The Central Bank of Kenya (CBK) would gain sweeping powers to regulate microfinance lenders and strengthen protections for borrowers if the Microfinance Bill, 2026, becomes law.
The Bill seeks to repeal and replace the Microfinance Act, 2006, introducing tougher rules for microfinance banks, stricter consumer protection measures, and enhanced oversight by the regulator.
Licensing and Enforcement Powers
Under the proposed law, all institutions offering microfinance banking services would need to obtain a CBK license. Anyone found operating without approval would face fines of up to KSh5 million, imprisonment for up to three years, or both.
To enforce these rules, the Bill would empower the CBK to inspect suspected premises, access institutions’ systems remotely, revoke licenses, remove senior leadership, and intervene directly in the management of troubled banks.
Protections for Borrowers
The proposed law introduces significant safeguards for borrowers against excessive charges and predatory lending. Lenders would be required to fully disclose all terms and total credit costs upfront and to give customers at least 30 days’ written notice before altering loan terms or raising fees.
Microfinance institutions would also be barred from rolling out new products or raising existing charges without prior written approval from the CBK. The legislation would criminalize deceptive advertising and forbid non-deposit-taking entities from accepting public deposits or cash collateral.
The Bill states that the maximum amount recoverable from a borrower with a non-performing loan shall be “the principal owing when the loan becomes non-performing,” with interest “not exceeding the principal owing when the loan became non-performing.”
Separately, the legislation would make it an offense for any entity to issue advertisements that “falsely represent” that it is licensed to accept deposits or conduct microfinance business.
For defaulted loans, the draft law would offer relief by capping the total recoverable amount to the outstanding principal, interest equal to no more than that principal, and reasonable recovery costs.
Higher Capital and Governance Requirements
Beyond consumer protection, the Bill would raise core capital requirements for microfinance banks to a minimum of KSh250 million within five years.
It would also mandate strict governance standards, requiring boards of at least five directors, most of them independent non-executives, while barring major shareholders from taking part in daily management.
Violations such as insider lending would carry heavy penalties of up to KSh5 million or five years in prison, a measure intended to keep the sector stable, transparent, and secure for consumers.
