Below we outline the details of the amendments.

Variation of penalties

The Act has varied the penalties prescribed under the Banking Act for non-compliance applicable to financial institutions, credit reference bureaus, corporates and natural persons. Of note is the introduction of a penalty equivalent to three times the gross amount of the monetary gain or loss avoided by non-compliance.

Gradual increase of core capital

Banks will be required to increase their core capital to KES 10 billion by 31 December 2029. The staggered increase is as follows

We expect to see mergers and acquisitions activity involving smaller financial institutions driven by the need to raise core capital.

Regulation of non-deposit taking lending

The CBK Act now provides in section 33(S) that a person cannot carry on any “non-deposit taking credit business” unless that person has been licensed by the Central Bank of Kenya (CBK) or is permitted to do so under any other written law. A contravention of that section is an offence for which a person is liable upon conviction to imprisonment for a term not exceeding three years or to a fine not exceeding KES 5 million.

As a result, there is no longer a separate requirement for digital credit providers licensing, and the CBK has replaced “digital credit business” with “non-deposit taking credit business” to expand its oversight over credit business more generally and without emphasis on the form of channel used to advance a loan.

Non-deposit taking credit business includes granting of loans or credit facilities to members of the public (secured or unsecured), asset financing, pay-as-you-go, buy now, pay later arrangements (excluding hire purchase), credit guarantees and peer-to-peer lending.

The transition period for compliance by non-deposit taking lenders has not been provided, but we expect that the CBK will soon issue guidance on registration and licensing.

Regulation of credit guarantee businesses

Credit guarantee entities are now required to apply for and obtain licenses from the CBK. The Act defines “credit guarantee” as the business of providing guarantee by means of absorption of a lender’s risk on a credit facility made to a borrower.

The following credit guarantee service providers are excluded from the registration and licensing requirements:

• credit guarantee providers owned by foreign governments that have entered into an agreement with the Government of Kenya for purposes of supporting access to financial services in Kenya;
• credit guarantee providers owned or supported by international financial institutions and that have entered into an agreement with the Government of Kenya to provide services to targeted groups, sectors or regions for a specified period;
• credit guarantee companies registered outside Kenya that have partnered with a financial institution in Kenya to provide those services; and

banks providing credit guarantees as part of their regular business.

The Act provides for a transition period of five years from 27 December 2024. We expect that the CBK will soon issue guidance on the procedure for registration of credit guarantee companies, but the affected businesses should ensure compliance by December 2029.

Regulation of non-deposit taking microfinance companies

The Act provides for the regulation of non-deposit taking microfinance business in connection with the provision of physical credit. Physical credit refers to the provision of loans where a lender takes movable or immovable security but does not include acceptance of cash collateral. 

The affected businesses are required to apply for a license within six months from 27 December 2024. Contravention of this requirement is an offence for which a person is liable upon conviction to imprisonment for a term not exceeding three years, or to a fine not exceeding KES 2 million, or both.

Conclusion

While the CBK may have good intentions, these provisions likely mean more pain for borrowers as the credit market may contract, with lenders preferring not to conduct business in Kenya due to the requirement to obtain licensing to lend. If the intention was to protect consumers, in the general public interest, then the law could easily limit itself to consumer credit. As it stands, the regulation of non-deposit taking lending is so broad that even multilateral and bilateral lenders are required to be licensed.

Regulation of credit guarantee companies may, on the other hand, be a win for traditional lenders as they may be more confident in guarantees issued, which will unlock the market for sectors such as energy.