for. There is certainly a lot of room for peer learning. These are the issues that will likely come up in your discussions, and I hope a way forward will be found. I look forward to interesting and lively interactions, but more importantly, to learning from your diverse experiences in this area. Once again, I am grateful for this opportunity to engage with you. Thank you for your attention!
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Remarks by Dr Patrick Njoroge, Governor of the Central Bank of Kenya, at the Kenya Bankers Association (KBA) Sixth Annual Research Conference, Nairobi, 28 September 2017.
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CENTRAL BANK OF KENYA THE KENYA BANKERS ASSOCIATION SIXTH ANNUAL BANKING RESEARCH CONFERENCE Radisson Blu Hotel, Nairobi Keynote Speech by Dr. Patrick Njoroge Governor of the Central Bank of Kenya September 28, 2017 As Prepared for Delivery Good morning! It is an honour for me to join you at the Kenya Bankers Association (KBA) Sixth Annual Research Conference. At the outset, let me applaud KBA for organising this annual conference over the last six years. The Conference provides an excellent opportunity for us to reflect on the Kenyan banking sector’s transformation journey, its milestones, challenges and opportunities. The theme of the conference “Intermediation towards Deepening of Financial Inclusion” is especially fitting, given Kenya’s progress on financial inclusion and pondering the challenges that lie ahead. Allow me to begin my remarks by considering Kenya’s recent experience on this front, and specifically, as concerns the banking sector in its role of financial intermediation. Over the past ten years, the proportion of the adult population in Kenya with access to formal financial services and products has risen from 27 percent in 2006 to 75.3 percent in 2016. This represents a remarkable achievement by any standard, and Kenya’s success in financial inclusion has been widely acclaimed, locally and internationally. For instance, two eminent institutions recently recognised Kenya for its digital financial inclusion achievements. In July 2017, the Fletcher School at Tufts University ranked Kenya fourth out of sixty countries on the digital finance momentum index in its 2017 Digital Planet Report.1 In August 2017, the Brookings Institute ranked Kenya first in its annual https://sites.tufts.edu/digitalplanet/files/2017/05/Digital_Planet_2017_FINAL.pdf Financial and Digital Inclusion Project (FDIP) scorecard, for the third year in a row.2 These reports recognise Kenya’s efforts to develop robust policy environments and regulatory infrastructure for the development of digital finance. While the important role of financial inclusion in economic development cannot be overemphasized, Kenya’s significant strides in this area may obscure some crucial blind spots. Let me highlight two of them. First, 25 percent of adults in Kenya still do not have access to any form of financial services. This is further reinforced by noting the large swathes of the country, particularly in the northern regions, that are largely devoid of financial services access points. Much work remains to be done. Second, while we have succeeded in enhancing access to financial services, we are lagging behind on other dimensions of financial inclusion, particularly on usage and quality. The usage of financial services needs to be enhanced, reversing a growing trend of dormant accounts in both banks and mobile phone financial services. Additionally, the growing consumer complaints against financial service providers is a clear indictment of the quality of financial services in Kenya. Notwithstanding the continued integration of banking and non-banking services in recent years, the banking sector remains the primary channel for mobilizing financial resources towards productive investment. In this central role, therefore, the banking sector is uniquely placed to make a significant impact on financial inclusion, by increasing outreach and by addressing both price and non-price barriers to financial access. These barriers cut across the key service dimensions: proximity to financial access points, cost of services, and minimum requirements for accessing financial services. Against this backdrop, how then will Kenya’s banking sector deliver on deepening financial inclusion? To answer this question it is important to understand where the banking sector finds itself at this moment. We see Kenya’s banking sector at an inflection point following a confluence of several domestic and external trends, the most obvious being those that led to the interest rate caps in September 2016. As we know, the road to interest rate capping was paved by the longstanding concern by the public about the high https://www.brookings.edu/wp-content/uploads/2017/08/fdip_20170831_project_report.pdf cost of credit on the one hand, and the seeming blindness of banks on the other hand. The sector was seen as driven by the pursuit of supernormal profits on the backs of their customers who also felt mistreated and misinformed. This is an important experience that banks and other stakeholders must learn from. Other significant trends that need to be considered include the high-paced innovations, the significant economic transformation that is expected, regional integration, etc. The question then is how will banks behave going forward, for instance, in an environment without interest rate caps? Will banks go back to their old ways? What will be different this time round? In the remainder of this speech I want to set out the CBK’s vision of a responsible and disciplined banking sector that will serve the needs of all Kenyans. Quoting the economist John Maynard Keynes, “The difficulty lies, not in the new ideas, but in escaping from the old ones [which permeate]…every corner of our minds.”3 Four planks underpin our vision. First, the banking sector must become customer-centric. Banks must truly adopt customer-centric business models to compete successfully in the future. Products, channels and indeed pricing must be informed by customers’ needs, preferences and affordability. Technology provides banks with the opportunity to intimately understand their customers, enabling them to map their customers’ journeys end-to-end. This will facilitate the identification of friction points for customers, allowing prompt action by banks to remove them and enhance the customers’ experience. It is worth noting that even as banks embrace technology, their customers have the same expectations as other customers around the world and subject banks to the same standard they hold technology giants such as Apple, Amazon and Alibaba. Customers want fast and simple user experiences that serve their need. With data analytics capabilities, banks can use customers’ digital footprints and identities to design suitable well-tailored products. Customer feedback obtained through tailored research could also be used to inform the John Maynard Keynes The General Theory of Employment, Interest, and Money, 1935 improvements that will enhance customer experience. Customer-centric models also require banks to identify cost savings that can be passed on to customers in the form of lower interest rates, commissions and fees. Finally, Customer Relationship Management must be at the heart of banks’ business models. It should also be acknowledged that the outlook of shareholders of banks is crucial for the move towards a customer-centric business model. Part of the implicit cost in the current business models relate to shareholders’ expectations of the Return on Assets (ROA)/Return on Equity (ROE). High ROA and ROE expectations when priced into a banks model inevitably raise the costs of product delivery. There has been concerns about the Kenyan banking sector’s high average ROA of above 3 percent and ROE of close to 30 percent, when compared to similar economies. Shareholders must therefore temper their ROA and ROE expectations if banks are to deliver affordable products. In any case, the high ROAs and ROEs are not sustainable in the long term as customers cannot afford the high cost of banking services indefinitely. Second, risk-based credit pricing is imperative. In CBK’s vision, customer credit histories must amount to something. Good credit histories portend a less risky customer and therefore lower interest rates. Customers cannot be treated with a broad brush, focusing on the few defaulters while not rewarding the majority of customers who have good credit histories. The rationale of credit information sharing is to address information asymmetries and enable banks to more effectively price credit risk. Credit Reference Bureaus, banks, and other stakeholders must work together to develop credible credit scores that are incorporated in credit risk appraisal and pricing models. Technology is also providing interesting opportunities to gather customer information through digital identities and footprints that can add to the traditional sources of credit information. On its part, CBK will support this vision by creating an enabling legal and regulatory environment that expands the sources of credit information, ensures data accuracy, and supports an effective resolution of customer complaints. Third, transparency and information disclosure need to be enhanced. Customers are increasingly demanding transparency and disclosures on interest, fees and charges. On their part, banks must fully disclose their interest rates, charges and particularly the fees that customers perceive as hidden. Transparency and disclosure by banks should be a way of business and not just a regulatory requirement. Technology offers an opportunity to enhance transparency and information disclosures. A case in point is the cost of credit website that was launched by CBK and KBA in June 2017. The information on this website will be expanded in the future beyond the three loan products that are shown currently, to cover a broader range of loan products and even incorporate deposit products. Moving further, a banking price index of a commonly used basket of products and services can be developed to further enhance customers’ comparability of prices of banking products and services. Customer confidence can only be achieved when they are able to fully understand the true cost of banking products and services. This will allay the ever-present fear of banks hiding some costs up their sleeves, out of sight of customers who only come to know of them much later when they are already in distress. Fourth, banks need to do the right thing. At the heart of any transformation are people. Without a change of attitude and behaviour by Kenyan and other bankers around the world, any transformation will be futile. The global financial crisis and its aftermath underscored the need to raise the ethical standards of bankers. For instance, the scandals on the fixing of the LIBOR and other rates in Europe, and more recently the exchange rate fixing scandal in South Africa, brought to the fore the greed and deceit that ravaged the global banking industry.4 To address these shortcomings, there is a recognition of the need for ethics in banking. Ethical banking requires that the needs of society trump those of other stakeholders including shareholders. Banks exist to serve the societies they operate in, and societal needs and aspirations must therefore be at the forefront of every banker’s mind. Naturally, these require a change of mind-set by Kenyan bankers beyond the often On the LIBOR fixing scandal, see for instance, David Enrich, The Spider Network, HarperCollins, 2017. On the exchange rate fixing scandal in South Africa, see Sunday Times (South Africa), February 19, 2017. token and symbolic corporate social responsibility initiatives. Bankers should weigh profit targets against what is right and just for the Kenyan citizens that the banks serve. Undoubtedly, Kenya’s banking sector is at a critical juncture. Will it withstand the raging storms or will it be swept away like flotsam in the tides of time? I am confident that the sector will withstand the tempest and reach safe harbour, demonstrating the resilience that has been its hallmark since the first bank—the National Bank of India—opened for business on the Kenyan shores in 1896. The railway from Mombasa to Kampala, the “Lunatic Express,” was then under construction. The sector has withstood two world wars and other geo-political shocks, has been there through the struggle for independence, the oil crisis and coffee boom of the 1970’s, the Asian financial crisis in the late 1990s, and the global financial crisis. The sector has always transformed itself in these and other circumstances, led by worthy captains of the industry. As I finish, the challenge I pose to the Kenyan banking sector is, what will be different this time round? We must respond convincingly to this question to win the trust of Kenyans and beyond. I wish you fruitful deliberations over the next two days and I look forward to the outcomes of the conference. Thank You!
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Keynote address by Dr Patrick Njoroge, Governor of the Central Bank of Kenya, at the Impact Investment Forum: African Rural and Agricultural Credit Association (AFRACA) 40th Anniversary, Nairobi, 21 November 2017.
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CENTRAL BANK OF KENYA IMPACT INVESTMENT FORUM: AFRICAN RURAL AND AGRICULTURAL CREDIT ASSOCIATION (AFRACA) 4OTH ANNIVERSARY Kenya School of Monetary Studies, Nairobi Keynote Address by Dr. Patrick Njoroge Governor of the Central Bank of Kenya November 21, 2017 As Prepared for Delivery Ladies and Gentlemen, Good morning! Forty years is a milestone. Some argue that it is when middle age begins – you look back fondly at the things of your youth, but also look forward to using your experience and wisdom to achieve long-held goals. I am thus glad that you welcomed me to your birthday celebrations, and allowed me to share in such a significant moment. In 1977 the African Rural and Agricultural Credit Association (AFRACA) was created in response to a request made to the United Nations Food and Agriculture Organisation (FAO), during the 1975 World Food Conference. This request, was that FAO assist developing member countries establish Regional Agricultural Credit Associations (RACAs). The purpose of this RACAs was to promote cooperation and facilitate mutual exchange of information and expertise in the field of rural finance. Some background research into AFRACA unearths a number of gems that indicate that you have been at the forefront in driving the Rural and Agricultural Finance Agenda in Africa. You have had, and continue to have, a strong desire to turn regional diversity into a powerful driving force and catalyst for exchange, capacity building and cooperation to promote rural finance. I am deeply honoured to be part of this campaign to revolutionize finance for African Agriculture. And we have something in common, for we at the Central Bank of Kenya, share a similar vision, “of a rural Africa where everyone has access to sustainable financial services that support economic development, while maintaining social and environmental balance”. That said, the task is enormous—nearly two-thirds of Africa’s population depend on agriculture for their livelihood and the sector contributes over 40 percent of the continent’s GDP. I am very pleased today to be part of this first Impact Investment Forum commemorating AFRACA’s 40th anniversary. The theme of the conference “unlocking private sector capital to scale up impact investments in African agriculture” promises to be a story of shifting the reality of agricultural finance as we know it today. Africa has in the past relied largely on Official Development Assistance and domestic public funding to address socio-economic challenges, many of which have few market-based solutions. We all know that these traditional funding flows have been on the decline over the last decade; and this is at a time when huge resources are required for implementation of the Sustainable Development Goals (SDGs) as well as the African Union Commission’s 2063 agenda and individual national goals. But as these traditional public funding decline, private financial flows have grown —from 63 percent of total external resources in 2002-06 to over 70 percent in 2010-14. For the African governments to achieve the noble aspirations enshrined in the SDGs, and the AU agenda into realities on the ground, they will need to adopt innovative ways to leverage on the rising private investment to fill the large projected financing gap. This Forum’s focus is on Impact Investment in the context of the agricultural sector; and this is a sector whose importance in our economies cannot be over-emphasized. Apart from its GDP contribution, critical is the high concentration of the poor and those who are financially excluded in rural areas. Many of us engage in agriculture even as we live our lives in the city. Most of us, let’s be honest, plan to retire to a life of agriculture, as many have done before us. The efficiency of agriculture is thus of vital, and personal, importance to us. Of more importance to central banks is managing the volatility of food prices. Concerns about price volatility have a huge effect on business decisions and investments. Modernizing agriculture is critical to managing this risk and finance is at the centre. Despite the great strides made by the African banking sector in digital financial services, the typical offer for financial products and services for the actors in the agricultural sector has been limited. Most agricultural investments, and impact enterprises, in particular, find it challenging to obtain capital from the commercial banking sector due to a number of constraints. Although Impact Investments are identified today as constituting one of the more promising approaches to the funding of inclusive and green businesses, the field of impact investing is also relatively young. As such, many undertakings have not had time to mature and demonstrate results. There is also a lack of awareness and understanding among banking practitioners on the peculiarities of impact businesses. So, what strides has Kenya made towards developing market-based solutions to addressing environmental and social challenges? The Kenya Bankers Association (KBA) and the Nairobi Securities Exchange (NSE) partnered with market players to fast-track the Kenya Green Bonds programme. Kenya’s green finance initiative was strengthened during the United Nations Conference on Trade and Development (UNCTAD) that took place in Nairobi in July 2016. To progress the initiative, KBANSE organized a banking industry engagement where the Climate Bonds Initiative (CBI) shared global experiences and a Green Bond Working Group (GBWG) comprising of market players was formed. The Kenya Green Bond guidelines are being finalized in line with international best practice. These efforts towards actualising the green finance market in Kenya come in the background of progress in development of the domestic debt market, which I believe is important to catapult the green bond market in the country. The measures we have undertaken are aimed at lengthening the maturity of the debt, diversifying the investor base and developing a vibrant secondary market to achieve a reliable benchmark yield curve. Developing the capital markets has been a dynamic process that has involved regulatory reform, strengthening financial sector regulators and improvements to the market infrastructure including payment and settlement systems. Kenya is ripe for green investments. The stable macroeconomic and market environment coupled with economic diversification and stability of the currency are just but a few strengths that demonstrate our capacity. Capital market investors can leverage on the digital transformation story and success in financial inclusion to enter the market. As I conclude, ladies and gentlemen, I would like to thank AFRACA and the WorldWide Fund for Nature (WWF) who have convened this first Impact Investment Forum targeting financial institutions in Africa. I am glad to learn that one of the main objectives of the conference is to leverage on the knowledge of the great minds gathered here to create more awareness and understanding on the concept, with the overall goal of shifting Impact Investment Funds to agriculture. We are very keen to encourage practices that promote inclusive and sustainable businesses. This discussion is supportive of this. I wish you a very fruitful Conference and look forward to the action points for moving this topic forward as AFRACA marches on. I thank you for your attention, and wish you a happy birthday.
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Keynote address by Dr Patrick Njoroge, Governor of the Central Bank of Kenya, at the 7th Kenya Bankers Association Annual Banking Conference "Credit Market Dynamics in an Evolving Regulatory and Market Participants' Environment", Nairobi, 27 September 2018.
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CENTRAL BANK OF KENYA 7TH KENYA BANKERS ASSOCIATION ANNUAL BANKING CONFERENCE Thursday, September 27, 2018 Keynote Address by Dr. Patrick Njoroge, Governor, Central Bank of Kenya As Prepared for Delivery Good morning! I want to begin by thanking the Kenya Bankers Association (KBA) for inviting me to speak at this auspicious Annual Banking Conference. I applaud KBA for organizing this conference for the last seven years, and contributing to thought leadership on topical banking sector issues. The theme of the conference ‘‘Credit Market Dynamics in an Evolving Regulatory and Market Participants’ Environment’’ is quite apt given the conjuncture—where the global, regional and national financial markets are today. For instance, in Kenya, there has been considerable discourse recently on the cost and availability of credit. The discussion is now morphing to the potential role of disruptive non-traditional credit providers that leverage on technology, but discussions about consumer protection in these new environments has not gathered much steam. However, I am informed that these issues will be discussed during the conference and I look forward to the findings. The year 2018 has been a year of anniversaries. On August 7, we marked twenty years since the bombing of the American Embassy in Nairobi, just a few steps away from the Central Bank building. And just a few days ago, on the 21st of September, we marked the fifth anniversary of the Westgate attack. Both of these were tragedies, marked with sombre reflections by our fellow citizens. We marked another recent anniversary that is less familiar to many ordinary Kenyans, but one that is felt acutely by practitioners in the financial sector. Ten years ago, on September 15, 2008, the storm that had been brewing for a year finally broke. Lehman Brothers, a company that had been in existence for one hundred and fifty eight years, shut its doors. Ordinarily, companies come and go. After all, creative destruction is the mantra of the day and only the fittest survive. New blood, new ideas and new companies are essential to the health of capitalism, and, conversely, old ideas and old companies must be discarded when the time comes. But, of course, Lehman was different. The canary in the coal mine was dead. The deluge was upon us. The effects of the global financial crisis were deep, powerful and lasting. Some are being felt to this very day. The ordinary citizen—Wanjiku—may not give you the precise details of what happened ten years ago. She may not speak of “systemically important financial institutions” or tell you what a subprime mortgage is. She may not speak eloquently about collateral debt obligations, or calculate the point at which a bond goes from investment grade to junk. But Wanjiku, the ordinary citizen that all of us serve, understands some fundamental facts. She understands the fundamental principles of finance, commerce and social interaction. She understands some basic principles that are easily forgotten, ignored, or overlooked in the pursuit of sophistication or profits. The rest of my remarks will expand on this idea. In the recent weeks, there has been extensive debates on the lessons from the global financial crisis and whether the global financial system is now safer. These discussions have also asked whether a sense of exuberance is creeping back into the global financial system, that could unwittingly lead us to the next crisis— another “Minsky moment” where current booms sow the seeds of a future dramatic collapse. These are questions I will leave for participants of the conference and I would be keen to know your thoughts. In diagnosing the cause of the global financial crisis, a lot of ink has been spilled on the inadequacy of regulation and the trend towards deregulation in the lead up to the global financial crisis. Regulation, especially regulation that recognizes and acts on risks, is crucial. And we all appreciate the major drive globally towards strengthening the regulation and supervision of global financial markets. But let’s also appreciate the following crucial fact—at its core, the global financial crisis was about human beings. What human beings chose to do and what they chose not to do. At its heart, the global financial crisis was about ethics. Ethics is not a financial term and conjures up difference images and responses by for different people and different responses. Some in the audience may be thinking: of course my institution is highly ethical—we have rules! Our legal team always ensures that we comply to all laws and regulations! We won a governance award the other day! Our values are printed and displayed in our headquarters! Our email signature tells the world that we are guided by good principles! Even more, we are renowned for training our staff rigorously on our code of conduct! While all these may be related to the core message of raising our ethical standards, I believe there is a need to think deeper, dig deeper, and be more earnest on this matter. While the business of defining ethics can be left to philosophers, we can agree on the more pedestrian description given by the renowned American humanist Aldo Leopold: “Ethical behavior is doing the right thing when no one else is watching even when doing the wrong thing is legal.” Many of you may be wondering why laws cannot be put in place to prevent unethical behaviour once and for all. Wonder no more—life is more complex than rules. Misconduct happens first and laws are passed later—as we have seen elsewhere, innovation generally goes ahead of regulation. There is therefore need for something else besides a set of rules to control the behaviour of people and institutions: we need to understand and pursue ethical values. A lot has been said about this in the aftermath of the global financial crisis.1 Let me touch on three areas for your reflection. https://blog.iese.edu/ethics/2014/06/25/ten-recommendations-for-the-necessary-ethical-rearmament-of-banking/ First, institutions need to develop a responsible corporate culture that entrenches proper market conduct. Culture that goes beyond neat slogans to actually being the guiding force that leads to ethical behaviour and ethical outcomes. You may say the right thing on your corporate culture statements and governance code of conduct declarations, but if your employees know and are told day after day that profit is the only motive, they will behave accordingly. If they notice that customer needs take second place to corporate profit, nothing stops them from treating customers in a similar fashion—badly—in pursuit of expanding the bottom line. If they see rules bent, and notice that the most ruthless are the ones who get the pat on the back, the promotion and, ultimately, the corner office, they will behave in ways that show the greatest rule breaking and ruthlessness. The banking sector’s role in economic development calls for a balance between pursuit of economic profit and serving the community in an environment of shared prosperity. When financial institutions start to embrace excessive risk and questionable practices, they stop performing their ethical-social function, which is necessary for society’s prosperity. Codes of Conduct by players or industry associations should include relevant aspects of ethical behaviour of all stakeholders including employees, customers, suppliers and competitors, local communities, and owners. Each of these stakeholders play a role in success or failure of their institutions. Second, transparency is at the centre of ethical behaviour. All relevant information must be explained even if it is more than what is required by law. Over the years, customers have complained over the lack of transparency in the pricing of products and services by banks. I acknowledge you are making positive steps in this area, but much more remains to be done. This is particularly in the area of credit risk pricing. Customers need to be clear on what their credit reference record means for them in the pricing of credit. Beyond product pricing, you need to be transparent on your governance, business models and risk and reward trade-offs particularly in respect to compensation policies. And this cannot be driven by enforcement by the regulator. You, the people in this room, must be the ones to go above and beyond the strict interpretation of transparency rules. Third, compliance without integrity is futile. Compliance with codes of conduct and other means of self-regulation are good. But this is only useful when the focus is on a shared mentality of integrity that goes beyond mere compliance. The mentality of “we comply” for compliance sake cannot sustain a business for long. I remind you of another anniversary, but this one of a much more recent event. Two weeks ago yesterday, we informed the Kenyan people of the action we took against some of you because of non-compliance with integrity laws. Make no mistake – it was not easy. We considered all the possible negative outcomes that could be triggered by those actions. Ultimately, however, we did not hesitate, and would not hesitate to do it again, under similar circumstances. Banks must steer away from being used as conduits for ill-gotten funds. The Kenyan people – Wanjiku – demand that of us, and will treat us very unkindly, were we to look the other way. The reason why there is such palpable disappointment – I dare say it extends to anger – from the ordinary citizen to you in this room is exactly that. Wanjiku feels that her banker prefers expediency to empathy. She feels that her banker would rather hunt for a loophole than show leadership. Would rather seek supernormal profit than search for solutions. The old adage about the banker asking for their umbrella back when it starts raining may have been funny once, but not when the rain is this heavy, and when Wanjiku already has a flu. So I ask you to reflect on your work, and your conduct. As Kenyans, we would rather watch with pride, and gasp in admiration, when Eliud Kipchoge becomes the fastest marathoner in history, than wonder anxiously whether our banker will be with us in the long haul. We would rather spend our energy thinking of ways to increase and share our prosperity than despairing about whether we are all in this together. We must do better. We must be the guiding light for the banking and financial sector and for this great country we all call home. This would be very easy if we all insist on ethical practices and putting Wanjiku before anything else. I want to finish with an idea that is attributed to the philosopher Immanuel Kant: “May you act so that the principle of action might safely be made a law for the whole world.” Had this advice been heeded in the run up to 2007, the Global Financial crisis would have been averted. The Queen of England would also not have asked the professors at the London School of Economics in November 2008: “If the [antecedent of the global financial crisis] was this bad, why did nobody notice it?” It is now my distinct honour to declare the 7th KBA Annual Banking Conference officially opened. Thank you for your attention.
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Keynote address by Dr Patrick Njoroge, Governor of the Central Bank of Kenya, at the launch of NSE listing rules incorporating listing requirements for green bonds, Nairobi, 20 February 2019.
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CENTRAL BANK OF KENYA LAUNCH OF NSE LISTING RULES INCORPORATING LISTING REQUIREMENTS FOR GREEN BONDS Wednesday, February 20 2019 Keynote Address by Dr. Patrick Njoroge, Governor, Central Bank of Kenya 659 words Good morning! First, I want to thank Geoffrey Odundo for getting me out of the office on this fine Wednesday morning. I had a choice between attending a meeting in my office – which overlooks a car park, by the way – and joining you, not just for breakfast, but to breathe some fresh air. This was a good choice of hotel, seeing as it is located in Central Park, which partly serves as a lung for this busy city. When I was appointed to this position, one of the things I sought was regular respite from the pressures of the job. I have told many of you the story before, of how Karura Forest and my Saturday morning runs there help clear my head. Some of you may have joined me on these runs. I'm not just re-telling this story to prove my running credentials. Karura's existence, and the dogged work put in by the late Professor Wangari Maathai, brought home to Kenyans the value of protecting the environment. I need not remind you that she was also instrumental, three decades ago, in protecting Uhuru Park just next door, and keeping it safe for the people of Nairobi to use. This was years before climate change and environmental protection became buzzwords. Kenya was a leader in proving the fact that the environment matters. We have been leaders in establishing the principle that we have only borrowed this planet from our children. So we now seek to lead the world in proving that being green pays – that we can take the great strengths of the financial industry and its investment savvy and apply these to the task of protecting the earth and all who live in it. Kenya, therefore, is one of the pioneers in establishing the green bond market. There is appetite for investing in Africa, in recognition that, of all the investment bets you can make, this is the one that is sure to come up trumps. There is also appetite, as I have mentioned, to use your investment muscle to do good – to help defend the planet against the ravages of climate change and environmental damage. These two impulses come neatly together when we seek to make Nairobi the global hub for green finance. What must we do, then? What is my challenge to you? This – what we are doing here – is a vital component. We must develop clear guidelines on green finance. The temptation would be to be loose with definition and regulation, in order to ensure that Nairobi is the entrepôt in this new, and essential, field of finance. However, the entrepôt model can have its drawbacks. We must remember that sometimes these may bring the detritus of trade, much as they could bring in high quality commerce. We cannot accept, or afford, to give cover to those who only wish to burnish their greenwashing credentials. Thus, we must look at the highest quality of green bond issuance. The guidelines that we are launching today should be guided by the Green Bond Principles, which outline clearly how projects are selected, and how proceeds are managed and used; as well as which information is disclosed to investors and how. We must also position Nairobi to be a global centre for the green assessment of bonds. Issues such as verification, consultant review and ratings can be refined here, and we should develop and attract global experts in these fields. It is my hope that when we look back a decade or two hence, we will recall this morning fondly, saying to each other that 'we were there', when we set Nairobi on the path to being a capital of green bonds and green finance. And, incidentally, finding me will be fairly easy. I will be the retired old man reading a book under a tree in Uhuru Park! Thank you for your attention.
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Talking points by Dr Patrick Njoroge, Governor of the Central Bank of Kenya, for the presentation on Section 33C of the Banking Act, National Assembly Departmental Committee on Finance and National Planning, Nairobi, 26 February 2019.
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TALKING POINTS FOR THE PRESENTATION ON SECTION 33C OF THE BANKING ACT National Assembly Departmental Committee on Finance and National Planning Dr. Patrick Njoroge, Governor, Central Bank of Kenya February 26, 2019 Hon. Members, I am delighted to appear today before this Departmental Committee on Finance and National Planning. I am grateful to you for the flexibility you allowed in arranging this meeting. At the outset. I want to make three points. First, I acknowledge the letters I received in the recent past requesting me to appear before this Committee. I want to state our desire to meet with you, only that the scheduling did not allow this to happen sooner as I indicated in my replies. In replying to the letter of February 5, 2018, I indicated our desire to appear before the committee as soon as we could, and I also answered some of the questions. Hon. Members, I am prepared to address the remaining concerns. Kulingana na methali “Mgeni njoo, mwenyeji apone”. Second, I want to assure Hon. Members that the Central Bank of Kenya (CBK) serves the public interest. Everything we do is according to its mandate, ultimately for the prosperity of all Kenyans. On the specific questions, we are responding to the current challenges which are not only national but global—terrorism, money laundering, and corruption—and whose consequences are dire. Third, we serve always and everywhere in accordance with the Constitution and all applicable laws. Nevertheless, a collaborative effort with all bodies is called for. In particular, we appreciate the National Assembly’s role and welcome its support. If you will allow me, Hon. Members, I will now explain the recent Amendment to the Banking Act, (Section 33C) how CBK has acted to implement it, the difficulties in implementing this Amendment, and what is at stake. I will also explain the background to CBK’s circular on large cash transactions. You will see that, as never before, we are looking over the edge of an abyss. The economy has taken many blows over the years and proved resilient. This one though would be self-inflicted. *** On October 1, 2018, following the coming into force of Section 65 of the Finance Act (2018) the Banking Act was amended to include a new Section 33C. In one stroke, Kenya was on the brink of rolling back key instruments in the fight against corruption, money laundering, and financing of terrorism, bringing to nought the hard-fought gains. The amendment refers directly to cash transactions but has far-reaching implications. Has CBK acted to implement the Amendment? Yes, CBK first saw the amendment after it had become effective, but embarked on understanding and implementing it. To be clear, CBK had not been made aware or otherwise consulted in formulating the amendments, so we had no lead time. The initial objective was to gather in one place all regulations concerning cash deposits and withdrawals. Significant difficulties emerged right away, one of which is that the stipulated timelines were impossible – the existing regulations just could not be brought together, reviewed by the public, reviewed by the Attorney General, then brought to Parliament and then made effective all within 30 days. In fact, theoretically it takes a minimum of 90 days but in practice recent legislations have taken 11/2 years and more. In the circumstances we sought guidance from the Attorney General. There have been further developments that I will come back to later in my presentation. Why is it impossible to implement the Amendment? What difficulties arise? The Amendment requires bringing together a variety of requirements in the Banking Act and other laws on deposits and withdrawals. Requirements set by banks for their customers, their terms and conditions, would also need to be wrapped in (including ATM limits, hours for accessing the bank). POCAMLA also has requirements on cash transactions, and these will conflict with the Amendment. Similarly by treaty, Kenya is subject to the resolutions of the UN Security Council, including on aspects of cash transactions. The amendment would conflict with that. The Amendment does not ensure the safety and soundness of bank transactions. In addition, it does not allow the needed flexibility even in cases of “clear and present” danger. Can I describe Kenya’s AML/CFT framework? Yes, I will, but we must first acknowledge that Kenya remains vulnerable to risks from money laundering and the financing of terrorism, by virtue of its location, advanced financial sector, cash-based economy, and instances of the underlying crimes. To set the stage, I will first describe the tenets of an effective AML/CFT framework. The framework is intended to protect the financial sector from abuse. An effective framework strengthens the sector’s integrity, and that illicit funds do not flow through the financial sector. The tenets of effective AML/CFT include: KYC/customer due diligence measures; monitoring of transactions; report of large cash transactions; record keeping; and criminalizing money laundering and terrorism. Kenya has sought to apply this according to international best practices. As mentioned, Kenya’s AML/CFT framework is aligned to international best parctices and it is embedded in several complementary elements. Cash monitoring is essential, as criminals performing illicit activities prefer using cash. Majority of suspicious transactions are triggered by unusually large cash transactions. CBK Circular No 1 of 2016 reminded banks of the requirements under POCAMLA on large cash transactions e.g. to determine the legitimacy of funds. The Circular was informed by: Findings from target inspections had revealed that corruption proceeds had been transacted through large cash transactions. Failure by institutions to obtain information to determine legitimacy of customer transactions. Comply with international best practice on large cash transactions. Comparative studies on how other jurisdictions treat large cash transaction. What is the impact of Circular No.1 of 2016? The circular is part of measures to enhance the effectiveness of monitoring cash transactions. As explained, monitoring each cash transaction is an essential pillar of an effective AML/CFT framework. What fraction of our population are affected by this requirement? First, only 0.68 percent of all bank accounts in Kenya have a balance of more than 1 million, and therefore only they are capable of transacting above that threshold. Secondly, most customers can immediately answer the necessary questions. Nevertheless, innovations by banks can simplify the process further. What would happen if we removed this pillar? Would it not lead to all the money in mattresses and in foreign safe havens coming back to our banking system? “Governor, hakuna pesa mashinani”. This is a false hope. What is certain is the AML/CFT framework would collapse. The consequences would be severe and immediate. The consequences would also be felt in every corner of our country, by every citizen. The Dusit Hotel attack: Certain cash transactions in December 2018 allowed the terrorists to finance their operations. As a consequence, 21 innocent lives were lost on January 15. Every Kenyan, was affected. If we could only turn back time… External transactions would be inhibited: You will not be able to send or receive money from outside Kenya, except under very stringent conditions; You will no longer be able to use your credit card for international transactions, including when you travel; International payments, including school and university fees for children, as well as medical fees, will become near-impossible. Impact on the economy would be severe: The Goldenberg scandal is a cautionary tale. Despite the pronounced good intentions of the architects, the Goldenberg scandal devastated the economy to the weakest it has ever been. As much as 25 percent of GDP was looted, GDP growth fell to its lowest in Kenya’s history, inflation surged to an all-time record of 61.5 percent in January 1994, Treasury bill rates rose to a record 85 percent in July 1993, and the exchange rate depreciated by 142.6 percent between December 1991 and December 1993. Further, the banking sector weakened significantly and several banks collapsed. The poor and vulnerable persons were hit hard, as the price of essential commodities rose significantly. Allowing illicit funds to move back freely will have comparable effects. Hon. Members, I am about to finish. As I mentioned earlier, these matters have been brought before the courts for determination. A Petition was filed on November 30, 2018 (High Court of Kenya at Nairobi Constitutional Petition No. 426 of 2018) challenging Section 65 of the Finance Act 2018 that introduced Section 33(C) of the Banking Act. The Attorney General is the first respondent and the National Assembly is the second respondent, while the Central Bank of Kenya is the first interested party. The High Court under its special Constitutional jurisdiction under Article 165(2)(d) will determine the matter and give an interpretation. The various parties have filed their submissions and the matter is scheduled for hearing on March 29, 2019. We await a determination by the court. I thank you for your attention.
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Keynote speech by Dr Patrick Njoroge, Governor of the Central Bank of Kenya, at the launch of the FinAccess Household Survey 2019 Report, Nairobi, 3 April 2019.
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CENTRAL BANK OF KENYA LAUNCH OF THE FINACCESS HOUSEHOLD SURVEY 2019 REPORT Intercontinental Hotel, Nairobi Keynote Speech by Dr Patrick Njoroge Governor of the Central Bank of Kenya 3 April 2019 1416 words Good morning! Today is a good day. Not only because, it is one day closer to the rains which will bring some relief and transform the brown landscape to a lovely hue of green. Today is a good day because it is one of those days when economics comes to life. Often, we economists are in our own little corners, crunching away at some statistics, hoping that our work resonates with our fellow citizens. All too often, that hope does not get fulfilled. But sometimes, as it is this morning, our work has direct resonance with the vast majority of our people. It serves as a map for how they access financial services, and more broadly, the impact of policy on how Kenyans live their lives. This is the fifth time we have done the FinAccess Survey. In every one of them since the first one in 2006, we have learned something new and profound about Kenyans and their interaction with finance. This one is no different, and I will highlight some of the issues and conclusions that jumped out at me. But before I do that, let me tell you why we carry out the Survey, and why it is some of the most important work that we do. Globally, financial inclusion surveys have become an increasingly important source of valuable data and information that supports evidence-based policy and decision making. These surveys provide data that track progress and dynamics of the financial inclusion landscape; and provide data to various stakeholders including policy makers, private sector players and researchers. I need not remind you, since it is something that we're consistently proud of, that we take the global gold medal in financial inclusion. So, for us Kenyans, this is doubly important. Even as we continue to appreciate the Survey and what it does to aid policymaking, certain constants remain, well, constant. We continue to strengthen the measurement of the financial inclusion landscape in terms of access and usage, while incorporating new dimensions of a Needs-Based Framework that measures the relevance of financial services and products, financial service providers and payments channels in meeting household financial needs. This Survey also has new information on financial health and livelihoods, and perceptions on financial literacy and consumer protection. It thus measures aspects of quality and impact dimensions of financial inclusion. We at the Central Bank have consistently said that the dynamism of the Kenyan economy is largely driven by Micro, Small and Medium Enterprises, or MSMEs, and thus this Survey contained some related questions. It also contained questions about Agricultural Finance modules that provide data for better understanding the usage of financial products and services within these specific aspects. So what jumped out at me in this Survey? First, some interesting numbers. Kenya’s financial access has risen to 82.9 percent in 2018, up from 75.3 percent in 2016, and as low as 26.7 percent in 2006. This is a remarkable jump in just over a decade, and this number is despite the age, education, gender, residence, and income gaps. What is equally interesting – and bear with me for drilling down into the statistics – is that only 11 percent of Kenya's adult population is completely excluded from any form of financial services, products or institutions. This number was as high as 41.3 percent as recently as 2006. The most traditionally marginalised regions of the country also recorded the highest declines of excluded adults. The North Eastern region recorded a decline of 47.2 percentage points, the Upper Eastern region a decline of 24.6 percentage points, and the Coast region a decline of 18.6 percentage points. This is something to celebrate. Here is another statistic. The number of Kenyans using more than one type of financial service and product, and this is both formal and informal, increased to 73.7 percent in 2019, compared to 18.8 percent in 2006. Digital finance is also showing strong growth. In just the years between the 2016 Survey and this one, the uptake of loans through digital apps grew from 0.6 percent to 8.3 percent. What will come as no surprise to any Kenyan in this room is the place of friends and family. Kenyans still rely a great deal on these groups to tide them over day to day, and a third of Kenyan households say that this is the primary way they get by. The number jumps when they are asked about how they deal with a financial shock, with just about half, or 50.1 percent, saying that friends and family are the key. Social capital remains crucial. What are the flies in the ointment? It's not all good news, and some concerns remain. Some questions we are asking ourselves out of the Survey findings include the following: Why are Kenyans increasingly tapping the digital apps loans? Do they care about pricing of these products? What are these loans used for? How are the new emerging risk and consumer protection concerns handled? What is hindering rapid uptake of Microfinance Institutions (MFIs), Insurance and Pension services and products? Why do almost a third of Kenyans still use informal sources – a ‘Secret Hiding Place’, credit in form of cash and goods from a shopkeeper, and chamas? Is there a policy gap we need to fill? How do we handle consumer protection concerns? Should we be concerned that cash is still the dominant mode of transaction at about 90 percent, despite rapid financial technology and innovations? Despite the rapid growth in financial inclusion, why is the financial health of Kenyans still low at just one fifth of the adult population? There are also other challenges. Accessing and using financial services and products still costs more than it should, locking out many. Fraud is becoming an increasing concern, as are unexpected transaction charges. Lack of transparency in pricing of financial services and products; and unreliable market infrastructure mainly due to downtime for ATMs, Point of Sale (POS) devices and Mobile money and electronic funds transfer ecosystems remain problematic, although we are attempting to address these systematically. These are issues we will ponder on in the coming days, weeks and months. Before I let researchers, the media and the general public loose on this Survey and its findings, one last thing. The datasets will be released through the KNBS website, and you can find links on the CBK and FSD websites. This year, for the first time, we have created and made available a tool that will enable you interrogate these datasets. So, dive in! Ask questions of the data, and share the answers the data gives you. The researchers have finished their jobs, and will now get a chance to have more than three hours of sleep a night, which they haven't done for many months. As a matter of fact, let me recognise them now – the Director General and staff of the Kenya National Bureau of Statistics (KNBS), who also served a dual role of being the Research House and a funding partner. It is the first time KNBS played the role of a Research House in the FinAccess Surveys, and the Bureau has proved its capability by collecting high quality and comprehensive data. I am also indebted to the Director and staff of the Financial Sector Deepening Trust (FSD) Kenya for financial and analytical support offered during the entire survey process. Lastly, I thank my colleagues from the Central Bank of Kenya (CBK) for the excellent work in coordinating the survey work including planning, logistics, ensuring security for enumerators, analytical work, technical support and CBK funding. We had some excellent partners along the journey. These included Airtel Kenya Limited, Diamond Trust Bank, Kenya Post Office Savings Bank, and NIC Bank Limited. Their support, which was both financial and material, enabled successful completion of the survey. We thank you, and I ask that you join me in applauding them. Asanteni nyote. As I finish reflecting on the outcome of the Survey, I remember those that hesitated in proferring support. As you have seen this morning, this is crucial work, which not only touches the lives of all Kenyans, but also informs crucial policy decisions. I challenge you – join us. Be part of the team! Lean in! There is still a lot of research to do, even with these Survey findings. We ask you to avail your financial and material support for this next phase, and also for future surveys. Let me now do the traditional Kenyan thing: it gives me great pleasure to officially launch the 2019 FinAccess Household Survey Report Thank you.
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Remarks by Dr Patrick Njoroge, Governor of the Central Bank of Kenya, at the Narok Stadium, Narok County, 1 June 2019.
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LAUNCH OF THE NEW GENERATION BANKNOTES Remarks by Dr. Patrick Njoroge Governor, Central Bank of Kenya June 1, 2019 Narok Stadium, Narok County As prepared for delivery Your Excellency; Distinguished Guests; fellow citizens: It gives me great pleasure to participate in this auspicious national celebration. I am particularly grateful to Your Excellency for the honour you have bestowed on the Central Bank of Kenya, by graciously inviting me to say a few words at the end of this beautiful ceremony. It was also our singular honour, Your Excellency, when you visited the Central Bank last December and launched Kenya’s New Generation coins which have wildlife images as the theme. It is therefore fitting that today we are in Narok County, home of the world-acclaimed Maasai Mara and the animals depicted on our coins. After launching the new coins, the matter of the New Generation banknotes still remains, that is, the issuance of banknotes that are consistent with the 2010 Constitution. While the Constitution provides guidance on the features and elements that may be depicted, CBK also invited the public to provide their views on the design elements. Having consulted widely, CBK considered and selected the most appropriate elements—the design features that best meet CBK’s technical requirements, serve the public aspirations, and capture the spirit of the Constitution. Your Excellency, the Central Bank of Kenya has now completed the process of producing the New Generation banknotes, in accordance with the Constitution and all applicable laws. I confirm that the New Generation banknotes were issued yesterday, May 31, 2019, by a Gazette Notice. They are now legal tender. A few words on the new banknotes are in order. The new banknotes bear a significant aspect of our nation, and like the coins, will serve as a means of passing knowledge, conserving culture and promoting our global uniqueness. All banknotes bear the image of Kenyatta International Conference Centre, one of the most iconic and recognisable landmarks in our country. The banknotes also embody each of the big five; nyati, chui, kifaru, simba, and ndovu. Each banknote has a unique theme to show the richness of our people and nature in our beautiful Kenya. For the fifty shillings we have Green Energy, one hundred shillings - Agriculture, two hundred shillings - Social Services, five hundred shillings – Tourism, and one thousand shillings - Governance. These are the drivers of a Newly Reborn and Prosperous Kenya. Additionally, for the first time, the new banknotes bear features that make them more accessible to the visually impaired members of our society. In the coming days, CBK will roll out an awareness campaign to educate the public on the features of the new banknotes. Your Excellency, the new banknotes will circulate alongside those previously issued but not withdrawn. However, we have assessed the grave concern that our large banknotes—particularly the older one thousand shillings series—are being used for illicit financial flows in Kenya and also other countries in the region. More recently we have seen the emergence of some counterfeits. These are grave concerns that would jeopardize proper transactions and the conduct of commerce in our currency. To deal conclusively with these concerns, all the older one thousand shillings series shall be withdrawn. By a Gazette Notice dated May 31, 2019, all persons have until October 1, 2019, to exchange those notes, after which the older one thousand shillings banknotes will cease to be legal tender. More details about this will be provided. Finally, let me thank all Kenyans for their patience with us, their contributions in the design of these new banknotes, and their support of the Central Bank as we seek to discharge our mandate. The launch of the New Generation banknotes at the Madaraka Day celebrations underscores that the history of the Central Bank is intertwined with the history of our country. Your Excellency, it is my distinct honour and privilege, and it gives me great pleasure, to request you to unveil the New Generation banknotes of the Republic of Kenya.
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Article by Dr Patrick Njoroge, Governor of the Central Bank of Kenya, published on the website of the Central Bank of Kenya, 24 October 2019.
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DEMONETISATION—A STEP IN THE FIGHT AGAINST CORRUPTION By Dr. Patrick Njoroge On September 30, 2019, the withdrawal of the old series Ksh.1,000 notes was successfully concluded. This demonetisation commenced on June 1, 2019, following the launch of Kenya’s new generation notes. The new notes symbolize green energy, agriculture, social services, tourism and governance, that are the drivers of a Newly Reborn and Prosperous Kenya. In deciding to withdraw the older series Ksh.1,000 notes, the Central Bank of Kenya (CBK) assessed the grave concern that these notes were being used for illicit transactions and financial flows, in Kenya and in the region. More recently, there has also been the emergence of counterfeits. Both these concerns posed a threat to the credibility of Kenyan currency, and required swift action. In designing the demonetisation strategy, CBK examined the experiences of other countries, such as Australia, European Union, Pakistan, United Kingdom, and most recently India. All considered, the critical consideration was to balance the objective of addressing illicit financial flows and counterfeits while ensuring that the process was not disruptive to the public and the economy. In this regard, a gradual approach over four months was preferred over an abrupt shock and awe approach. Four key elements underpinned the strategy. First, ample public awareness was doubly important, also given that CBK had concurrently launched the New Generation currency. It was critical that Kenyans across the length and breadth of the country were made aware of the ongoing demonetization but also the features of the new currency. To this end, CBK with support from the banking sector and other stakeholders traversed the country—from Nairobi to Lunga Lunga, Kisumu to Garissa, Wajir to Kakuma— engaging all Kenyans in market places, barazas, streets, and bank branches. A multi-channel campaign was also executed, with over 15,000 advertisements, coverage in social media, television, newspapers, and over 80 mainstream and vernacular radio stations. Second, it was important to quickly provide and maintain a wide availability of the new currency. CBK worked closely with banks to ensure a smooth rolling out of new currency across the country and its availability. CBK’s immediate support to banks and other players was needed to recalibrate the verification and note-counting machines, ATMs, and parking payment machines so as deal with the new notes. Special emphasis was placed on the far-flung areas, in the northern and southern parts of the country, cognizant of the heavy use of cash in those regions. To identify any emerging concerns and facilitate their resolution, a robust feedback mechanism including some strategic surveys was also deployed. Third, for the demonetization to be successful it was essential that existing measures on AntiMoney Laundering (AML) and Combatting Financing of Terrorism (CFT) be applied fully. These measures ensured that illicit funds were filtered out, and not exchanged or enter the financial system. Commercial banks, Forex bureaus, and payment service providers (PSP) have over the last few years strengthened their AML/CFT screening, which proved a strong foundation for the demonetisation. Additionally, reporting and monitoring was scaled up, with positive results—during this period CBK conducted 15 targeted inspections on financial institutions, and over 3,000 Suspicious Transaction Reports (STRs) were reported for further investigation. Fourth, a collaborative approach with other official entities was adopted to buttress the strategy. Investigative agencies were brought on board to examine the available information for evidence of crimes. Other central banks were also roped in to ensure that escape of counterfeiters and perpetrators of illicit funds through those jurisdictions was thwarted. This approach is akin to an army overwhelming the enemy by attacking on all flanks at once. As the sun set on demonetization on September 30, 2019, inflation, the exchange rate and other key macroeconomic indicators remained stable. There were no last minute panic queues outside banking halls—the awareness campaign had been effective and ordinary Kenyans had exchanged their notes in good time. At midnight when the operation was concluded, old series Ksh.1,000 notes valued at Ksh.7.4 billion had not been exchanged and became worthless. Demonetisation marks a single step in the fight against illicit finance and corruption more generally. Sustained efforts are needed to deliver victory. The strong AML/CFT filters that were applied will continue to be deployed. The information already gathered will also support further investigations by law enforcement agencies. But most importantly, we have created a launch pad for progress towards using less cash for transactions, as we increasingly embrace the readily available mobile and electronic channels. This will make it harder to launder ill-gotten funds, and for cash-based corruption to survive. The successful conclusion of demonetization is a testament to careful preparation by CBK and close collaboration with commercial banks and other financial institutions, government agencies, other central banks, and most importantly, the public. We owe Kenya a new beginning, a Newly Reborn and Prosperous Kenya, building an economy devoid of corruption. This is a call for each and every Kenyan. The writer is the Governor of the Central Bank of Kenya
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Remarks by Dr Patrick Njoroge, Governor of the Central Bank of Kenya, at the inaugural Inua Biashara Day 2019 and the launch of Stawi, Nairobi, 6 November 2019.
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INAUGURAL INUA BIASHARA DAY 2019 AND LAUNCH OF STAWI Remarks by Dr. Patrick Njoroge Governor, Central Bank of Kenya Safari Park Hotel November 6, 2019 As Prepared for Delivery I am delighted to be here this morning at the Inaugural Inua Biashara Day 2019 and the launch of the lending product Stawi. This is a momentous occasion for our banking sector that has come together for the first time to showcase what they are doing for the Micro, Small and Medium-sized Enterprises (MSMEs). I am grateful to Your Excellency for gracing this occasion but more importantly for consistently challenging the banking industry on financing MSMEs. Let me also commend all the banks, the Kenya Bankers Association, and the various Government agencies for putting together today’s event. MSMEs are the backbone of Kenya’s economy, contributing about 28.4 percent of the Gross Domestic Product. The approximately 7 million MSMEs are concentrated in the manufacturing, wholesale and retail trade, and transport and storage sectors. The resilience of MSMEs has indeed been a key strength of Kenya’s economic growth in recent years. Earlier this year, the Central Bank of Kenya (CBK) made a deliberate effort to go where the action is to understand the needs of the MSMEs. We met vibrant traders in Gikomba, agile mechanics on Ogopa Lane, Kariokor, traders in the bustling Kondele Market in Kisumu, and creative furniture traders on Ngong Road. All of them need finance that is convenient, accessible and preserves their dignity as they may not fit the conventional brick-and-mortar bank model. In short, they need ‘anytime anywhere’ financial services that are aligned to the nature of their enterprises. Following this listening tour, CBK used its convening power to bring banks to the table to provide a solution for MSMEs. I was pleased to see a consortium of five banks stepping up to the plate when we did a soft launch in May 2019. It is gratifying to note that many more additional banks have joined the initiative. Stawi rides on technology and innovation to provide a cost effective ‘anytime anywhere’ credit product that is tailored to the needs of MSMEs. Most importantly, it aims at not just providing finance but also supporting them to enhance their credit worthiness, business skills and ultimately grow their businesses. The testimonies we have heard confirm the realization of the vision of shared prosperity. Over the last few years, Kenyans have expressed concerns on what they perceived as the alienation of banks from meeting their needs. Today’s event and launch is proof that banks have heard the cry of Kenyans. Over the last three years, banks have reviewed their business models to put the customer at the center. MSME’s have not been left behind and the variety of products targeting this sector and exhibited here today is welcome. Today is really just the beginning for banks in scaling up support to MSMEs. A lot more remains to be done, not just through finance but also through capacity building, enabling access to markets, promoting innovation and most importantly through creating an enabling business environment. Feedback from MSMEs will also be essential for banks to calibrate their products. By effectively serving the MSME sector, banks will truly be working for and with Kenyans. With the advances in technology and innovations, this is the vision that the banking sector must achieve. Thank you!
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Speech by Dr Patrick Njoroge, Governor of the Central Bank of Kenya, at the Central Bank of Kenya Kenyatta University Career Day, Kenyatta University, Nairobi, 30 January 2020.
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CENTRAL BANK OF KENYA KENYATTA UNIVERSITY CAREERS DAY Speech by Dr. Patrick Njoroge Governor, Central Bank of Kenya January 30, 2020 Kenyatta University, Nairobi As Prepared for Delivery Thank you for the warm welcome to your university this afternoon. I feel like I am coming back home, remembering I was here about a year ago. In December 2018, I had the great privilege and honour of accepting the award of Doctor of Letters Honoris Causa from your great university. It is an award I am proud of, and it ties me forever with you. When I received the invitation to address you during your Career Week, I had to read the theme several times to understand it. It read: Mapping and Leveraging on Youth, technology and Soft Skills for the 21st Century Workforce, I was rather intrigued. It is quite a mouthful, I must say. But more importantly, I was caught in a bit of a quandary. Youth. Technology. Soft Skills. 21st Century. You see, I am no longer that young. So cross out youth. In many respects, you all are perhaps more up-to-date with technology than I am, especially communication technology. So cross out technology. I may have a bit to tell you about soft skills, but it depends on how those are defined. That goes out too. So that left me only with the last part of the theme – the 21st century, where I also do not have any comparative advantage as we are all experiencing it together. But let us begin there, at the outset of the third decade of this extremely eventful century. Technology is all around us. We carry it in our pockets, and some of you are right now stealing glances at your mobile phones, wondering when I will finish speaking so that you can continue browsing, and chatting, and WhatsApping pictures and videos. Some of you are even using this ubiquitous technology to take videos of this very speech. This technology has become so ordinary that we forget just how revolutionary, and how new, it is. Thirty years ago, just as I was proceeding for my PhD, I would buy stacks of airmail envelopes, to communicate with my family back home. We spent weeks, even months, without hearing from each other, because of the difficulty and expense it took to communicate. Twenty years ago, almost none of us here could afford a mobile phone. You would have to line up at phone booths, hope that you had enough coins, and that the booth was working, to be able to call anyone. You also had to hope that the person you were calling had access to a phone, and was available at the exact moment we needed to speak to them. Ten years ago, we did finally have mobile phones, but we were just getting over the excitement of being able to send each other text messages. We still had to be careful to keep our conversations short before we blew our entire budget on one phone conversation. Only the lucky few had access to, or could afford, mobile phones with cameras, and an always-on internet connection. MPesa was a few years old at that point, but it was only to send money home. Today, we may marvel at the fact that we can call someone from any point in the world to any other point, hold a video conversation, shop or send money even as the conversation is going on, and when we are done, log into our bank accounts, move funds around, and while we are at it even purchase savings products and government bonds. An artisan in Gikomba, without having to change out of his overalls or even walk out of his premises, can open a Stawi account, check that he qualifies for a loan, apply and receive the funds right there. You can search for a job online, apply, receive a response to your application, and prepare to start working without ever looking up from your mobile phone. The reason for my taking you through this history lesson is that, while you may assume that we have reached peak technology, we ain’t seen nothing yet. The next ten years may present as much revolutionary change as the last thirty, and where we will be in January 2030 is almost unimaginable today. You will be part of it. Many of you will help to develop these technologies and their applications. You will work in jobs that do not exist today, and help to redefine our economy in ways that we cannot measure yet. Of course this is exciting. To be young is glorious. There are 61 percent of you, in Kenya, who are below the age of 24, and that means that the coming years and decades are when you will reach the peak of your energy, knowledge and abilities. And though Oscar Wilde said that youth is wasted on the young, I believe that you here are raring to go. However, even as you proceed into this brave new world, full of ideas and vigour on how to transform yourselves and the world around you, I would like to offer you a few lessons. Even if you just remember one of these, it may be enough, but it may help if you took some notes and pulled them out every so often for reference. The first is one that you may have come across. Warren Buffett is an American investor, who many of you may have heard of. The companies in his investment portfolio currently employ hundreds of thousands of people, and Buffett has been investing since the 1950s, so he has employed millions more. In other words, he knows exactly what it takes to hire a good employee. Here is what he says: We look for three things when we hire people. We look for intelligence, we look for initiative or energy, and we look for integrity. And if they don't have the latter, the first two will kill you. His point was that, all too often, potential employers and employees get overly excited about their grades out of university. Employers become enthusiastic about the skills that potential employees bring to the organisation. What they forget, and what Buffett’s point is, is that skills, intelligence and initiative are good for accomplishing tasks. However, when the people you hire do not have integrity, they can actually use their proficiency to bring down the organisation. What is often forgotten is the last part of Buffett’s quote: if you are going to get someone without integrity, you want them lazy and dumb. In other words, without integrity, you would rather not have – or be – an employee with skills and energy. I would like to go back briefly to the issue of technology, but approaching it from a different perspective. We have agreed that some of you will be closely involved in the development of the technologies of the future, and the applications riding on that technology. Even today, I receive multiple developers in my office, who would like to showcase their fintech innovations. Frankly, some of them are nowhere near ready for the market, and are nothing better than class projects. But that is not the point. The bigger point is that we are right to be excited to be at the forefront of innovation. But I believe that the bigger task in the coming years and decades, and where considerable work is required, is in the developing of the ethics of technology. It is not enough to add more bells and whistles to a mobile phone application. It is not enough to write code for the internet of things to deliver ever more goods and services, ever faster, to ever more people. No. The true core of technology in the coming days shall be in its ethics. The ethics of technology means that, even at the point of conception, people and their welfare should be at the very heart. We often hear stories from Silicon Valley of applications that have been developed, whose effect is to perpetrate existing divisions and to push vulnerable people to the margins. Even worse, some are designed with this explicit purpose. Even here in Kenya, we have seen such technological “development”. I need not tell you of the mobile loan apps which have served to impoverish people, especially young people like you. Their developers are sitting pretty, raking in the money, with barely a care for the lives they have destroyed, and the families they have impoverished. Thus my challenge to you—you must re-imagine technology. Which technologies will you develop that have the greatest positive impact on the greatest number of people? How will you impact the landscape, from Silicon Savannah to Silicon Valley, to ensure that technology includes, rather than excludes? Three months ago, the man who is undisputedly the African of the Year 2019, and perhaps of the decade, Eliud Kipchoge, achieved something that no human being had ever done before. The whole world watched in admiration as he ran the marathon in less than two hours. You all know how much I admire Kipchoge, and how I like using his philosophy to encourage us and impart lessons. So allow me that indulgence as I finish. I will make it quick, just like Kipchoge. The first lesson is the simplest, yet most profound one. To paraphrase; do not obsess over success. Eliud says that what you need to do is prepare. Prepare relentlessly. Prepare correctly. He also says that you need to have discipline. To do the right things at the right time. Do them even when the mood is not right, or when your energies are not at their highest. If you do these two things, success becomes automatic The second lesson from Kipchoge, dear friends, is again a simple one. Declare what you are going to do, and then do it. He said he was going to run a marathon in under two hours. He put on his shoes, and ran a marathon in under two hours. So that is my final, simple challenge to you. Say what you are going to do, and then do it. Do not wait to be pushed. Do not make a promise you do not intend to, or cannot keep. Go forth! Don’t build your career, Go live life and be all you can be! Thank you!
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Article by Dr Patrick Njoroge, Governor of the Central Bank of Kenya, 20 November 2019.
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Interest Rates—Why this Time Will be Different Dr. Patrick Njoroge The battle for affordable credit went into high gear with the introduction of interest rate caps on September 14, 2016. This followed long-standing concerns about the high interest rates charged by commercial banks, their poor customer service and perceived insensitivity. Three years later, the caps have been repealed and the verdict is clear— there are winners and losers. Those that had borrowed at high rates (above CBR+4 percent) had a bonanza. However, for the majority of potential borrowers and the most vulnerable, bank credit was unavailable. Micro Small and Medium-size Enterprises (MSMEs) were shut out and had to contend with shylocks at highly unfavorable terms. Certainly this did not engender shared prosperity among Kenyans. But the lingering question is whether banks will now roll back to their old ways, or will they strive to build a banking sector that works for and with all Kenyans. Will they react with courage and hope for the future, or roll back to mistrust and caution? The Central Bank of Kenya (CBK) has set the pace by defining a clear vision of a banking sector that is responsible, disciplined and aligned to customers’ needs. Four pillars underpin this vision: risk-based credit pricing, transparency, customer centricity, and entrenching an ethical culture in banks. Pricing—loans should be priced responsibly based on the customer’s risk profile and all positive and negative information from Credit Reference Bureaus (CRBs). The Credit Information Sharing (CIS) mechanism has recently been improved and work is ongoing to enhance it further, e.g., increasing the sources of information, enhancing the frequency and integrity of the data reported to CRBs, and training of bank staff. Transparency—banks need to fully and widely disclose the pricing (all charges and fees) of their products. To this end, the Cost of Credit website and a mobile app that enable customers to “window shop” for personal loans and mortgages were launched in 2017. Further improvements are needed to incorporate more products and improve the overall customer experience. Customer centricity—banks need to be aligned to the needs of their customers, including tailoring products that best serve customers’ needs and resolving swiftly customers’ complaints. For instance, banks recently showcased products that were tailored to the unique conditions of MSMEs. Ethical culture—customers have perceived the high profitability of banks as exploitative given the high cost of credit, and banks should place greater emphasis on longer-term environmental, social, and governance issues. In this regard, CBK has compelled banks to review their business models and has over the last three years impressed on bank shareholders to accept lower return that takes into account the long term needs of their customers and the economy. Against this backdrop, in February 2019, CBK issued the Kenya Banking Sector Charter to entrench this vision in the banks. The Charter represents a commitment from banks to entrench a responsible and disciplined banking sector, cognizant of, and responsive to, the needs of their customers. By end May 2019, all banks had submitted to CBK their time-bound plans approved by their boards, to comply with the Charter on the four pillars. CBK is now monitoring implementation of the Charter by each bank. More recently, CBK has also secured commitments from the banks that they will act responsibly, particularly on the pricing of credit now that the interest rate caps have been repealed. Banks have no choice but to work for and with Kenyans. With the clear vision that is operationalized in the Banking Sector Charter, this time it will be different. The writer is the Governor of the Central Bank of Kenya
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Article by Dr Patrick Njoroge, Governor of the Central Bank of Kenya, 21 January 2020.
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An African Vision for Sustainable Finance Dr. Patrick Njoroge (822 words) On September 22, 2019, on the eve of the United Nations (UN) Climate Action Summit, the UN launched the Principles for Responsible Banking, with 130 banks collectively holding USD 47 trillion in assets or one third of the global banking sector signed up. In these principles, the banks commit to strategically align their business with the Goals of the Paris Agreement on Climate Change and the Sustainable Development Goals (SDGs) and massively scale up their contribution to the achievement of both. It is gratifying to note the strong presence of African banks, including KCB Bank, in the list of founding signatories to implement the principles. Sustainable finance has gained traction particularly after the global financial crisis in 20072008. The crisis was in part fuelled by the short termism of the global financial sector. The short-term drive for profits trumped more long term societal good. Sustainable finance takes a long term view and integrates environmental, social and governance criteria in business and investment decisions for the benefit of customers and society at large. Green Finance is a critical component of sustainable finance and refers to raising capital and financial investments into companies, services, products and projects that accelerate the development of an environment friendly and climate-resilient economy. SDG 8 captures the essence of sustainability as it seeks ‘to promote sustained, inclusive and sustainable growth, full and productive employment and decent work for all.’ In particular, SDG 8 emphasizes the strengthening of the capacity of domestic financial institutions to encourage and expand access to banking, insurance and financial services for all. Globally, about USD 5-7 trillion per year is required to implement the SDGs with developing countries facing an annual investment gap of USD 2.5 trillion in areas such as infrastructure, water and sanitation and agriculture. The bridging of this funding gap will require global partnerships, deepening of financial and capital markets and leveraging on innovation. Africa has not been left behind in the sustainable finance agenda, but much more remains to be done. Africa contributes least to global pollution but is impacted the most. For instance, it is estimated that Africa is responsible for only 4 percent of global greenhouse gas emissions, yet 65 percent of the population of the continent is considered to be directly impacted by climate change. African countries akin to other developing countries globally also face a significant funding gap in meeting the SDGs. The need for sustainable finance is therefore critical and immediate for African countries as they battle the scourge of climate change and meeting foundational development needs. Early green shots can be seen in innovative financing mechanisms that have been developed in availing clean solar energy to rural households in Kenya, Uganda and Tanzania (M-Kopa) and government mobilizing micro-amounts to fund development in Kenya (M-Akiba). African banks are also committing to global sustainable finance initiatives. But much more is required to scale up sustainable financing in Africa. Since 2017, I have been the patron of the Green Bonds Programme Kenya, a public-private partnership whose key remit is to develop a transparent, accountable and verifiable green bond market. In 2019, we launched the regulatory framework for Kenya’s bond market and in September issued the first green bond of USD 45 million. This joins other issues in Africa of under USD.2 billion out of an estimated global green bond issuance of USD.167.3 billion. How then do we scale up sustainable finance across Africa? I am delighted to note that the UN hosted an Africa day on October 10, 2019 during the Annual General Meeting of the International Network of Financial Centres for Sustainability (FC4S) in Geneva, Switzerland. The FC4S network hosted by the UN is a partnership of global financial centres that seeks to promote the expansion of sustainable finance. This is achieved through sharing of experiences, research and technical support. So far, four leading African financial centres, Cairo, Casablanca, Lagos and Nairobi have joined the network. A regional programme will be launched in Geneva, through which African centres can leverage on global knowledge to scale up sustainable finance in their respective jurisdictions. Though this is a welcome move, Africa must customize its sustainable finance vision to fit its own local circumstances. Let us leverage on the FC4S, be guided by the Paris Climate Agreement, but we should think ‘Global while acting local.’ The time for Africa to act is now, the effects of climate change continue to be harsher as a burgeoning youth population seeks opportunities to prosper. African economies need to be inclusive and resilient. The green shots are evident but we need to water them to grow into the tree that shades the continent. Drawing from a Japanese fable, the best time to plant a tree that matures in 400 years is today, the next best time is tomorrow. The writer is the Governor of the Central Bank of Kenya
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Keynote address (virtual) by Dr Patrick Njoroge, Governor of the Central Bank of Kenya, at Copenhagen Fintech Week Global, 15 September 2020.
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CENTRAL BANK OF KENYA COPENHAGEN FINTECH WEEK GLOBAL A Sustainable Future for Shared Prosperity Keynote Address by Dr. Patrick Njoroge Governor, Central Bank of Kenya Tuesday, September 15, 2020 As Prepared for Delivery (1,859 Words) Good morning, good afternoon, and good evening to you all! Let me thank Copenhagen Fintech Lab for organizing this event, the Copenhagen Fintech Week Global, and for the invitation to deliver the Keynote Address. I also confirm that the topic of sustainability was the right bait to get me to participate in this conference. I am delighted to join you, albeit not in the usual face-to-face manner but in what has now become part of our daily experience— digital communication. What better way to discuss the important theme of “shaping a sustainable future” than on the very platform that will drive this sustainability? I have fond memories of my visit to Copenhagen in April last year. I recall the illuminating discussions I had with innovators and other players in the Copenhagen fintech ecosystem. Most notably was my visit to the Copenhagen Fintech Lab, which included a test ride on an electric scooter. In the current context of the coronavirus (COVID-19) pandemic my visit seems like a distant world, without the constraints of social distancing, masks, and sanitizing. The invisible enemy COVID-19, crept up on mankind and has almost totally taken over our lives. The health and economic effects have been devastating. Across the globe, we have witnessed dramatic loss of life, acute strains on health systems, massive job loss, and disruptions to trade, supply chains and investment flows. The impact has weighed heavily on the vulnerable members of our populations and put a greater burden on women, particularly with schools being shut. Micro, Small and Medium Enterprises (MSMEs) have been decimated by the lockdown measures to contain the pandemic. The United Nations Secretary General (UNSG) António Guterres pointed out in a recent speech that the pandemic has put 70-100 million people at risk of extreme poverty. Thankfully, it has not all been doom-and-gloom, and digitalization has been the silver lining. Digital systems and processes have become the lifeline for people and businesses in times of social distancing. Digital channels have allowed people to maintain connections, access healthcare and education. They have enabled some MSMEs to preserve their customers. Importantly, digital financing innovations have been critical in responding to the crisis. They have underpinned the rapid scaling up of support to vulnerable groups, by extending the reach of available social safety nets and providing new ways for mutual support within families and communities. In a few short months, COVID-19 has dramatically accelerated digitalization, achieving what we thought would take decades. In Kenya, banks have enhanced the use of digital channels during the pandemic, to minimize the health risk and support stay-at-home protocols. Before the pandemic, about 90 percent of bank transactions were conducted outside branches. Since the onset of the pandemic, this has accelerated to over 94 percent of transactions. Most notably, over 67 percent of transactions are now conducted on mobile phones, up from 55 percent before the pandemic. In Rwanda, charges on all mobile money transactions were waived on March 19, 2020, for three months. By the end of April, the weekly value of mobile money transactions had increased by 450 percent. We are reminded of words by Lenin, “there are decades where nothing happens, and there are weeks where decades happen.” As we sketch the post-COVID future, digitalization will be at the heart of everything we do, and turning back to today’s theme, sustainability will be indispensable for shared prosperity to be assured. Sustainability can be usefully captured in the common “3Ps” definition: People, Purpose and Planet. The “3Ps” essentially respond to the question why corporations exist and what should be their heart and soul? COVID-19 has underscored a great truth—that corporations cannot prosper while the society they serve and the environment they operate in are endangered. Simply put, the resilience of corporations is intertwined with the sustainability imperative. But is there a yardstick of success? The “3Ps” nexus is encapsulated in the United Nations’ Sustainable Development Goals (SDGs), another core focus of this Fintech Week. As you are aware, the SDGs are global targets that were adopted by the UN in 2015 aimed at achieving shared prosperity in a sustainable world by 2030. In the last few months, COVID-19 has adversely affected implementation of the SDGs particularly in health and education, wiping out years of progress towards the SDGs. A lot more needs to be done to get back on track. In November 2018, the UNSG set up a Task Force on Digital Financing of the SDGs (Taskforce). The 17-member Taskforce on which I served was mandated to recommend how to harness digitalization in accelerating financing for the SDGs. However, COVID-19 struck while the Taskforce was preparing its final report. This sharpened the focus of the Taskforce, particularly on how digitalization could anchor the global Post-COVID posture. The report of the Taskforce, titled “People’s Money: Harnessing Digitalization to Finance a Sustainable Future,” was launched on August 26 and focuses on the needs of ordinary people. The financial system, the report concludes, must serve individual citizens, as savers, investors, borrowers, and taxpayers. It must leverage digital technology to put people back in the driver’s seat of their finances, so that they can invest in themselves and their families, communities, countries, and the planet. Governments, regulators, and financial institutions should support and facilitate the disruptions that will get us there. We have the digital tools to do the job, but we now need the courage to dare. The question then must be how do we put people at the center of the global financial system? The Taskforce’s call to action is to harness digitalization in creating a citizen-centric financial system which advances financing for the SDGs. There are three core recommendations to advance a people-centric global financial system. First, advancing catalytic opportunities to deliver financing for sustainable development. These opportunities in addition to mobilizing significant finance will also trigger broader transformations by putting citizens in the driving seat of their money. Let me highlight two opportunities for accelerating the use of domestic savings for long-term development and the financing of small and medium enterprises (SMEs). In Kenya, we introduced in 2017 a mobile phone-based digital bond dubbed M-Akiba to mobilise micro3 savings of as little as USD30 to finance government. Remarkably, 85 percent of the investors in M-Akiba were participating in the government securities market for the first time. M-Akiba has inspired a pathfinder initiative in the Taskforce Report in Bangladesh. This pathfinder initiative in Bangladesh involves the use of mobile financial services to mobilise domestic micro-savings to finance sustainable infrastructure investments. SMEs are at the heart of the global economy, providing jobs and supporting livelihoods for the majority of the population. Thriving SMEs underpin the achievement of the SDG Agenda. However, they face a significant financing gap, estimated by the International Finance Corporation at USD5.2 trillion in developing countries alone. With the devastation wrought by COVID-19 on SMEs, we expect that this gap has widened. As we bring back our SMEs to life, digital practices will be core. We have already seen the increasing use of digital lending to SMEs based on business transaction histories, alternative data from mobile phones and other government public records. In Kenya, a consortium of five banks launched a mobile-centric MSME financing product dubbed Stawi in November 2019. Stawi provides “anytime anywhere” financing to MSMEs and will be a powerful weapon in our arsenal as we reimagine the post-COVID posture of our MSMEs. Second, building the foundations for sustainable digital ecosystems, which requires collaboration between the public and private sectors in developing three critical components: Core connectivity infrastructure required to extend digital services across countries, and necessitating secure digital identity for citizens to connect to the digital infrastructure. Creating an enabling market and regulatory framework that enables fintechs to scale up their innovations. Enlightening citizens on their rights and protections in the digital realm. Third, strengthening inclusive international governance. Regulations and standards governing digital financing need to be informed by SDG commitments and goals, with a particular need to ensure that the SDGs inform the governance of a new generation of global digital financing platforms. The pandemic has accelerated the growth of global digital platforms particularly in e-commerce, payments and entertainment. This unprecedented growth has increased the market concentration enjoyed by the platforms. A critical concern is that this growth has been more technology-centric as opposed to being people-centric. The concerns particularly on data privacy and security are pertinent to emerging countries that may not be on the table in discussions on these platforms yet they are potentially their largest users. Accordingly, the Taskforce has mooted another pathfinder initiative, the International Dialogue on Global Digital Finance, spearheaded by Kenya and Switzerland. It seeks to facilitate a balanced and more inclusive dialogue, particularly involving developing nations, on SDG-aligned governance of global digital finance platforms. It will convene representatives from central banks, finance, trade and other relevant ministries, cross-sector regulatory bodies, non-state actors from developing countries, and representatives from key institutions such as the Financial Stability Board, Bank for International Settlements, International Monetary Fund and the World Bank. These three recommendations represent opportunities for establishing a global financial system that would support shared prosperity by focusing on people, purpose and planet. But what does all this mean to financial institutions and fintechs? Financial institutions and fintechs have played a pivotal role globally in supporting the COVID-19 response. This has certainly been the case in Africa where the Central Bank of Kenya hosted the Virtual Africa Hackathon 2020 in August, targeting the health and economic dimensions of the pandemic. The Hackathon witnessed an impressive array of innovative solutions from fintechs in Africa, Europe and the Middle East. The solutions presented included financing of SMEs, cash transfers to vulnerable groups, enhancing agriculture value chains and COVID-19 contacttracing. These solutions when scaled up will play an important role, not only in the context of the pandemic, but also in contributing to the implementation of the SDGs. My challenge therefore to financial institutions and fintechs is to build on this momentum as we emerge from the COVID-19 crisis. As I finish, I would be remiss if I did not point out that there are fundamental barriers and risks associated with digital financing. Over 700 million people still lack access to mobile broadband and over 3 billion lack effective digital access due to affordability and skills gaps, with women disproportionately excluded. As the world increasingly relies on digital financing, there are risks of a loss of privacy, increased cyber risks and market concentration. Seizing the opportunities and addressing barriers and risks requires concerted action from policy makers, regulators, private sector, international development community, and civil society organizations. Investments are needed in universal, accessible, affordable and secure digital infrastructure. Capabilities of digital finance providers, consumers and regulators need enhancing. Strategic alignment between the push for digitalized economies and national development needs is required. Governance of digital financing needs strengthening, particularly for solutions that have cross-border spillover impacts. The COVID-19 crisis has presented the world with the historic opportunity to reshape finance and place people at the centre. Let us not waste this crisis, let us seize the opportunity. Thank you for your attention!
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Keynote address (virtual) by Dr Patrick Njoroge, Governor of the Central Bank of Kenya, at the Institute of Chartered Accountants of Barbados (ICAB) Annual Conference 2020, 12 November 2020.
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CENTRAL BANK OF KENYA Institute of Chartered Accountants of Barbados (ICAB) Annual Conference 2020 Kenya’s Digital Transformation Journey Keynote Address by Dr. Patrick Njoroge Governor, Central Bank of Kenya Thursday, November 12, 2020 As Prepared for Delivery Good morning, good afternoon and good evening to you all! I am delighted to join you for this important Conference, and I express my profound gratitude to the Institute of Chartered Accountants of Barbados (ICAB) for the invite. I want to believe that I have a strong connection to Barbados and indeed the Caribbean people, built over the years. I have fond memories of my visit to Barbados in September last year, and the warm hospitality from my brother Governor Cleviston Haynes of the Central Bank of Barbados. But I believe we are just beginning a beautiful friendship—in the words of Prime Minister Mia Motley at Kenya’s 56th Jamhuri Day celebrations, “[...] know in Kenya that Barbados is a second home for you. Know in Kenya, that the Caribbean is your second home for you. Know in Kenya, that your brothers and sisters in the Caribbean will stand together with you for those causes that unite us, because our values are similar.” We had the honour of hosting the Prime Minister during her State Visit to Kenya last December. As part of her visit, the Central Bank of Kenya organised an exhibition entitled “Fintech in the Savannah” where the Prime Minister interacted with innovators from Kenyan banks, telecommunication companies and Fintech companies. I was amazed at the Prime Minister’s high-level ownership of potential innovations in Barbados. At one point a young Fintech, Kwara, caught her attention. Kwara has developed a solution that enables Savings and Credit Unions (SACCOs)—or credit unions as they are referred to in Barbados—to digitize their operations through a subscription cloud-based solution without having to acquire expensive new software and hardware. This would facilitate SACCOs (or credit unions) to move quickly into the digital age, while serving their mostly rural customers. This innovation immediately clicked with the Prime Minister, given the challenges faced by credit unions in Barbados and the potential positive impact on the population, and she immediately invited Kwara to Barbados. Yes, Prime Minister, we will send our best and brightest! The year 2020 has been truly extraordinary, defined by the COVID-19 pandemic, and the death and destruction it has wrought. Lives and livelihoods have changed dramatically in a few short months. But in all this doom and gloom, the resilience of the human spirit has shone through—like green shoots pushing through a fertile field. The theme of this conference, “Embracing Disruption-Building Resilience’’ is quite timely as we reflect on our collective challenges and triumphs during this period. Digitalization, the theme I have been asked to focus on, has seen us through this difficult period. In the context of the COVID-19 containment measures—and particularly movement restrictions and curfews—digital platforms have enabled our citizens to access financial, health, education and medical services, entertainment, and shop online. In Kenya, the digital rails built over the last fifteen years have been a saving grace as we have battled COVID-19. The starting point of Kenya’s digital rails in March 2007 was in using mobile phones to serve a need to transfer money from urban workers back to their families in the rural areas. These P2P transfers were supported by a network of agents who facilitated cash withdrawals and cashing in. Shortly thereafter, Kenya’s long-term development plan, Vision 2030, was rolled out in 2008 with the overarching objective of improving the livelihood of all Kenyans through shared prosperity. Financial services were identified as a key enabler, but requiring a dramatic transformation as only 26 percent of adult Kenyans could access the formal financial system in 2006. This transformative imperative supported the growth of mobile phone financial services from payments to an elaborate ecosystem that includes other financial services such as savings, credit, insurance, pensions and capital markets. At the same time, the percentage of Kenyans accessing financial services had tripled from 26 percent in 2006 to 82 percent in 2019. Pushing further ahead, our vision is the democratization of financial services, which customers can access anytime anywhere. What were the pillars that have anchored our financial transformation journey? First, it is not about the technology but the problem at hand. It is easy to get caught up in the fanciness of technology and exotic labels—blockchain, artificial intelligence (AI), internet of things (IoT). Unfortunately, often times Fintechs and other startups may focus on the features of the technology, and not how it solves a problem. The mobile phone in our case offered a platform to resolve distance, cost and time constraints that Kenyans had faced in accessing money transfer and other financial services. The focus must be on people. Second, it takes collaboration to build an ecosystem. Regulators, Fintechs or Governments on their own cannot build a financial ecosystem. Regulators can certainly create an enabling environment but they need the agility and innovation of the private sector in order to succeed. As a regulator, we have walked the journey with various innovators who have fielded presentations, demonstrations, asked questions to ensure that the end product is safe, efficient and serves public needs. Additionally, we have been supporting early innovators through hackathons, mentoring and networking opportunities. Third, is our regulatory philosophy towards innovation. We seek to maximize the opportunities arising from innovation while minimising the risks. This entails understanding business models, resultant risks and the mitigants put in place by innovators. We have followed this test-and-learn approach over the years, long before the advent of sandboxes. Kenya has had its successes, but much more needs to be done to fully benefit from the digital economy. Digitalisation is the next frontier for placing citizens at the heart of any nation’s development and more importantly raising their standards of living. It is with this in mind, that Kenya’s Digital Economy Blueprint was launched in May 2019. The vision of the blueprint is a digitally empowered citizenry, living in a digitally enabled society. We aspire for a Kenya where every citizen, enterprise and organization has digital access and the capability to participate and thrive in the digital economy. To maximize our benefits, we must build ecosystems that facilitate digital transactions nationally, regionally and globally. This is the thinking that informed Kenya’s digital economy blueprint that outlines five pillars as the foundation for a thriving digital economy. The pillars are: Digital Government, Digital Business, Infrastructure, Innovation Driven Entrepreneurship and Digital Skills and Values. We are making progress in extending digitalization to other facets of our economy including digital court processes, automation of land registries and other government processes. More broadly, digitalization is enhancing the fight against corruption, money laundering and terrorism financing. While these are important gains, much more remains to be done. Circling back to the COVID-19 crisis, digitalization will remain at the centre as we transition to the recovery. There has been positive news this week of very encouraging test results on a COVID-19 vaccine. We must of course temper our expectations as a lot remains to be done to roll out on a mass scale this and other vaccines under preparation. But what cannot wait, is repairing the damage to lives and livelihoods that COVID-19 has caused. Recently, the World Bank estimated that the pandemic could push up to 100 million people globally into extreme poverty. There have been significant setbacks to the implementation of the Sustainable Development Goals (SDGs) particularly in health and education. How then does digitization act as the bridge to post COVID-19 recovery? First, we must put people at the centre of the global financial system. For both the public and private sector, the key question must be what are the needs of the people particularly in the context of the SDGs, and how will digitalization work for them? How do we get citizens to participate for instance in financing the health, education and other social services that are critical for their lives and livelihoods? In Kenya, we introduced M-Akiba in 2017, a mobile phone-based government digital bond to mobilise micro-savings of as little as USD30 to finance government. This was targeted at a segment of the population that could not participate in conventional government securities with a minimum threshold of USD500. This concept is now being replicated in other countries most notably, Bangladesh. Second, we must connect our citizens to the digital ecosystem. While digitalization has been a lifeline in the pandemic, we risk alienating a large swathe of the global population. Over 700 million people lack broadband connectivity while over a billion lack formal identification. Governments must therefore invest in digital infrastructure including basic enablers such as reliable electricity supply. Investment in digital identity to connect citizens is imperative lest we leave them behind. Substantial public and private investment will be required towards this end. Third and perhaps most important is empowering and protecting our citizens in the digital realm. Notwithstanding the significant benefits that digitalization presents, it also poses serious risks related to cybersecurity and data privacy. As many of our citizens connect to digital platforms for the first time, they may lose their hard earned funds to criminal actors in the digital arena. We must therefore equip them with the requisite skills to effectively use digital platforms while protecting their data and funds. As I conclude, I want to stress that Kenya is on a journey to a digital economy and so is Barbados. We are prepared to walk with you, sharing our own experiences, challenges and learning from you as well. Our two countries have a common heritage and vision of the shared prosperity of our citizens. The linkages that have been established by our leaders, Governments, central banks, and representatives of the private sector have set the stage for our take-off. I look forward to our continued collaboration and welcoming you in Kenya once the dark cloud of COVID-19 has lifted as it surely will. We face the future with hope and courage. But as the Prime Minister says, “Don’t run a sprint. Pretend dis uh marathon.” And there is a proverb that reminds us how we must prepare for the marathon: “If you want to go fast, go alone. If you want to go far, go together.” I wish you fruitful deliberations and a very successful conference. Thank you for your attention!
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Remarks by Dr Patrick Njoroge, Governor of the Central Bank of Kenya, at the Launch of the Persons with Disability Digital Accessibility Report, 2 December 2020.
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CENTRAL BANK OF KENYA LAUNCH OF THE PERSONS WITH DISABILITY DIGITAL ACCESSIBILITY REPORT Remarks by Dr. Patrick Njoroge Governor, Central Bank of Kenya Wednesday, December 2, 2020 As Prepared for Delivery Good morning, Good afternoon, Good evening! I am delighted to join you today for the launch of the Persons with Disability Digital Access Report. Let me express my appreciation to the Kenya Bankers Association (KBA) for the invite. The timing of this event is indeed apt coming on the eve of the International Day of Disabled Persons which aims to promote an understanding of disability issues and mobilize support for the dignity, rights and well-being of persons with disabilities. According to the World Bank1, 15 percent of the world population experience some form of disability with high prevalence in the developing countries. In Kenya, as per the 2019 census statistics, 2.2 percent of Kenyans are living with some form of disability. Of this population, only 0.5 percent are included within the financial system.2 This is a significant level of financial exclusion that needs to be urgently addressed. On a broader front, the United Nations (UN) 2030 Agenda for Sustainable Development that seeks to ensure shared prosperity for all global citizens is disability inclusive. The Agenda that will be realized through the Sustainable Development Goals (SDGs) aspires that the disabled will not be left behind in shared prosperity. In particular, the SDGs call for nations to work towards including the disabled in education, employment and more broadly ensuring their social, economic and political inclusion. https://www.worldbank.org/en/topic/disability WHO World Report on Disability (2011) http://www.handicap-international.org/uploads/media/goodpractices-GB2coul.PDF Turning to the Kenyan banking sector, the Central Bank of Kenya (CBK) has set a vision of a banking sector that works for and with Kenyans. The vision is operationalized through the Kenya Banking Sector Charter issued in February 2019. The charter is anchored on four pillars: customer centricity, risk based pricing, transparency, and ethical banking. While all the four pillars strive towards all Kenyans being included in the banking sector, two of them are particularly pertinent for our discussions today—in our view they encompass the expectations with regard to the inclusion in the banking sector of persons with disabilities. The first is customer centricity. Banks should ensure that their products and services are tailored to the needs of their customers. This applies to all segments of their customers of whom the disabled are an important component. Banks must therefore clearly understand the needs of the disabled as they design products and services for them. More importantly is how the disabled access these products and services. Advances in technology and innovations present us with opportunities to ensure convenient ‘anytime anywhere’ services on digital platforms. However, physical channels still remain important and every effort must be made to make brick-and-mortar facilities accessible by the disabled. The second pillar is ethical banking, which is about doing the right thing. This is encapsulated in the shift towards sustainability aptly captured in the 3Ps acronym, People, Purpose and Planet. The Kenyan banking sector to its merit established the Sustainable Finance Initiative in 2015. Some of our banks have signed up to global sustainability initiatives most notably, the UN Principles for Responsible Banking unveiled on the margins of the UN General Assembly in September 2019. As the Kenyan banking sector walks the 3Ps path, it must carry along the disabled, an integral part of our society. On our part as the Central Bank, we are also working through our mandate to the Kenyan populace to ensure that the disabled are not left behind. Most notably, the new generation notes issued in June 2019 incorporated features to enable ease of use by the visually impaired. These include use of large prints, tactile bands to identify the denomination and size differentiation of the various denominations of the notes. These features were incorporated based on feedback from the visually impaired. While these are significant milestones, we are still on a journey listening to all Kenyans to ensure they are able to use the notes and coins we issue. As I draw to a close, today’s event should be the beginning of a journey for Kenya’s banking sector in walking more closely with the disabled. I am sure that this will not just be another webinar, but we shall all be challenged to take action and make a difference to society. We cannot prosper as a society if any of us is left behind. I therefore challenge the Kenyan banking sector to walk the talk and truly serve our disabled compatriots. Let us be challenged to design suitable products and services for them and ensure our premises and physical channels are easily accessible to them. At this time next year, we should celebrate today as the beginning of a year of tremendous progress in incorporating the disabled in the Kenyan banking sector. I wish you fruitful deliberations and look forward to the outcomes of this event. Thank you!
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Opening remarks by Dr Patrick Njoroge, Governor of the Central Bank of Kenya, at the Afro-Asia Fintech Festival (AAFF) Nairobi Online City, in partnership with the 2020 Singapore Fintech Festival, 7 December 2020.
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CENTRAL BANK OF KENYA AFRO-ASIA FINTECH FESTIVAL NAIROBI ONLINE CITY In partnership with the 2020 Singapore Fintech Festival Opening Remarks by Dr. Patrick Njoroge Governor, Central Bank of Kenya December 7, 2020 As Prepared for Delivery Good Morning, Good Afternoon, Good evening! It is a great honour for the Central Bank of Kenya (CBK) to host the Nairobi Online City, an iteration of the Afro-Asia Fintech Festival (AAFF) launched in 2019. The AAFF Nairobi Online City is part of the 2020 Singapore Fintech Festival (SFF). CBK is therefore honoured to join the global community of Central Banks, governments, financial institutions, fintechs, and other players to deliberate and reflect on the theme of “People and Talent: Harnessing Collaboration in Pursuit of Resilience and Growth Post COVID-19.’’ At the outset, let me express CBK’s gratitude to the Monetary Authority of Singapore (MAS) for allowing CBK and almost 40 other cities to partner in expanding the reach of the virtual 2020 SFF. I also appreciate all our partners and service providers who have worked with us to make this event a reality. 2020 has been an exceptional year dominated by the coronavirus (COVID-19) pandemic. Our lives and livelihoods have dramatically changed as Governments, businesses and citizens globally sought to contain the pandemic. There have been significant adverse health and economic effects that have rolled back global progress in efforts towards the shared prosperity of our citizens. As significant progress begins to be made on the medical front in developing vaccines and therapeutic drugs, the conversation must shift to building back better. While the pandemic has been devastating, it has also accelerated digitalization that should stand us in good stead as we transition to the post COVID-19 recovery. Digital platforms have been the lifelines in accessing essential financial, health, education, medical, entertainment and other services. We must embed these gains and leverage them as we pursue global resilience and growth post COVID-19. Towards this end, we shall over the next few days, deliberate on various strategies. Let me highlight three broad themes to set the stage. First, is restoring Small and Medium Enterprises (SMEs). SMEs are the engines of economies globally and more particularly in Africa. However, they have borne the brunt of COVID-19 containment measures including movement restrictions and curfews. Their businesses have been disrupted causing adverse impact on lives and livelihoods. We will need to accelerate digital ecosystems that will enable the SMEs to reconnect with their customers, markets and access the much needed finance for recovery. I therefore look forward to the panel discussions later today on reinventing SMEs through digital ecosystems that will provide an African perspective. I am sure that this will be supplemented by the global perspectives from the United Nations Development Program on Wednesday on inclusive digital finance for SMEs. However, we must remember that it is not just about digital platforms or finance, we also need to consider how to retool the skills and business models of SMEs as they pivot to the post COVID-19 era. Second, is partnerships and collaborations. As we move forward, agility will be imperative particularly for incumbent institutions as they respond to changing customer preferences for anytime anywhere services. Even before the pandemic, incumbent banks and telecommunication companies had started to develop partnerships with agile fintech companies. This trend will have to be accelerated in a safe and sustainable manner as we build back. We will this week hear from eminent leaders in the banking, telecommunication and technology sectors on their partnership and collaboration strategies. More interestingly, we will also hear from fintechs and start-ups on their journeys through the pandemic and the value proposition that they bring to building an inclusive ecosystem. Third, is sustainable finance. At the heart of post COVID-19 recovery will be a renewed focus on People, Purpose and Planet (3Ps). For resilience, finance must take into account environmental, social and governance considerations. This is an area that the Kenyan banking sector is setting the pace on. In 2015, Kenyan banks established the Sustainable Finance Initiative to embed sustainability in their values and processes. It is therefore befitting that some of the leading Kenyan banks in these areas will be sharing their sustainable finance experiences and strategies going forward later this week. As we explore the opportunities of digitalization, we must remain seized of the risks. In particular, cybersecurity and data governance pose a risk particularly for the increased number of our citizens who are accessing digital systems for the first time. We must therefore ensure that we reflect on how to build cyber resilience in the new normal. Equally important is the protection of data on digital platforms that increasingly transcend national borders. We need to urgently explore ways of ensuring our citizens are digitally literate and all participants in the digital ecosystem exercise responsible digital leadership and governance. The overarching theme in our discussions all through this week must be about People. We must constantly ask ourselves, what are their needs? How does technology and innovation meet these needs? Most importantly, how do we place People at the centre? In closing, let me once again reiterate what a privilege it is for CBK to be hosting you. The journey of building back better cannot be undertaken alone. Platforms such as the Nairobi Online City provide opportunities for many more of us to come together. Let us walk together, as we collectively work towards restoring the lives, livelihoods and dignity of our citizens. It is now my distinct honour and pleasure to declare the Afro-Asia Fintech Festival Nairobi Online City officially opened. I wish you all a fruitful virtual journey as you traverse the World over the next three days. Thank you!
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Closing remarks by Dr Patrick Njoroge, Governor of the Central Bank of Kenya, at the Afro-Asia Fintech Festival (AAFF) Nairobi Online City, in partnership with the 2020 Singapore Fintech Festival, 9 December 2020.
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CENTRAL BANK OF KENYA AFRO-ASIA FINTECH FESTIVAL NAIROBI ONLINE CITY In partnership with the 2020 Singapore Fintech Festival Closing Remarks by Dr. Patrick Njoroge Governor, Central Bank of Kenya December 9, 2020 As Prepared for Delivery Your Excellency Uhuru Kenyatta, President of the Republic of Kenya and Commanderin-Chief of the Kenya Defence Forces; Moderators, Speakers, Panelists and Partners; Distinguished Guests; Ladies and Gentlemen: Good Morning, Good Afternoon, Good Evening! I am delighted to join you after three inspiring days of coming together to deliberate on the theme of “People and Talent: Harnessing Collaboration in Pursuit of Resilience and Growth Post COVID-19.’’ I am privileged today to welcome His Excellency President Uhuru Kenyatta to the Afro-Asia Fintech Festival Nairobi Online City at the 2020 Singapore Fintech Festival. His Excellency’s presence is testament to the high- level ownership of Kenya’s digital transformation strategy to spur shared prosperity for Kenyans. Let me also take this opportunity to thank our hosts, moderators, speakers and panellists who accepted our invitation to join us over the last three days. I am grateful to our partners, service providers and the Monetary Authority of Singapore (MAS) for walking with us on this journey. I would be remiss if I did not acknowledge the teams at the Central Bank of Kenya (CBK) who have worked tirelessly over the last few months to make this event a reality. Finally, we appreciate the hundreds of participants who joined the Nairobi Online City event, to be part of the conversation. The last three days have been truly inspiring as we have shared successes and challenges in building back better through the coronavirus (COVID-19) pandemic. As I indicated in my opening remarks on Monday, 2020 has been an unprecedented year dominated by the COVID-19 pandemic. While the lives and livelihoods of citizens have been adversely affected, digitalization has ‘kept the lights on’ in the global economy. As we begin to turn the corner, we will look to digitalization as we ‘build back better.’ I did set the stage on Monday by highlighting three broad themes as we pursue global resilience and growth post COVID-19. I was pleased to note robust discussions over the last three days around the themes of restoring Small and Medium-size Enterprises (SMEs), partnerships and collaborations, and sustainable finance. First, it was inspiring to hear the successes of financial institutions in digitizing the operations of SMEs. This has indeed accelerated during the pandemic as SMEs have pivoted their operations to adopt to COVID-19 containment measures. To address the cash flow constraints that SMEs have faced due to COVID-19 restrictions, banks have restructured their loans to see them through this turbulent times. Equally inspiring is the move by financial institutions and technology players to build the skills of SMEs by automating and training them on financial management. It will take Finance Plus which is access to finance and upskilling SMEs to restore them to drive growth and resilience post COVID-19. A lot more remains to be done in restoring SMEs but the green shots are sprouting and we need to nurture them carefully. Second, on partnerships and collaborations, the key message was the need for increased collaboration in building a sustainable financial ecosystem. This approach leverages on expertise, resources and innovations from various players. Central to this is the building of the requisite infrastructure to connect our citizens to the digital realm. Significant resources and input will be required both from the public and private sectors to put together the requisite hardware and software for sustainable digital ecosystems. It was inspiring to hear from MAS on the global initiative to build foundational digital infrastructure drawing on the experience of Singapore, India and other global leaders. Collaborations such as these will enable countries learn from each other and fast track the development of foundational infrastructure in their countries without reinventing the wheel. Third, on sustainable finance, the pandemic has brought home the inter-dependence of corporations and the communities they operate in. Together corporations and communities have worked together to mitigate the adverse impact of the pandemic. Illuminating experiences were pointed out where banks and other entities worked with their customers through this period through restructuring of loans and continued provision of services through digital platforms. More encouraging as we build back better were cases where banks and other entities worked with manufacturers and SMEs to pivot their operations to the new normal. This was particularly pertinent in the move towards domestic manufacture of Personal Protective Equipment (PPE) which initially were sourced from overseas. As we build back better, sustainable finance will be imperative. In the long run, our vision at the CBK is that all finance will be green. We are working closely with the Kenyan banking sector whose leaders shared their experiences in this area. Green finance is particularly pertinent to Africa that contributes the least to pollution globally but bears the brunt of the adverse effects of climate change. As we build our digital ecosystems, we must keep in view effective digital governance frameworks. As data trails grow, we must protect our citizens from abuse of their data and ensure they are well informed on the use of their data. We must also beware of new trends. For instance, banks increasingly rely on Artificial Intelligence (AI) to make decisions on access to credit particularly for SMEs. Rigorous evaluation of data models and their governance will be required to ensure that we do not introduce biases that inadvertently exclude the very citizens we are trying to on-board to digital ecosystems. In closing, let me once again thank you all for your participation. CBK looks forward to continued engagement, partnership and collaboration as we build back better from COVID-19. Ladies and Gentlemen, it is now my distinct honour and pleasure to invite His Excellency Uhuru Kenyatta, President of the Republic of Kenya and Commander-In-Chief of the Kenya Defence Forces, to deliver his Keynote Address. Karibu, Your Excellency!
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Keynote address by Dr Patrick Njoroge, Governor of the Central Bank of Kenya, at the Fourth Annual Bankers Conference, organized by the Uganda Bankers' Association, 27 July 2021.
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Patrick Njoroge: Bend but do not break Keynote address by Dr Patrick Njoroge, Governor of the Central Bank of Kenya, at the Fourth Annual Bankers Conference, organized by the Uganda Bankers’ Association, 27 July 2021. * * * As Prepared for Delivery Good morning! I am honoured to join you at your Fourth Annual Bankers Conference. At the outset, let me express my gratitude to my brother Governor Mutebile, for inviting me to speak at this important conference. I also applaud Uganda Bankers’ Association (UBA) for organizing the conference with the timely theme, how the financial sector can thrive in the era of the fourth industrial revolution. We are meeting virtually, but I recall Uganda’s warm hospitality, beauty, and vibrancy. I am optimistic that we shall soon be able to meet physically, in the but also elsewhere. We convene at a critical juncture, firstly, having struggled globally with the ravages of the coronavirus (COVID-19) pandemic for one-and-a-half years. Secondly, we are at the cusp of the Fourth Industrial Revolution, whose transformative powers are already evident in the financial sector, and will transform the way we live, work, and relate to one another. In the words of Professor Klaus Schwab, who popularized this label: “It is characterized by a fusion of technologies that is blurring the lines between the physical, digital, and biological spheres.”1 Both these elements portend stormy times, for our way of life, society, families, and the institutions that we represent. But how should we react? We can attempt to stand firm, unyielding against these perils, and fully aware that they may destroy us. Or we can accommodate some of the pressures with the grace of a palm tree, and build back better—bend, but don’t break. Allow me to set the stage by highlighting three disruptive trends in the current global context. First, the entrenchment of globalization. This product of the third industrial revolution has redefined the terrain for governments, businesses and citizens, shortening distances and brought together disparate people in common markets. Global supply chains have overhauled the traditional manufacturing and production processes with resultant efficiency gains. Markets have increasingly opened up allowing businesses to expand their global footprints. The absence of a navigable route to the sea for Uganda and other landlocked countries need no longer be a handicap to economic development. Closer home, regional integration efforts particularly the East African Community (EAC) have borne fruits with banks extending their reach across the region. The imminent operationalization of the African Continental Free Trade Area (ACFTA) is expected to create an Africa-wide market with resultant benefits from economies of scale. Financial markets have increasingly become global. In particular, the U.S. financial markets have become a global bellwether with an outsize influence including in emerging and developing countries. Given the dominance of the U.S. dollar as a global reserve currency, we in the EAC are not immune to the dynamics in the U.S. financial markets. Global movements in the dollar exchange rate and interest rates are increasingly impacting our markets. On the one hand, as we expand our presence in the international Eurobond markets, we are becoming increasingly vulnerable to movements in global bond yield curves. On the other hand, with a growing influence of foreign investors in our markets, we have to be alive to their short-term horizons and their potential flight to safety in turbulent times. Nevertheless, there are other urgent concerns that must be recognized and attended to. The cost of globalization in terms of the industries that are wiped out and livelihoods that are altered, must be addressed. We have also seen the rise of nationalism in the last few years, particularly 1/4 BIS central bankers' speeches in Britain, Europe and the United States, threatening to reverse the gains made by globalization. There has been an increasing retreat to protectionism as large segments of the populace particularly in the West feel excluded from the global economy. The COVID-19 pandemic has presented the two sides of the coin in this issue. On one side, the vaccine nationalism particularly by western countries has shown the ugly face of the retreat from globalization. On the other side, the pandemic has emphasized the need for global cooperation and coordination as no one is safe until we are all safe. We are certainly treading dangerous ground. Second, is the proliferation of innovations and new technologies. From mobile banking to cloud computing, artificial intelligence to blockchain technology, internet of things, and robotics, all heralding significant opportunities to re-engineer the operations of governments and business and transform lives and livelihoods. Even before the COVID-19 pandemic, digitalization had transformed the African financial sector landscape. In Kenya, we had seen access to financial services triple from 26 percent of adults in 2006 to 83 percent in 2019. These transformational financial inclusion stories riding on digitalization were replicated across the continent including in Uganda, Tanzania, Rwanda and Ghana. Undoubtedly, digitalization has been the silver lining during this pandemic. With various containment measures including social distancing, lockdowns, and stay-at-home protocols, digitalization has enabled access to not just financial services but also other essential services including health and education. E-commerce has exploded as businesses pivoted to the digital marketplace. Businesses in diverse sectors ranging from hotels, retail, transport, communications, entertainment, health to education, have to a large extent transformed their businesses riding on digital rails and platforms. Workplaces have changed with a shift to working-from-home on a scale that was unimaginable before the pandemic. Additionally, technologies and innovations are being adopted rapidly. 2 New ideas and products are spreading at an exponential pace, putting pressure on innovators and promoters to compromise on the quality of their products. Third, is the rise of sustainability concerns. It is now widely appreciated that businesses can only be as successful as the societies they operate in and draw their existence from. Environmental, Social and Governance (ESG) considerations are now paramount in any organization’s strategy and operations. Most notably, the adverse impact of climate change has become evident. Natural disasters, associated previously with developing countries, have spectacularly reared their ugly heads in the developed countries. In the last few weeks, once-ina-millennium floods have ravaged Europe, while heatwaves and bushfires have scorched the western parts of the U.S. In these circumstances, the urgency to meet targets to reduce greenhouse emissions under the Paris Climate Agreement has been amplified. Significant financing will be required as the world moves to mitigate and adopt to climate change. Will banks rise to this challenge? The consequences of failure are dire to society and banks specifically as they reel from the damage to their loan portfolios from extreme weather events. Further, banks may be left with stranded assets, if they do not keep abreast with the transition to a net zero emissions global economy. Against the backdrop of the significant transformation foreshadowed by the three themes highlighted above, how will bankers bend without breaking in this environment? How will they guide their institutions to thrive and not just survive? I want to draw on an analogy from football, appropriately so in the wake of the recently concluded Euro 2020 tournament. For the first time in over 50 years, England was on the cusp of winning its first major global tournament. Unfortunately, the trophy did not come home but went to Rome. As English fans absorbed their 2/4 BIS central bankers' speeches loss, they must have remembered their retired talisman David Beckham, who could have very likely made the difference. In his heyday Beckham had the knack of kicking the football and bending its flight past the wall of defenders and into the goal. Analogously, how will banks develop fit-for-purpose strategies and business models, bending their way around the obstacles that come up every day in their field of play? Will the institutions bend but not break in the face of the disruptive trends? Let me identify the walls we must navigate around in three areas. First, we must not forget that it is all about people. While Returns On Equity (ROEs), PriceEarnings (P/E) ratios and the bottom-line are easy clutches, people-centricity must be at the heart of products, services and operations of financial institutions. The needs of citizens globally have grown over the last 18 months as lives and livelihoods have been upended by the pandemic, which has adversely impacted implementation of the Social Development Goals (SDGs) and threatened the vision of shared prosperity for all by 2030. Recent World Bank assessments indicate a reversal in the global fight against poverty following the pandemic—an estimated 130 million people could slip into extreme poverty by 2030, if concerted global action is not urgently taken. Closer home, the African Development Bank estimates that 30 million people in Africa slipped into extreme poverty in 2020 and a further 39 million could slide into extreme poverty in 2021. Micro, Small and Medium Enterprises (MSMEs), women and youth have borne the brunt of the pandemic. Supporting the recovery process will be at the heart of banks that will thrive in the new age. Targeted financial services to MSMEs and other vulnerable groups particularly women and the youth will be imperative. This will need to be supplemented by finance plus, particularly in the form of business advisory services, as MSMEs pivot their business models to fit in the new normal. Second, innovation presents opportunities but also risks. How do we maximize opportunities while minimizing risks? Emerging technology including Artificial Intelligence is a goldmine in building credit profiles and enhancing access to financial services for segments of our populace with thin credit files and who lack collateral. For financial institutions saddled with moribund ICT legacy systems, the cloud presents an opportunity to upscale to the anytime anywhere cutting-edge financial services platforms demanded by today’s discerning customers. Even as we reap from innovation, we must remain alive to the risks. Recent devastating cyber attacks including Solarwinds, Colonial Pipeline and Kaseya in the U.S. come into mind. In the region, we have also seen an upsurge in online scams, identity theft and social engineering attacks. We must therefore reinforce our cyber defenses internally to neutralize the insider threat. Externally, as a financial sector we must build a circle of trust, nationally, regionally and globally to share information and co-ordinate our cyber responses. Third, strong governance should underpin the culture in banks. This goes beyond the classical tenets of an effective board, management and staff with clearly defined responsibilities and accountability. Governance in the age of the fourth industrial revolution would also be about the public good, for instance, supporting appropriate behavior in the financial markets. Banks play a critical role in foreign exchange markets and are key players in the government securities markets. Misbehaviour in these markets adversely affects society through distortions in foreign exchange rates and raising the cost of debt for government. Appropriate market conduct is therefore imperative to avoid short term profitability gains jeopardizing the long term societal good. Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) is another key facet of supporting the public good. Lapses in AML/CFT can be devastating given the consequences particularly of terrorism. Kenya, for instance has borne the brunt of terrorism including the Dusit 2 complex attack in 2019 that took advantage of vulnerabilities in AML/CFT frameworks of part of the financial sector. Technology now offers banks, cutting-edge 3/4 BIS central bankers' speeches technologies to monitor and analyse transactions and reinforce their AML/CFT defenses. ***** As I draw to a close, I want to emphasize that we must all act with courage to do the right thing, and not just survive but thrive. We must have the courage to Bend it like Beckham, to go around the walls to attain the goals of people-centricity, balanced innovation, and stronger governance. I am sure you will reach deep and find the courage to bend it like Beckham one day after another, as we are in a marathon and not a sprint. Across the street from my office, is a large mural of Kenya’s Marathon Champion Eliud Kipchoge with his mantra No Human is Limited. Along with the millions of his fans, I will be rooting for Kipchoge on August 8, as he defends his Olympic Marathon Gold medal title against other strong contenders such as the Ugandan Team led by Stephen Kiprotich. We may not agree on who is best placed to win the 2020 Olympic Marathon, but I am sure we will agree that, in as much as No Human is Limited, the financial sector must and will find a way to bend without breaking in order to thrive in this new age. Thank You! 1 Schwab, Klaus “The Fourth Industrial Revolution: what it means, how to respond” January 2016. Brynjolfsson, Erik and Andrew McAfee, “The Second Machine Age: Work, Progress, and Prosperity in a Time of Brilliant Technologies” W. W. Norton & Company, 2014. 4/4 BIS central bankers' speeches
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Remarks by Dr Patrick Njoroge, Governor of the Central Bank of Kenya, at the ABSA Africa Banking Conference, 7 September 2021.
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CENTRAL BANK OF KENYA ABSA AFRICA BANKING CONFERENCE Re-Imagining Banking in Africa in a Post-COVID World Keynote Address by Dr. Patrick Njoroge Governor, Central Bank of Kenya Tuesday, September 7, 2021 As Prepared for Delivery Good morning! I am pleased to join you at the ABSA Africa Banking Conference. Let me at the outset express my gratitude for the invite. The theme of the conference— Re-imagining Banking in Africa in a Post COVID World— is timely, as we reflect on the challenges and opportunities that the coronavirus (COVID-19) pandemic has brought to the fore. I am sure that your deliberations over the next two days will illuminate the path forward for the African banking sector. We meet at a critical juncture and I want to set the context by highlighting three pertinent themes. First, as was highlighted by the International Monetary Fund in its July 2021 World Economic Outlook, COVID-19 vaccine access has become the principal fault line for global recovery from the pandemic. On one side are the advanced economies, with access to vaccines and who can look forward to some semblance of normalcy. On the other side, are emerging and developing economies including Africa, with limited vaccine access and who face a steeper climb out of the pandemic valley. However, the recovery remains uncertain even in the advanced economies as the virus continues to mutate and circulate elsewhere, posing a significant downside risk. Second, and on a more positive note, the global banking sector has redeemed itself through the pandemic. Following the reforms after the global financial crisis in 2008, the sector entered the pandemic period with strong capital and liquidity buffers. These buffers have stood the sector in good stead through the turbulence of the last 18 months. More importantly, the sector kept the lights on in the wider economy through the pandemic, supporting lives and livelihoods. Banks were also a key channel for support including from governments particularly for Micro, Small and Medium Enterprises (MSMEs), keeping them afloat in the tempest. Third, and the poster child of the pandemic, has been the acceleration of digitization. The drive towards digitization that had started before the pandemic has been the saving grace not just in financial services but also in the health, entertainment, retail, education and hospitality sectors. In the midst of containment measures, including lockdowns and stay-at-home protocols, businesses, governments and individuals have continued to provide essential services on digital platforms. However, with the opportunities come risks. Major cyber attacks such as Solarwinds, Colonial Pipeline, and Kaseya in the United States, have led to significant consequences including on critical supply chains. Turning for a moment to Kenya, I thought of sharing with you a message I sent to all CEOs of commercial banks on March 15, 2020, which may provide an inkling as to our frame of mind at that time. “..the coronavirus pandemic has arrived in America and Africa—like distant thunder that presages a summer storm. Only this is more like a tsunami. My first ask is that we face this crisis with courage, and remember that we don’t have the sure-fire solution. No one does. Secondly, in times like this, we are reminded of our own frailty and the irreducible minimums of our human existence. A recent story from Wu Han reminded me of some things I take for granted—a simple sunset, good health, family, life.... Thirdly, let’s be exceptional in our kindness to others. There are a lot of ugly stories out there but please remember “a single act of kindness throws out roots in all directions, and the roots spring up and make new trees.” Let’s check on others—family, friends, neighbors... […] We are now entering the eye of the storm. The crucible. We will get thru this. […] May God watch over us.” The banking sector came into the pandemic on a solid footing with strong capital and liquidity buffers. We had also embarked on a transformation of the sector in 2016, culminating in the issuance of the Kenya Banking Sector Charter (the Charter) in 2019. The Charter sought to operationalize a vision of a banking sector that works for and with Kenyans, anchored on four pillars, customer-centricity, risk-based pricing, transparency and ethical banking. Its implementation was well underway as the pandemic broke out in Kenya in March 2020. The Central Bank of Kenya (CBK) had keenly followed the unfolding of the pandemic, as it erupted in China in January 2020, and spread with devastating results in Europe and the United States. As the first case was announced in Kenya in March 2020, CBK moved quickly together with banks and other players to put in place a set of measures to ride through the pandemic. The measures were intended to increase the use of digital platforms, facilitate the continued flow of credit in the economy while providing liquidity to banks and to ensure business continuity. In the end, it was about people. One and half years into the pandemic period, Kenya’s banking sector remains stable and resilient. Digitialization has accelerated over the period, with over 94 percent of transactions being conducted outside bank branches up from 90 percent before the pandemic. Over a one year period to March 2021, with CBK providing regulatory flexibility, banks restructured 57 percent of gross loans. As at end July, the outstanding restructured loans stood at 16 percent of gross loans, with over 92 percent of the restructured loans performing as per the terms of the restructuring. From a credit risk perspective, the level of non performing loans to gross loans has fallen from 14.5 percent at end December 2020 to 13.8 percent at end July 2021, on the back of repayments and recoveries. In a personal message to my fellow Central Bank Governors on September 5, 2020, I summarized the situation as follows: “COVID has tested us all and continues to re-test us every month with the new revelations. So far all in our families are okay and we pray for ‘rona to be gone soon. Still, we have seen some positives, as people let go the crutches of materialism, “no longer at ease here, in the old dispensation” to quote T.S. Eliot. Conscious of our mandate at the central bank, we have thrown almost everything at this beast, trying to stop the health crisis becoming an economic meltdown. Amazingly, the key constraint is data. Yes, data. If we had data to answer some key questions our policies would be better—precision bombing rather than blanket bombing like some other central banks that you know. I feel Donald Rumsfeld’s pain when he famously broke it down into known knowns, known unknowns, and the unknown unknowns. Today we are foundering in the known unknowns. I think it compares to being in the middle of the Atlantic, without navigation equipment, no maps, and in a canoe. I don’t want to be dramatic, but the canoe better get to shore. But all things considered, the Kenyan economy is recovering after a decline in April-May, thanks to its diversification. […] Stay safe and let’s also stay in touch.” Getting back to the theme of the conference, how do we reimagine banking in Africa in a post-COVID world? I will venture in three broad directions, setting the ground for what I am sure will be an insightful discussion over the next two days. First, people centricity will be the orchestrating theme for banks. People’s needs will be at the heart of all that banks do. The pandemic has had devastating impact on lives and livelihoods globally. By World Bank estimates, over 130 million people could be pushed into extreme poverty by 2030. In particular, MSMEs have been pushed to the edge by the pandemic and will require significant support if they are to survive. MSMEs, as you are aware, are the engines of growth across Africa. In 2018, before the pandemic, the International Finance Corporation had estimated a funding gap of USD331 billion for SMEs in Sub-Saharan Africa. I expect that with the pandemic, this gap has increased substantially, with banks expected to fund a significant portion. Beyond funding, banks will be expected to play a key role in providing business advisory services to MSMEs as they pivot their business models to the new normal. Second, agility will define the playing field for banks. Traditional business banking models will need to be refreshed to be fit for purpose in the world of anytime anywhere banking services. Customer expectations were changing even before the pandemic for anytime anywhere banking services. The pandemic has only served to accelerate the trend towards on-demand services. This will require agile business models, that banks on their own, may not be able to deliver particularly through legacy information, communication and technology (ICT) systems. Partnerships with new, nimble players will be imperative. In this regard, banks will be akin to conductors in an orchestra bringing together many different players particularly fintechs to deliver what customers require. This will in turn require banks to scale up through additional capital injections, mergers and acquisitions. The third and final theme is on regulation that will require recalibration to fit in the new normal. The fast evolving digital ecosystem is spawning a new set of players and activities that mimic financial services. Globally, there has been the proliferation of digital currencies that have been presented as payment instruments including cyptocurrencies, most notably bitcoins and more recently stablecoins. However, they have turned to be less of payment instruments and more of wealth management tools. Further, they have largely remained out of the realm of regulation, but are being closely watched by regulators. Closer home, a medley of financial services have emerged on digital platforms, most notably digital lending. A lot of these digital players, not being deposit takers have operated below the radar of regulators. This has caused grave social strife through exhorbitant interest rates, aggressive debt collection and overindebtedness. Regulators must therefore review their perimeters without stifling innovation. This is a discussion we are currently having in Kenya, with a Bill under consideration by Parliament to empower CBK to regulate fintechs offering digital lending services. As I draw to a close, the African banking sector has done relatively well in the pandemic but we must not be complacent. The pandemic remains far from over while the global terrain is rapidly shifting. We came into the pandemic with a well-developed digital ecosystem, leveraging mobile phone technology particularly in Kenya, Ghana, Rwanda,Tanzania and Uganda, among others. These digital rails have enabled the financial sector keep the lights on as they delivered much needed services. Will these advantages be enough to move the African banking sector to the next frontier? The simple answer is no, and African banks must reset their paths. They must keep their customers at the heart of everything they do while building ecosystems that meet customer needs at every stage of their lifecycle. Most importantly, they must build new ships that will steer them in the deeper ocean that they must play in. There is work to be done. I close with a personal message that I sent CEOs of commercial banks on January 2, 2021: “Congratulations, 2021 is finally here! With 2020 now consigned for the history books we should also acknowledge our many accomplishments during a very unusual year. Thank you for your contributions, even those that appeared small or trivial. Looking ahead, however, more than ever before the spirit of the legendary trailblazers is needed—courage and hope for the future. We will rise to the challenges along the way with the responsibility of a leader, treading boldly where others have not trodden. Unsurprisingly, the period ahead will provide us many opportunities to recommit to a shared future, ultimately improving the lives of those around us especially the most needy, and writing a more exciting chapter in that history book.” I look forward to the deliberations and the outcomes over the next two days as we reimagine the future of the African banking sector. Thank You!
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Remarks by Dr Patrick Njoroge, Governor of the Central Bank of Kenya, at the "Agile Regulation for Digital Transformation (A. Reg4DT)" webinar, 22 September 2021.
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Patrick Njoroge: Agile regulation for digital transformation Remarks by Dr Patrick Njoroge, Governor of the Central Bank of Kenya, at the “Agile Regulation for Digital Transformation (A. Reg4DT)” webinar, 22 September 2021. * * * Excellencies, Ladies and Gentlemen: Good Morning, Good Afternoon! I am pleased to join you at the Agile Regulation for Digital Transformation (A. Reg4DT) Webinar. Let me at the outset, express my gratitude to the World Bank and its partners in this initiative for the invite. While on the one hand, the coronavirus (COVID-19) pandemic has upended lives and livelihoods, on the other hand, it has fostered digital transformation at an unprecedented scale. As digitalization has transformed delivery of services for businesses, governments and changed our way of life, regulators have been assessing the resultant opportunities and risks. The A.Reg4DT initiative is opportune to develop the capacity of regulators in Africa as digitalization transforms every facet of our lives. Indeed the world has changed dramatically from 2007, when mobile phone money transfer services were introduced in Kenya to meet basic financial needs of transferring money from urban workers to their rural families. Subsequently, mobile phones laid the digital rails, that have seen the transformation of financial inclusion not just in Kenya but across Africa. Shortly thereafter, was the global financial crisis from 2007, in the advanced economies, predicated on excessive risk taking and the trend at that time of deregulation. Africa was largely spared the direct effects of this crisis given its relatively limited linkages to global financial markets at that time. The focus immediately after the crisis was the strengthening of the global banking sector through enhancing capital and liquidity buffers, risk management and an overhaul of corporate governance practices. One of the spillover effects of the global financial crisis was the emergence of decentralized finance (De-Fi). The promoters of De-Fi sought to leverage on the loss of trust in governments and financial institutions particularly in advanced economies. This saw the emergence of cryptocurrencies, headlined by Bitcoin, positioned as alternative payment instruments. This later morphed to stablecoins and more recently, there has been the growing discussion on Central Bank Digital Currencies (CBDCs). Recently, cryptocurrencies have morphed into more of wealth management instruments and less of payment instruments. Amidst these developments in the global financial arena, came the COVID-19 pandemic that has dominated global discourse over the last eighteen months. Unlike the global financial crisis that was largely an advanced economy phenomena, COVID-19 has extended its damage across the world. It has upended global lives and livelihoods and literally left no one unscathed. But amidst the gloom and doom, human resilience powered by digital platforms has shone through. In Africa, the digital rails built on mobile phones have served us well, enabling official and personal transfers to the most vulnerable segments of our population including women, youth and Micro, Small and Medium Enterprises (MSMEs). Our financial institutions, governments and businesses have pivoted to digital platforms to adapt to the new normal occasioned by the pandemic. In the Kenyan banking sector for instance, transactions outside bank branches have increased from 91 percent before the pandemic to over 96 percent currently. Significantly, the number of bank transactions on mobile phones has increased from 56 percent to 85 percent of all transactions. As digitalization democratizes and transforms financial services to anytime anywhere access by 1/3 BIS central bankers' speeches customers and new business models emerge, regulators must adapt to the new terrain. At the Central Bank of Kenya (CBK), our regulatory philosophy has evolved to maximizing the opportunities presented by technology and innovation while minimizing the risks. This requires an agile approach on our part which is the focus of our deliberations today. This leads me to the question of what does agile regulation mean? Allow me to highlight three broad directions to set the stage. First, regulators need to walk with the innovators. Reflecting back on the introduction of mobile phone financial services, we at CBK adopted a test and learn approach that sought to understand the business models, risks and their mitigants. This approach later developed across the world through the sandbox approach. Financial services are moving from an institution-based approach to an ecosystem approach with incumbent regulated institutions at the centre. Agile fintechs are key partners in the ecosystems to provide cutting-edge innovations such as credit scoring and customer relationship management solutions based on artificial intelligence. Regulators must seek innovative approaches to understand these fintechs, mentor them and grow their risk management capabilities. In this regard, CBK partnered with the Monetary Authority of Singapore (MAS) in 2019 to launch the Afro-Asia Fintech Festival to create a collaborative platform for African and Asian fintechs and regulators. On the back of this collaboration, two regional hackathons (competitions) drawing fintechs from across Africa were conducted in 2019 and 2020. These initiatives have offered us valuable insights into the workings of the budding fintech scene in Africa and continue to be a useful insight in our regulation and supervision of the emerging fintech ecosystems. Second, regulators need to be alert to changing perimeters. Digitization is breeding a new generation of services that mimic financial services. While these services may lead to enhanced access for unserved and underserved segments of our populace, they pose considerable consumer protection concerns. A case in point is the growing proliferation of unregulated digital lending applications (apps). These apps have been flying below the regulatory radar, as they are not deposit-taking, the traditional threshold for regulators to take note. However, they are posing enormous consumer protection concerns due to among others high interest rates, over indebtedness, unethical collection practices and personal data abuse. Most importantly, these concerns are spilling over to a loss of trust in the financial system. This is an area of concern in Kenya with Parliament at the tail end of considering a bill that will empower CBK to oversight unregulated digital lenders. Our approach in regulating these entities will focus more on the market conduct concerns as opposed to the traditional prudential concerns of capital and liquidity. Third, is national, regional and international co-operation. With the shift from institutionbased financial services to ecosystems, opportunities and risks will traverse national and indeed regional boundaries. Regulators will need to co-ordinate, co-operate and share information. A case in point is cybersecurity that is increasingly transnational in nature and requires a global circle of trust as a key countermeasure. On the other hand, the Big-Techs are increasingly extending their reach to financial services with a global footprint. African regulators will need to be at the global table as the governance architecture for the increasingly pervasive Big-Techs is drawn up given the significant spill over risks. As I draw to a close, the upskilling of regulators—their people, processes and systems—will be imperative in the new age of agile regulation. I therefore look forward to the rolling out of the A.Reg4DT programme across the continent to support regulators as digitalization transforms the 2/3 BIS central bankers' speeches financial services map. Thank You! 3/3 BIS central bankers' speeches
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Statement by Dr Patrick Njoroge, Governor of the Central Bank of Kenya, 4 November 2021.
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Greening Kenya’s Banking Sector Dr. Patrick Njoroge Governor, Central Bank of Kenya November 2021 (766 words) We have a problem. The recently released State of the Climate in Africa 2020 report, indicates that in 2020, the climate indicators in Africa, were characterized by extreme weather events such as floods and droughts, increasing temperatures and accelerated rise in sea-levels. The associated impact was devastating. The report also notes that by 2030, up to 118 million extremely poor people will be exposed to drought, floods and extreme heat in Africa, if response measures are inadequate. Additionally, climate change could further lower gross domestic product (GDP) in Sub-Saharan Africa by up to 3 percent by 2050. And Africa is not alone. It is against this dire backdrop in Africa and the world that the 26th UN Climate Change Conference of the Parties (COP26) is convening in Glasgow, Scotland. It brings together governments, businesses, civil society and citizens with the expectation of commitments to ambitious actions that are needed to counter climate change. Further delays in these commitments or if they are unambitious would spell doom to our destiny. In the build up to COP26, Kenya and other countries have been scaling up their climate actions at the sectoral and national levels. It is in this context that the Central Bank of Kenya (CBK) issued Guidance on Climate-Related Risk Management (Guidance) to the banking sector, on October 15, 2021. The Guidance is aimed at enabling banks to integrate climate-related risks into their governance, strategy, risk management and disclosure frameworks. Climate change poses three broad risks to banks. First, the physical risk to the loan portfolio arising from damage or loss caused by climate and weather related events such as floods and drought. Second, the transition risk arising from the changes towards a low carbon (green) economy. For instance, the abandonment of previously well-entrenched energy sources such as coal may lead to banks being left with obsolete stranded assets that were used to secure loans. Third, liability risk that could arise from banks being sued for financing companies whose activities negatively impact the environment. Nevertheless, efforts to mitigate and adapt to climate change also generate business opportunities for banks. These include the adoption of low emission energy sources, development of new products and services, access to new markets, housing and resilient infrastructure. Finance sits at the center of business, and CBK’s vision is a banking sector that works for and with Kenyans as spelt out in the Kenya Banking Sector Charter of 2019. Banks should not just provide banking services, but should ensure they meet the needs of customers while also being aligned to environmental, social and governance considerations. In the context of the actions to reverse the climate crisis, we aspire for a world where all financial services are green. Three milestones have been reached in this journey. First, in 2015, the Kenya Bankers Association (KBA) launched the Sustainability Finance Initiative (SFI). The SFI aims at raising awareness on environmental, social and governance risks and financing within the banking sector. KBA has set-up a comprehensive online training designed to enable banks to create long-term value for the economy, society and the environment. Currently, all 38 banks are participating and over 30,000 bankers have so far been enrolled. Second, in January 2020, the first corporate green bond in East and Central Africa of Ksh.4.3 billion was issued by the Acorn Group and listed at the Nairobi Securities Exchange (NSE). The bond was also admitted on the International Securities Market (ISM) segment at the London Stock Exchange (LSE). The proceeds were used to build environmentally-friendly housing for university students. Third, in November 2020, Kenya’s largest bank, KCB Bank, was accredited by the United Nations Green Climate Fund (GCF) as the first financial intermediary for the implementation of green financing in East Africa. GCF is the world’s largest climate fund, mandated to support developing countries raise and realize their Nationally Determined Contributions (NDC) ambitions towards low-emissions, climateresilient pathways. While acknowledging these milestones, a lot more needs to be done to green Kenya’s financial system, and issuance of the Guidance will quicken the journey for the banking sector. Over the next one-and-a-half years, CBK will walk with banks to build capacity and integrate climate-related risk management in their day-to-day operations. In turn, this will attract global funds that are looking for opportunities to finance initiatives that build climate resilience, and thus positioning Kenya as a premier green finance hub. For Kenya and other countries, the time is now to build a truly sustainable financial system that works for and with the people. Ultimately all financing should be green. The stakes are high. There is no planet B. Dr. Patrick Njoroge is Governor of the Central Bank of Kenya
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Keynote address by Dr Patrick Njoroge, Governor of the Central Bank of Kenya, at the 1st International TUK-SBMS International Conference, The Technical University of Kenya (TUK), 25 November 2021.
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CENTRAL BANK OF KENYA The Technical University of Kenya (TUK) 1 International TUK-SBMS International Conference st Rethinking Economic and Business Sustainability in Disruptive Times Keynote Address by Dr. Patrick Njoroge Governor, Central Bank of Kenya Thursday, November 25, 2021 As Prepared for Delivery Good morning! I am pleased to join you at the inaugural Technical University of Kenya (TUK), School of Business and Management Studies International Conference. Let me at the outset express my gratitude for the invite. The theme of the conference—Rethinking Economic and Business Sustainaibility in Disruptive Times—is timely, as we reflect on the challenges and opportunities that the coronavirus (COVID-19) pandemic has brought to the fore. Importantly, how will governments and businesses build on the lessons from the pandemic, and thereby enhance their agility to grow and thrive in a dynamic environment? I note the wide array of papers to be presented over the next two days, that will enrich the outcomes of the conference. The pandemic has upended lives and livelihoods while fundamentally changing enonomies and businesses. In Kenya, a robust response from the government and private sector has served us well in containing the pandemic and ensuring business continuity. The economy is now on a steady recovery path, while the financial sector has been resilient in supporting businesses and households. We must however remain vigilant as COVID is an enemy that attacks with stealth, with devastating consequences. Tellingly, we have seen in recent weeks a resurgence of the virus in Europe and parts of the United States, inspite of their high rates of vaccination against COVID-19. Coming back to the theme of the conference, what has changed over the last one and a half years with the pandemic? And how do we rethink economic and business sustainability in disruptive times? In venturing to answer these questions, I will first highlight three recent trends in the business landscape. First, is the dominance of Bigtechs. The pandemic has been characterized by accelerated digitization that enabled keeping the lights on for essential services including finance, education and health. Digital payment rails for instance in Kenya, Rwanda, Ghana and other African countries were a critical platform for official and personal transfers to the vulnerable segments of our population. More broadly, in the wake of COVID-19 containment measures, global technology platforms (Bigtechs) offering information technology, e-commerce, entertainment and other services have increased their reach and influence during the pandemic. Globally, Microsoft, Google, Meta (formely Facebook), Amazon and Apple are the face of Bigtechs. But beyond the United States, Alibaba and Tencent in China, Mercado Libre (online market) in Latin America, ride-hailing services Grub and Gojek in South East Asia, and mobile phone financial services firms in Africa are increasingly exhibiting the characteristics of Bigtechs though on a more regional scale. The global Bigtechs are now estimated at 20 percent of the market capitalization on the New York Stock Exchange. To paint the picture more vividly, Apple took 42 years to reach a market capitalization of US$1 trillion and 2 years to hit US$2 trillion. Shockingly, all of the second trillion in valuation came in just 21 weeks to August 2020! The Bigtechs have far and away displaced the traditional bluechips companies in manufacturing and aviation such as General Electric and Boeing in their dominance. Second, is the proliferation of technology and innovations. From mobile banking to cloud computing, artificial intelligence to blockchain technology, internet of things, and robotics. All these developments herald significant opportunities to re-engineer the operations of governments and business and transform lives and livelihoods. Indeed, we are at the cusp of the Fourth Industrial Revolution, whose transformative powers are already evident in the financial sector, and will transform the way we live, work, and relate to one another. In the words of Professor Klaus Schwab, who popularized this label: “It is characterized by a fusion of technologies that is blurring the lines between the physical, digital, and biological spheres.” Some of these technologies, such as Artificial Intelligence (AI) present significant opportunities to address some of our most pressing problems on the continent. For instance, despite Micro, Small and Medium Enterprises (MSMEs) being the engines of our economies, access to credit remains a key challenge. This in part arises from lack of traditional collateral such as title deeds used by financial institutions to secure credit facilities. With the proliferation of digital footprints, AI can be used to generate credit histories of MSMEs. These credit histories can then be used to appraise and appropriately price credit for MSMEs that would otherwise be excluded from accessing credit. The potential of AI extends to other critical areas including retail, advertising, manufacturing and health. But these new technologies pose challenges including how the data they use is collected and the formulation of the decision-making algorithms that underpins them. Ethical considerations are emerging with the growing use of AI, particularly whether they can perpetrate existing structural biases such as against women in access to financial and other services. Data governance remains a key concern with AI as it extends its reach. For instance, do MSMEs understand how their data will be used in the algorithms? Are they made aware by the financial institutions and other service providers of how their data will be used? And is their consent to use the data for AI and other purposes well informed? Third, is the growing global wealth inequality. The richest one percent are getting wealthier, drawing on the trends of Bigtechs and Technology. I mentioned earlier the socalled one percenters are drawing their fortunes from the technology and innovation arena that is the new normal. Before the pandemic, tech entrepreneurs and investors were working towards building companies valued at USD1 billion referred to as Unicorns. The pandemic has seen an acceleration of start up technology companies valued at USD10 billion, the Decathons. In 2021, 30 start-ups have been valued as Decathons compared to 15 in 2020, and just 5 in 2019. Most of these Decathons are in the ecommerce, data analytics, AI and other innovations space. On the other hand, the pandemic has reversed years of steady progress of the global vision of shared prosperity by 2030. This is espoused in the implementation of the United Nations Sustainable Development Goals (SDGs). According to World Bank estimates, over 100 million people will be pushed into extreme poverty by 2030, by the pandemic, exacerbated by climate change and armed conflict particularly in the Middle East and Africa. Accordingly, the goal of bringing the global absolute poverty rate to less than 3 percent by 2030, which was already at risk before the crisis, is now harder than ever to reach. Against this backdrop, how do we reimagine the future of our economies and businesses? I will sketch three broad ideas. First, people-centricity must be at the heart of technology and innovations. Any technology and innovation must answer the question of what need it is solving. We are increasingly attracted by the fanciness of technology and innovation and are blinded to the problem it is solving. Kenya’s mobile money story has become a global posterchild of innovation. What is often missed, is the problem of transferring money from urban to rural areas, that spawned the digital revolution in Kenya. My clarion call to students who are in the audience and are aspiring to be innovators and entrepreneurs is to keep people’s needs at the centre of everything that you do. Second, emerging and developing countries such as Kenya need to be at the global table on the governance of Bigtechs. Bigtechs are an integral part of our day-to-day lives as we communicate, transact on e-commerce and conduct other financial transactions. Their reach has grown during the pandemic and they continue to scale up their services globally with resultant spill-over effects, particularly in emerging and developing countries. As the United States, the European Union and China design governance structures for the Bigtechs, we must not be left behind. I am pleased to note that the United Nations has incubated the Dialogue on Global Digital Finance Governance. The Dialogue was established to explore the nexus of Bigtechs and sustainable development. Its goal is to catalyse governance innovations that take greater account of the SDG impacts of Bigtechs and are more inclusive of the voices of developing nations. Kenya co-hosts the Dialogue with Switzerland and will bring on board insights from developing countries. Third, is a renewed focus on shared prosperity. The pandemic has wiped out years of progress on the SDGs, particularly on health and education. Youth, women and MSMEs have been disproportionately affected by the adverse impact of the pandemic. MSMEs in developing and emerging countries are the backbone of the economy and support the lives and livelihoods of a significant swathe of the population. We must therefore get them back on their feet through increased access to credit and other business support services (finance plus). In 2018, before the pandemic, the International Finance Corporation estimated a funding gap of USD331 billion for SMEs in Sub-Saharan Africa. I expect that with the pandemic, this gap has increased substantially, and banks and other financial institutions will play a significant role in meeting this gap. More generally, let achieving shared prosperity for all our citizens be our guiding compass. Will these three ideas be enough to future-proof businesses and our societies in the disruptive times? The simple answer is no, as highly efficient systems and processes are worthless without the people that use them. The multiplicative power of technology underscores the importance of well-trained staff, aligned to the objectives of society and the institutions they work for. A single rogue trader or IT employee can bring down a hundred-year institution. Each of us has to be the best that we can be, renewing ourselves relentlessly. Quoting Alvin Toffler, “The illiterate of the 21st century will not be those who cannot read and write, but those who cannot learn, unlearn and relearn.” We have to be nimble, quick to adapt to the rapidly changing world, and fully aware that with great powers comes great responsibility. In closing, I wish to draw your attention to the large mural across the street from your campus, of Kenya’s Marathon Champion Eliud Kipchoge with his mantra No Human is Limited., He inspires me along with millions of his fans to raise my standards. As he says, “To win is not important. To be successful is not even important. How to plan and prepare is crucial. When you plan very well and prepare very well, then success can come on the way.” I hope the mural will remind you how to approach your time at this university, and encourage you in your successes and failures as No Human is Limited. I look forward to the outcomes of the deliberations over the next two days as we reimagine the future of our economies and businesses in disruptive times. Thank You!
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Remarks by Dr Patrick Njoroge, Governor of the Central Bank of Kenya, at the launch of the Banking Industry Sign Language Self-Training Mobile Application, organized by the Kenya Bankers Association (KBA), 2 December 2021.
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Patrick Njoroge: Launch of the Banking Industry Sign Language Self-Training Mobile Application Remarks by Dr Patrick Njoroge, Governor of the Central Bank of Kenya, at the launch of the Banking Industry Sign Language Self-Training Mobile Application, organized by the Kenya Bankers Association (KBA), 2 December 2021. * * * Good morning! I am pleased to be part of the launch of the Deaf eLimu Banking Application (app). My gratitude goes to the Kenya Bankers Association (KBA) for putting together this event and for the invitation to participate. I also extend my appreciation to the Financial Sector Deepening (FSD) Kenya and Deaf Elimu Plus Limited for their partnership with KBA on this project. The choice of date for this launch is apt, being a day before the world commemorates the International Day of Persons with Disabilities. I note with appreciation that my sentiments one year ago, during the launch of the Persons with Disability Digital Access Report, were duly considered and executed. I challenged the participants to provide tailor-made financial products that meet the needs of persons with disabilities. I am informed that 31 commercial banks have submitted their roadmaps on how they intend to implement the recommendations made in the report. It is therefore exciting to be here today to launch an app that is going to revolutionize banking for the hearing impaired. The World Health Organization (W HO) estimates that 5 percent of the world’s population (430 million people) are living with “disabling” hearing loss. This number is envisaged to grow to over 700 million people (one in every ten people) by 2050. Of this population, about 80 percent are people living in developing countries. In Kenya, of the 900,000 (2.2 percent) persons with disabilities, 150,000 people (16 percent) are living with hearing loss. This is a significant population, who are likely to be sidelined due to the non-inclusivity of our systems. In Kenya, we pride ourselves in achieving 82.9 percent financial inclusion. However, only 0.5 percent of persons with disabilities are part of these statistics. This brings me to the barriers locking out persons living with disabilities from the financial system. It is interesting to note that these barriers are rudimentary. They include negative attitude, misunderstandings by both financial institutions as well as their clients living with disabilities, unfavorable infrastructure such as lack of ramps and having to endure long queues. It is therefore within our reach to break these barriers and bring all persons with disabilities to the formal financial system. Allow me now to focus on the reasons why it is paramount for the banking sector to deal with these constraints and pave way for persons with disabilities to access financial services. First, it is our responsibility to ensure that we continually put people’s needs at the core of banking business. This is one of the commitments that financial institutions made through the adoption of the Kenya Banking Sector Charter (KBSC) issued in 2019. Customer centricity, which is the first pillar of the charter, not by accident, but by design, should be at the heart of product development. Over the last few years, financial institutions are increasingly tailoring their products and services to the needs of their customers. This was especially the case during this period that we have been dealing with the coronavirus pandemic. However, much more needs to be done particularly in segmenting the markets deeper to understand the needs of persons with disabilities. I am glad, this is already happening with the development of the Deaf eLimu Banking App. Second, we are on the road towards ensuring shared prosperity for all by 2030, engrained in the Sustainable Development Goals (SDGs). This will only be achieved through building sustainable and inclusive communities that foster inclusion and equitable opportunities for all. It is 1/2 BIS central bankers' speeches now widely appreciated that businesses can only be as successful as the societies they operate in and draw their existence from. Environmental, Social and Governance (ESG) considerations are now paramount in any organization’s strategy and operations. In this regard, ensuring that persons living with disabilities have the same opportunities to access financial services is an obligation that we have to step up to. Third, the Kenyan Banking sector is known for its leading role in an array of areas ranging from innovation to supporting broader societal good including in education, health and the environment. This has spilled over to the East African region and beyond where Kenyan banks are expanding their footprint. In the same breadth, the banking sector should also lead in enhancing inclusion of persons with disabilities. Let me take this opportunity to implore upon the other players in Kenya as well as in the region to follow this path. This will move us a step closer towards achieving shared prosperity for all. The Central Bank of Kenya (CBK), is also walking the talk. We are involved in various initiatives in support of persons with disabilities. More specifically, CBK supports St. Kizito Litein School for the Deaf. I will pause here for a brief video link on this initiative. The school came to the limelight when they won one of the CBK sponsored categories during the 2016 Kenya Music Festival. As indicated in the clip, we have completed a number of infrastructural developments at the school. This includes construction of a dormitory, renovation works for their classes as well as provision of water storage tanks. As I draw to a close, we are collectively, taking the right steps. However, this is just a starting point. Today the app has 100 phrases. For most spoken languages, the target for a beginner is 250–500 words. With 1,000 – 3,000 words you can carry on a regular conversation. I don’t know how this translates to sign language phrases for banking, but my challenge to you is to work steadfastly to improve the scope of the app and make it more useful for all. Let us also endeavor to incorporate the needs of all categories of persons with disabilities in the banking sector. Indeed, a society is at its best, when it leaves no one behind. It is now my distinct pleasure to declare the Deaf eLimu Banking Application officially launched. Thank you. 2/2 BIS central bankers' speeches
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Remarks by Dr Patrick Njoroge, Governor of the Central Bank of Kenya, at the Central Bank of Kenya-Alliance for Financial Inclusion webinar, Nairobi, 1 March 2022.
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Patrick Njoroge: Kenya’s Finaccess Survey 2021 Remarks by Dr Patrick Njoroge, Governor of the Central Bank of Kenya, at the Central Bank of Kenya-Alliance for Financial Inclusion webinar, Nairobi, 1 March 2022. * * * Good Morning! I am delighted to welcome you all to the CBK-AFI Webinar on Kenya’sFinaccess Survey 2021. At the outset, let me acknowledge the support of the Alliance for Financial Inclusion (AFI), one of our worthy partners in formulating and executing the survey. Indeed, AFI has walked with the Central Bank of Kenya (CBK) over the last thirteen years in Kenya’s financial inclusion transformation journey. We are particularly grateful for the opportunity today to share the survey with the breadth of AFI members. More importantly, we look forward to drawing from their varied experiences to enhance the survey and our other financial inclusion initiatives. A useful starting point, would be asking ourselves why surveys such as this matter. At CBK, our vision is to be a data-focused organization that drives insight, facilitates efficient oversight and informs well researched policy through credible data. This is a vision that is embraced by many of the central banks and other institutions represented here. The COVID-19 pandemic has only served to accentuate the importance of data, science and facts. It has become even more evident that good data is essential to making informed, prudent and credible decisions. The pandemic has tested the effectiveness of traditional data sources and policymakers have had to step up to fill the gaps. Policymakers have increased the use of faster indicators, such as mobility data or granular payment transactions. At CBK, we have had to turn to new, higher frequency data sources. These include: Hotels survey - to gauge recovery through occupancy levels in the hotels and accommodation sector. Flower farms survey - assessing recovery through export orders and employment levels. Chief Executives Officer (CEOs) Survey– Introduced to gauge among others business confidence and risk perception. Monetary Policy Committee (MPC) Perception Survey– This is a regular MPC survey covering commercial banks and other private sector actors on their perception of key economic issues including inflation and growth. It was enhanced to obtain pandemic related information and extended coverage of private sector firms. A key milestone in CBK’s journey towards data-centricity was the launch last week on February 25, of the Electronic Data Warehouse (EDW). EDW is a strategic and transformative initiative that gives CBK an opportunity to become a data driven Central Bank through automation of data collection, storage and analysis. In particular, it will provide a centralized depository of data, shortening the time it takes to prepare and generate business reports while ensuring their accuracy. Turning back to the Finaccess Survey 2021, it has continued to be a reliable workhorse in our data stable. This being the sixth survey since the 2006 baseline, it remained faithful to the original principles of enhancing financial inclusion measurement; providing better understanding of the financial inclusion landscape over time; and informing other actors in the financial inclusion space. It was unique in a number of ways. Firstly, it was undertaken as the COVID-19 pandemic evolved and mutated. Secondly, it drilled down to the 47 administrative units (counties) that constitute Kenya. Lastly, it covered all dimensions of financial inclusion (access, usage, quality and impact) including sustainable/green finance and financial health. The survey’s topline findings were: 1/2 BIS central bankers' speeches First, the financial inclusion landscape was impacted by COVID-19 with overall financial access increasing to 83.7 percent of adults in 2021, from 82.9 percent in 2019, mainly driven by the use of technology. Second, the adult population that reported to be completely excluded from accessing any form of financial services or products increased to 11.6 percent in 2021, from 11.0 percent in 2019. This in part reflected the impact of COVID-19 restrictions that made it difficult for youths turning 18 years to take national identity cards, a prerequisite for accessing formal financial services. Third, the usage and quality of financial services and products continue to deepen on account of among other factors, increased adoption of technology and innovations. Technology is playing a critical role in closing the financial inclusion gap among the genders and across the country. As I draw to a close, let me leave you with three key takeaways from the survey to reflect on and deliberate on. First, surveys such as this are a critical cog in translating the vision of being a data driven organization into reality. This is indeed true for countries at different levels of financial inclusion. This is as true for Kenya that has been on the financial inclusion journey for long, as it is for a country contemplating its first financial inclusion survey. For the pioneers, it is about moving beyond access to financial services to usage and quality. For countries at nascent stages, it is about understanding access to financial services and what needs to be done to accelerate this. Second, it is about collaboration. One entity cannot do this alone. We have over the various rounds of our finaccess surveys increased the number of our national, regional and international partners. As I earlier initimated, we acknowledge the very important role that AFI has played in the current survey. You will continually need to cultivate the relationships with core and other partners in the public and private sectors. In our case, the Financial Sector Deepening Trust, Kenya, the Kenya National Bureau of Statistics and other players including commercial banks have been valuable partners. Over time as the financial inclusion landscape changes, priorities for some of the partners may change, but the core partners must remain focused on the vision. Ultimately, the survey is about financial inclusion for the shared prosperity of our citizens. Third, surveys take time, effort and resources. It has taken significant time, effort and resources to land the survey amidst turbulent storms and winds. Designing and conducting the survey during the pandemic presented novel challenges. In the midst of the pandemic, the health and safety of the teams conducting the survey remained paramount. We could not move at the pace we desired, as the pandemic peaked and ebbed and containment measures were imposed and eased. But in the midst of all these challenges, the vision of financial inclusion for the shared prosperity of our citizens remained our beacon in a dark ocean. Last Wednesday, we launched our National Payments Strategy for 2022–2025. The Strategy provides guide posts for the next chapter of Kenya’s payments journey. In particular, it seeks to realise our vision of “a secure, fast, efficient and collaborative payments system that supports financial inclusion and innovations that benefit Kenyans.” Let it be clear that without the FinAcess Survey, our National Payments Strategy would have been a weak document. We are at different stages of our respective financial inclusion journeys. For those who are starting on their financial inclusion survey journey, I urge you to take the plunge. We will be with you, to ensure a smooth landing. For those already on the journey, let’s continue walking together, sharing experiences and learning from each other, for this is ultimately about enhancing the lives and livelihoods of our people. Thank You! 2/2 BIS central bankers' speeches
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Remarks by Dr Patrick Njoroge, Governor of the Central Bank of Kenya, at the Launch of Banking Industry Financial Literacy Campaign, Nairobi, 8 June 2023.
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Patrick Njoroge: Launch of Banking Industry Financial Literacy Campaign Remarks by Dr Patrick Njoroge, Governor of the Central Bank of Kenya, at the Launch of Banking Industry Financial Literacy Campaign, Nairobi, 8 June 2023. *** As prepared for delivery Good Morning! I am pleased to be here at the launch of the Banking Industry Financial Literacy Campaign. Let me express my gratitude to the Kenya Bankers Association (KBA) for the invite and organizing this launch event. I note that the campaign targets the public particularly the youth to enhance their capacity to make sound and informed financial decisions. The context of the Campaign is the vibrant financial sector. Kenya's financial ecosystem has transformed significantly in the last decade and a half. From the traditional brick and mortar model, it has evolved to an elaborate anytime anywhere digital ecosystem stradling among other services: payments, credit, savings, insurance, capital markets and pensions. The 2021 FinAccess Household Survey (the Survey) indicated that the level of financial access has tripled from 26 percent in 2006 to 83 percent in 2021. Commercial banks have also transformed dramatically. In the late 1990's, bankers used to say that there are about 2 million bankable Kenyans. Today, there are 73.72 mobile money accounts and 64 million deposit accounts in banks. The Survey estimated that 22.2 million Kenyans were using mobile money accounts, while 10.2 million Kenyans had bank accounts. Before delving further on the question of the day, I want to ask why are we interested in improving financial literacy of the population? Why is it important to a commercial bank, SACCO, microfinance institution, payments services provider, and even the central bank? I fear as, Simon Sinek explains in his book "Start With Why," we get caught up too often with the "what will we do and how will we do it" (for instance, this campaign) and ignore the all important question of why we are doing this. In my view, it is about lifting the population and giving them powerful tools for their prosperity and security. It is important that we reflect deeply on this, against the backdrop of a rather chequered history of the banking sector and our business community more widely. To set the stage for my remarks, it is important to first understand the key components of financial inclusion. Broadly, financial inclusion refers to the participation of individuals, households and businesses in the financial system. The Survey defines financial inclusion in four dimensions: access, usage, quality and impact/welfare. I will focus on the impact/welfare component which refers to financial health. The financial health of citizens is indeed where the rubber meets the road in terms of financial inclusion improving their livelihoods. 1/4 BIS - Central bankers' speeches Whilst progress in Kenya has been made on the access dimension of financial inclusion, much more more remains to be done on the other three dimensions of usage, quality and impact/ welfare. The Survey revealed increased usage of banking services particularly through mobile phones. However there are still gaps in usage of financial services between males and females, rural and urban users, among different age groups and users in different income segments. On the quality dimension of financial inclusion, as assessed on the basis of financial literacy and consumer protection, the Survey indicated that 45 percent of respondents relied on friends and family members to get financial advice, with formal institutions playing a peripheral role. Some of the challenges cited by respondents include: fraud through loss of money, unexpected transaction charges, lack of transparency in the pricing of financial services and products and system downtime. On the fourth dimension of impact on livelihood of those using financial services and products by household, the Survey employed a framework of financial health constructed from a composite index of three main life goals:Ability to manage day-to-day needs. Ability to cope with shocks. Ability to invest in future goals. The aim was to determine the outcome of financial inclusion in terms of the resilience of the Kenyan population and its potential for growth. The results of the Survey indicate that the financial health of respondents deteriorated to 17.1 percent in 2021, compared to 21.7 percent in 2019. This implies that that only 17.1 percent of the respondents could adequately and comfortably meet their day-to-day needs, cope with shocks and had the ability to invest in future goals like saving for old age. Globally, the World Bank Global Findex Database (Global Findex) revealed that in 2021, 76 percent of adults had an account at a bank or regulated institution such as a credit union, microfinance institution, or a mobile money service provider. Account ownership around the world increased by 50 percent in the 10 years spanning 2011 to 2021, from 51 percent of adults to 76 percent of adults. Notwithstanding this significant increase in global access to financial services, financial health remains of concern. In particular, only 55 percent of adults in developing economies could access extra funds within 30 days without much difficulty. Friends and family were the first-line source of extra funds for 30 percent of adults in developing economies, but nearly half of those said the money would be hard to get. Furthermore, women and the poor were less likely than men and richer individuals to successfully raise extra funds and more likely to rely on friends and family as their go-to source. Further, about 50 percent of adults in developing economies were very worried, in particular, about covering health expenses in the event of a major illness or accident, and 36 percent said health care costs were their biggest worry. In Sub-Saharan Africa, worry over school fees was more common than in other regions; 54 percent of adults worry about them and for 29 percent it is their biggest worry. 2/4 BIS - Central bankers' speeches What went wrong? Why so many obvious problems and does it matter for our instititutions? As I mentioned at the beginning of my remarks, it should matter to every one of us, and every one of our institutions. What perhaps happens is that we end up as free-riders, letting others do the heavylifting. Or we are not practitioners of the broken window theory-reluctant to deal immediately with emerging problems. Considering the example of operating a restaurant, do we leave our customers struggling with the menu, instead of seeking to understand what they want, explaining the items of the menu and adapting them to the customer? Against this backdrop, I will outline three broad themes to reflect on as we collectively work to strengthen the financial health of Kenyans. In doing this, I will draw substantially from the Kenya Banking Sector Charter ( the Charter) issued to the banking sector by the Central Bank of Kenya (CBK) in 2019. The Charter sought to operationalize the vision of a banking sector that works for and with Kenyans. It is anchored on four pillars of customer centricity, risk based credit pricing, transparency and disclosures and ethical banking. This morning, I will focus on the customer centricity and transparency and disclosure pillars. First, customer centricity is key in addressing the financial health of our citizens. Financial services and products should take into account the day to day needs, of customer supporting their resilience and achievement of their life goals. Tailored savings products and insurance products particularly covering medical care come into mind. Further, pension products that cater for individuals in the informal sector and post retirement medical schemes are also pertinent. My challenge to the financial institutions represented here is how well do you understand the financial health needs of your customers? Do you have products and services that meet their needs at the different stages of their life cycles? The needs of different customer segments vary given their income segment and stage of life. The risk appetite of high networth customers will indeed differ from a middle class family with children about to join university. A broad brush stroke approach to product development in an environment like this is redundant and the challenge is to customize products and services accordingly. Second, is transparency and disclosure. Customers are now faced with a myriad of financial services and products that they may not understand. The allure of anytime and anywhere financial services is increasingly leading consumers to partaking the services and products without adequate knowledge. This has led to challenges including overindebtness and addiction to betting and gaming. Third, a holistic and collective approach to financial health is imperative. All players including regulators, financial service providers, customers must come to the table to strengthen the financial health of our populace. I am therefore pleased to note the participation in today's launch not just of commercial banks, but also of insurance companies, microfinance banks, SACCOs and Payment Services Providers. We are all serving the same customers who require a variety of products for their financial wellbeing and ultimately enhanced lives and livelihoods. 3/4 BIS - Central bankers' speeches As I draw to a close, the campaign we are launching today should not just be about financial literacy. It should be about enhancing the financial health of Kenyans. The words of Queen Maxima of Netherlands, a global proponent of financial health are apt, "It is important to remember that financial inclusion on its own-is not enough-rather it is a means to an end. It remains critical to be deliberate in targeting positive development outcomes that strengthen the resilience of people and small businesses, and contribute to their improved financial health." We have ways to go but I am confident we will get there. We must. And in the words of a famous proverb, if you want to go far, go together. Thank You! 4/4 BIS - Central bankers' speeches
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Remarks by Dr Patrick Njoroge, Governor of the Central Bank of Kenya, at the Summit of the Global Forum on Remittances, Investment and Development, Nairobi, 14 June 2023.
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Patrick Njoroge: Remarks – "Global Forum on Remittances, Investment and Development" Remarks by Dr Patrick Njoroge, Governor of the Central Bank of Kenya, at the Summit of the Global Forum on Remittances, Investment and Development, Nairobi, 14 June 2023. *** As prepared for delivery Good morning! It is an honor for me to join you at this Summit of the Global Forum on Remittances, Investment and Development. This event aims to strengthen the existing initiatives aimed at advancing the international agenda on remittances and diaspora investment. I am pleased to note that during the Summit delegates will explore the new opportunities and challenges in the global and Africa's ecosystems, new digital channels, and innovative business models as well as sharing experiences. Remittances are inexorably tied to the stories of migrants. Stories full of courage, endurance, desperation, successes, failures, guilt, redemption- The best and the worst of life. Consider the desperation and courage of those migrants putting all their lot in a hardly seaworthy boat in the Mediterranean Sea and a promise from a human trafficker. Consider the story of an Afghanistan boy in the book "Kite Runner" by Khaled Hosseini. Or the story of Sadio Mané, the celebrated Senegalese professional footballer who left home with nothing, but now supports everyone in his region in Senegal. These are the stories of migrants that need to be told. Let me turn to the theme of the Summit, by acknowledging the important role of the diaspora in economic development, mainly through remittances. The financial contribution of diaspora remittances is significant. As the President of African Development Bank remarked recently, "Africans in diaspora are Africa's largest financiers. Remittances from the diaspora to Africa grew from US$37 billion in 2010 to US$96 billion in 2021. Total Official Development Assistance to Africa in 2021 was US$35 billion or 36 percent of remittances from diaspora." According to data from the World Bank, remittance flows to low- and middle-income countries increased by 4.9 percent to reach US$626 billion in 2022, even as global flows are estimated to have reached US$794 billion in the same year. Further, remittances now represent a prime source of external finance for low- and middle-income countries relative to other types of flows, such as foreign direct investment (FDI), official development assistance (ODA), and portfolio investment flows. Closer home, Kenya is the third largest recipient of remittances in Sub-Saharan Africa, and it received US$4.0 billion in 2022, an increase of 8.3 percent compared to 2021, which represents over 3 percent of Kenya's GDP. Remittances have had massive impact on the lives and livelihoods of the recipients. Take for example, Esther from Kenya, who worked in Saudi Arabia as a housekeeper for 7 years from 2012 to 2019. She was able to achieve 70 percent of her financial goals while in Saudi Arabia and at the same time managed to build a 2-bedroom stone house in Kabete, Kenya, educate her 3 children and take care of her mother's as well 1/3 BIS - Central bankers' speeches as other relative's needs. Kenya's digital landscape enabled her to achieve this by providing a platform for transactions (M-Pesa) and for savings (M-Shwari). Esther is a return migrant and believes that she would have achieved 100 percent of her financial goals had she stayed longer. However, the cost of sending remittances remains high especially in certain corridors. According to the World Bank's data, the cost of sending US$200 averaged between 5 percent and 10 percent worldwide, far exceeding the Sustainable Development Goal (SDG) target of 3 percent. As a result of the high costs, remittance tickets remain sizeable. In the case of Kenya, the adoption of technology and innovation has reduced costs allowing for smaller bite-sized remittance tickets. Kenya's 2021 Diaspora Remittance Survey revealed that 32 percent of remittances are through mobile money operators, due to the convenience, speed, and lower cost. Still, a lot needs to be done to reduce costs towards the SDG target. Remittances are used by recipients largely for daily expenditures, and not for investment and growth. The 2021 Diaspora Remittance Survey revealed that the purchase of food and household goods, medical and education expenses, rent, and household utilities constituted 49 percent of remittances. This indicates that the huge reservoir of human and financial capital that represents the diaspora remains largely untapped. The diaspora should be an important bridge between the host and the home countries. For instance, India success story in the information technology (IT) industry is anchored on the diaspora. India is also home to an increasing number of start-ups that have achieved unicorn status-enterprises valued at more than US$1 billion-that have been founded by Indian diaspora. The benefits from the diaspora should go well beyond the remittances. This is an appropriate time for deepening the conversations on how the diaspora can contribute to economic growth and progress especially in Africa where significant opportunities exist, and significant resources will be required to put our citizens on the path of shared prosperity. A UNDP report indicated that by 2050, more than half of Africa's population will be under 25. Additionally, 25 percent of the world's labor force will be based in Africa. Between 10-12 million people join the labour force in Africa each year, yet the continent creates only 3.7 million jobs annually. This quandary can only be resolved successfully with significant input from all those that have a connection with the continent, and crucially, the diaspora. Nevertheless, further work is needed to improve the business environment and thereby attract additional investments. Kenya has implemented several measures to improve the business climate, including significant investments in infrastructure, advancing innovative use of technology, among others. These initiatives are key to promoting competitiveness in the economy. A recent survey by US News and World Report ranked Kenya at position 26 globally-an improvement from position 39 in 2021-due to its resilience and momentum. It was also ranked the best country to start and run a successful business across the continent in 2022. As I draw to a close, let me mention a new innovation that will expand the available investment opportunities for the diaspora. This follows the digital innovations that allow transactions to be conducted anytime anywhere and with small ticket sizes. CBK is implementing a Central Securities Depository (CSD) that will improve efficiency and 2/3 BIS - Central bankers' speeches transparency in the government domestic debt market. The CSD will mitigate segmentation in the interbank market and enhance liquidity distribution by strengthening the operation of the secured overnight market. More importantly, the CSD provides a new and easy way to invest in Government securities and will therefore be beneficial to the Diaspora. The Kenyans abroad will be able to register CSD accounts online, from wherever they are, thereby mitigating the current inconvenience of having to come physically to the Central Bank. They will also be able to invest in Government of Kenya securities online. Additional investment channels in government securities, including diaspora bonds, are also being considered. I want to conclude with a poignant text from the little book "Sea Prayer" by Khaled Hosseini. A father prays over his sleeping son as they wait for dawn and a boat to arrive, to start their perilous journey towards the promise of a new life: Pray God steers the vessel true, when the shores slip out of eyeshot and we are a flyspeck in the heaving waters, pitching and tilting, easily swallowed. Because you, you are precious cargo, Marwan, the most precious there ever was. I pray the sea knows this. Inshallah. This Summit offers an opportunity to chart a new path for engaging the diaspora. How I pray the sea knows this. I wish you fruitful deliberations and a successful Summit. Thank You! 3/3 BIS - Central bankers' speeches
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