Client Protection in Kenya

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Executive Summary

Kenya has significant problems regarding lax banking regulations and corruption. Political stagnation between the country’s power-brokering fractions has prevented the government from taking action on consumer protection policies. The status of client protection in Kenya is very weak due to little or no action taken by government, non-government, and banking entities. There has been action against corruption, with a commission passing a general code of conduct for co-operative societies, but the code is vague and falls short of creating a consumer protection framework. No actions on consumer protection by the banking networks have been made public to date.

  • A general consumer protection bill was introduced in July 2007, but it has yet to be passed.
  • The Association of Microfinance Institutions of Kenya has included the creation of a code of standards into their strategy for 2007-2010. The Association has not disclosed results of this procedure and it is unclear weather the code will have enforceable consumer-oriented clauses.


In Kenya, the banking sector has faced two major crises, in the mid-1980s and the early 1990s. The main factors of these crises were under-capitalization and under-performance of loans. This was an indication of financial fragility and loss of public confidence in the financial sector. With that in mind, the banking sector was liberalized in 1995 and exchange controls lifted. These changes strengthened supervision of the banking industry, while at the same time encouraged self-regulation.

It was necessary to liberalize the financial sector to make it more dynamic while attempting to increase competition among the four major banks that have traditionally dominated Kenyan finance. Besides liberalization, there are other significant issues affecting the banking industry in Kenya including the current changes in the regulatory framework, mergers and reorganization of institutions due to declining interest rate margins, increased demand for non-traditional services, and the introduction of new players offering financial services products.

Legal Framework

Under the 2002 Constitution, the Banking industry in Kenya is governed by the Companies Act, the Banking Actthe Central Bank of Kenya Act, and the various prudential guidelines issued by the Central Bank of Kenya (CBK). In 2005, another constitution was drafted but then rejected by parliament. Currently there is a new constitution being planned for a vote in 2009. This may well affect the regulatory framework for financial services.

The CBK, which falls under the Minister of Finance, is responsible for formulating and implementing monetary policy and fostering the liquidity, solvency, and proper functioning of the financial system. The CBK publishes information on Kenya’s commercial banks and non-banking financial institutions, interest rates and other guidelines.

The Consumer Protection Bill of 2007 was introduced on July 27, 2007 and it has yet to have passed the legislature. Since this bill is the platform for consumer protection, not only in the financial sector, but across the board, regulatory progress will have to wait for it to pass, and with the current political volatility in Kenya, it is difficult to know if this issue in particular will be politicized.

Within this bill, there are several articles designed specifically for the financial sector and credit agreements:

  • Borrowers are entitled to be presented with a disclosure statement every 12 months after entering the agreement;
  • Lender must deliver notice in case that payments are not sufficient to cover the agreement’s interest rate;
  • Changes in the interest rate and the contract must have a 30 days notice.

The Microfinance Regulations of 2008 currently in place basically outline the conditions needed to be considered a microfinance institution in Kenya. With respect to consumer protection, these regulations mention:

  • Institutions shall not provide fraudulent or reckless credit, in which reckless credit is defined as transactions beyond those established by the Central Bank of Kenya and fraudulent as intentional deception.
  • Proper identification of customers and managers, with full disclosure as to who is controlling nominee accounts. This measure is designed in order to protect consumers from falling prey to fraudulent schemes.

Kenya Anti-Corruption Commission

The Anti-Corruption and Economic Crimes Act of 2003 mandates the Commission to investigate matters that raise suspicion of economic crimes and corruption and at the same time investigate conduct that encourages corruption. Also, it formulates policies that are designed to eliminate corrupt practices. Furthermore, the Commission has the mandate to educate the public with respect to corruption and economic crimes.

The Commission has the powers:

  • To investigate the extent of liability for the loss or damage to any public property,
  • To institute civil proceedings against any person for the recovery of such property or for compensation; and
  • To restore such property to the public even if the property is outside Kenya.

Besides its legal mandate, the Commission has come up with a Co-Operative Societies Code of Conduct which was presented in October of 2003. It is important to highlight that the Code does not pertain to a specific sector/industry and so its language is vague. It is also very concerned with intra-institutional corruption, political discrimination and nepotism. The code also strongly discourages officers and members of cooperatives from receiving favors and gifts or any form of improper enrichment, and conflict of interest. From a consumer protection standpoint, it is useful to highlight that officers are to maintain private information strictly confidential and the fact that the Code requests members and officers to provide truthful and accurate information about their services.


Currently in Kenya there are forty-six bank and non-bank financial institutions, fifteen microfinance institutions and forty-eight foreign exchange bureaus. Thirty-five of the banks, most of which are small to medium sized, are locally-owned. The industry is dominated by a few large banks most of which are foreign-owned, though some are partially locally-owned. Six of the major banks are listed on the Nairobi Stock Exchange.

Kenya Bankers Association

The banks have come together under the Kenya Bankers Association (KBA), which serves as a lobby for the banks’ interests and also addresses issues affecting member institutions. Unfortunately, their website is currently experiencing problems and there is very little other information about them available.

Association of Microfinance Institutions of Kenya (AMFI)

AMFI membership ranges from large to small institutions which have diverse legal status ranging from microfinance banks, wholesale MFIs, retail MFIs, development institutions and insurance companies and representing the entire landscape of the microfinance industry in Kenya. Currently AMFI has 33 members with four new ones awaiting appraisal before end of 2007. Member organizations serve over 4 million clients with an outstanding loan portfolio of over US $ 303 million.

As part of their program objectives for the year 2007-2010, they have sought to operationalize a performance monitoring system for MFIs that will set standards and increase professionalism in the industry, and also promote the adoption of the industry-wide performance standards.

They have a component dedicated to ensuring high standards, which aims to make the financial services be better, and for this they have developed a four point strategy:

  1. Institute high standards of practice in the Micro Finance Sector
  2. Develop a Code of Ethics
  3. Develop performance standards
  4. Ensuring compliance with the previous

Kenya Union of Savings and Credit Co-operatives (SACCO)

As of December 31, 2005, there were 3,000 active SACCO Societies with a membership of about 3 million clients. The share capital and deposits stood at Kshs. 120 billion (Aprox US $1.50 Billion), while loans outstanding were Kshs. 90 billion (Aprox. US $1.26 Billion)

The SACCO renders a variety of services to its affiliates as detailed below:

  • Spokesmanship and Advocacy
  • Representation
  • Promotion of SACCO Societies
  • Risk Management Services
  • Central Finance Program
  • Education and Training
  • Business Development, Research & Consultancy
  • Corporate Affairs & Marketing

In order to be a member of SACCO, organizations must present:

  • A certified copy of the resolution passed at a General Meeting of the society authorizing the application for Union membership.
  • Payment for at least one hundred Union shares, payment of affiliation fees and payment of the annual subscription for the current year. Payment for thirty shares may be paid in the first instance and the balance within one year of membership.
  • A certified copy of the Registration Certificate.

Furthermore, it is within SACCO’s bylaws to adhere to the Kenya Anti-Corruption Commission’s Code of Conduct and Ethics.


Kenya has significant problems regarding lax banking regulations and corruption. Transparency is an issue that has not been entirely addressed. For instance, there have been no clear updates regarding the status of the Consumer Protection Bill since December 2007. In part, that was because with a new government in power the agenda changed, but that does not make this topic is less urgent. Having a clear set of rules for investors and clients alike remains important.

Furthermore, networks don’t have clear or up-to date information on their websitse. It would be interesting to know if the policies they vaguely have displayed on the internet are actually complied within the field.

These profiles are not exhaustive and have not been reviewed by country experts. If you notice a gap or error in any of the profiles, we would very much appreciate your comments about how they can be improved. In this way we can work together to expand our understanding of the variety of client protection strategies and initiatives that are being pursued in different parts of the world.

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