Microfinance banks in Kenya should begin considering the implications of the Microfinance Bill, 2026

Stakeholders in the Kenyan microfinance sector should begin considering the potential impact of the Microfinance Bill, 2026 (Bill) published on 10 March 2026. The Bill proposes to replace the Microfinance Act, 2006 (Cap. 493C) (Current Act).

The Bill has undergone its first reading at the National Assembly of Kenya and is currently progressing through committee-level reviews and public participation. The Bill introduces materially enhanced capital, governance and consumer protection requirements, and expands the supervisory powers of the Central Bank of Kenya (CBK).

In particular, microfinance banks should now review governance structures against the new board composition requirements, including the bar on significant shareholders in management and the independence thresholds.

They should also assess capital positions relative to the enhanced minimum capital and ratio requirements, and plan for the five-year phase-in of the KES 250 million floor. Loan recovery and provisioning practices should also be reviewed against the proposed in duplum cap on interest recoverable from non-performing loans. Stakeholders should also ensure consumer protection and loan disclosure practices meet the Bill’s requirements.

KEY CHANGES FOR MICROFINANCE BANKS

Enhanced capital requirements

The Bill introduces more stringent capital requirements for microfinance banks. In particular, it proposes an increase in the minimum core capital requirement to KES 250 million, to be achieved within five years of the legislation coming into effect. The Bill also prescribes enhanced capital adequacy requirements with institutions being required to hold core capital of at least 10% of risk-adjusted assets and 8% of deposit liabilities, and total capital of at least 12% of risk-adjusted assets.

Corporate governance and ownership restrictions

The Bill introduces a more robust corporate governance framework for microfinance banks. Boards will be required to meet prescribed composition and independence requirements, including minimum thresholds for non-executive and independent directors. The Bill also seeks to separate ownership from management by prohibiting significant shareholders from serving as executive directors or members of senior management.

The Bill also introduces ownership restrictions whereby no one is permitted to hold more than 25% of an institution’s shares, subject to limited exceptions. CBK’s prior approval is required before anyone becomes a ‘significant shareholder’ (holds 5% or more of the shares) or transfers 5% or more of the shares.

Cap on recoveries from non-performing loans

The Bill introduces the ‘in duplum’ rule. Under the proposed framework, the total amount recoverable after a loan becomes non-performing will generally be limited to the outstanding principal, interest not exceeding that principal amount and reasonable recovery costs.

Expanded CBK supervisory powers

The Bill significantly expands the supervisory powers of the CBK.

The CBK will be empowered to carry out inspections of institutions, their agents and outsourced service providers, and to require access to systems and records where necessary. Notably, the CBK must be given secure remote online access to the institution’s Information Technology (IT) systems.

The Bill also provides that the CBK will be the designated ‘coordinator; with the power to appoint competent authorities (including the Capital Markets Authority, Insurance Regulatory Authority, Retirement Benefits Authority, Financial Reporting Centre and Sacco Societies Regulatory Authority) to inspect group entities.

The CBK will also have wide-ranging intervention powers upon adverse findings including restricting dividends, suspending officers, requiring capital restoration plans (within 45 days), capping interest rates, and appointing the Kenya Deposit Insurance Corporation to take over management.

Enhanced consumer protection measures

The Bill requires microfinance banks to provide borrowers with clear and comprehensive information regarding the terms, conditions and costs of credit before a loan is advanced. Borrowers must also receive adequate notice before any changes are made to loan pricing or other contractual terms.

Non-deposit taking microfinance businesses

Please note that the Bill primarily regulates deposit-taking microfinance banks which are institutions licensed to accept deposits from customers. Non-deposit taking lenders are generally regulated under the Central Bank of Kenya Act (Chapter 491 of the Laws of Kenya (CBK Act), which empowers the CBK to license and supervise non-deposit taking credit providers that are not regulated under another written law (NDTCP Framework).

The implementing regulations (discussed here) required to operationalise the NDTCP Framework are yet to be enacted. Taken together, the Bill and the NDTCP Framework are intended to regulate different segments of the lending market with the Bill providing the framework for deposit-taking microfinance banks, while the CBK Act and the NCTCP Framework regulate non-deposit taking lenders (including non-deposit taking microfinance banks).

Dominic Indokhomi is a partner in the Nairobi office with vast experience in banking and finance, financial services and regulatory services, fintech, data protection regulations, and real estate transactions. Nairuko Kantai is an associate in the Bowmans Nairobi office and a member of the Banking and Finance department.