CBK seeks powers to enforce Anti-Money Laundering compliance

The Central Bank of Kenya (CBK) is seeking powers to regulate, supervise and enforce compliance for Anti-Money Laundering under the Microfinance Bill 2026.

CBK Governor Kamau Thugge presented the proposals for consideration, citing the need to have these powers and also include penalties for violations of money laundering and terrorism financing.

The Governor said the proposed provisions are contained in the current Microfinance Act, 2006 but the two areas have been omitted from the Microfinance Bill 2026 and should be imported verbatim.

He made the presentation before the National Assembly Committee on Finance, chaired by Molo Mp, Kuria Kimani.

"CBK has reviewed the Microfinance Bill 2026 and is supportive of the Bill. Nonetheless, there are two areas we wish to highlight for the committee's consideration," he told the committee.

According to the current law, in case of violation by a legal person, they shall be liable to a penalty not exceeding Sh5 million.

In case of a natural person, they should be liable to a penalty not exceeding Sh1 million and to additional penalties not exceeding Sh100,000 in case for each day or part thereof, during which such violation or non-compliance continues.

According to the Governor, the Bill does not contain provisions on powers of CBK to regulate, supervise and enforce compliance for  Anti-Money Laundering (AML), Combating Financing of Terrorism (CFT) and Countering Proliferation Financing (CPF).

"These provisions are contained in the current Microfinance Act at Section 36B and 36C respectively, as amendments to that Act, following AML/CFT/CPF deficiencies captured in Kenya's Mutual Evaluation Report, 2022," Thugge explained.

"In this regard, the provisions of Section 36B and 36C of the Microfinance Act, 2006 should be improved verbatim to the Microfinance Bill 2026," he added.

Another area that the CBK is seeking consideration on, is the fact that the Bill incorporates Non-Deposit Taking Business within the microfinance regulatory framework, which is defined as a business, other than microfinance bank business as defined under the Microfinance Act.

In this regard, he said the Bill provides that the Cabinet Secretary may make regulations specifying non-deposit taking business and prescribe requirements for the conduct of specified non-deposit taking business.

He recommended deletion of the provisions relating to Non-Deposit Taking credit providers in the Microfinance Bill, saying that the proposed amendment will consolidate the supervision and regulation of non-deposit taking credit providers under the CBK Act.

At the same time, the Governor said the Bill will address key challenges that have constrained the growth of the industry.

This includes the need for enhanced corporate governance structures and practices in the banking sector environment, which presents the need to review current shareholding structures and introduce new structures such as non-operating holding companies.

It is also necessitated by the need for resilient and viable business models through ensuring adequacy of capital and liquidity given the changing market dynamics across the entire banking sector.

He said it will provide an enabling framework for Shariah-compliant microfinancing banking business.

It is also against the backdrop of emerging financial technology, which has created new opportunities as well as new risks that need to be understood and mitigated.

"The Microfinance legislation was intended to provide a platform for the broadening and deepening of access to financial services throughout Kenya, especially to the low-income populace and Small and Medium Enterprises (SMEs) in both urban and rural areas," the Governor explained.

Since 2008, he said the dynamics within the Microfinance industry have changed significantly with the industry experiencing growth and transformation.

He also said that innovation and dynamism within the microfinance industry have increased and the industry has experienced growth in the number of customers and diversity in the range of services and products provided.

Currently, there are 14 licensed microfinance banks with an asset base of Sh57 billion.