The Central Bank of Kenya (CBK) has lifted a nine-year moratorium on the issuance of new commercial bank licenses, effective July 1, 2025. This decision coincides with an increase in the minimum core capital requirement for new banks to KSh 10 billion, as stipulated in the 2024 Business Laws (Amendment) Act.
The moratorium, which took effect on November 17, 2015, will have been in place for nearly a decade by the time it is lifted.
In a statement released Wednesday, the CBK explained the rationale behind the initial imposition and the subsequent lifting of the moratorium:
“The moratorium was imposed against a backdrop of governance, risk management, and operational challenges in the banking sector. It was intended to provide space for the strengthening of the Kenyan banking sector.”
“Since then, significant strides have been made in strengthening the legal and regulatory framework for Kenya’s banking sector. Notably, there have been a number of mergers and acquisitions by existing players and the entry of new domestic and foreign strategic investors into the sector.”
The recent increase, in the Business Laws (Amendment) Act, 2024, of the minimum core capital requirements for commercial banks to Ksh.10 billion will further reinforce the strengthening of the banking sector.
Following the lifting of the moratorium, new entrants to the Kenyan banking sector will be required to demonstrate that they can meet the enhanced minimum capital requirements of Ksh 10 billion.
“Stronger and more resilient banks will be able to navigate the growing risks in the global, regional, and domestic arenas. Additionally, they will be able to support large-scale financing needs to meet Kenya’s development aspirations,” said the CBK.
The 2024 Business Laws (Amendment) Act introduces a wide array of legislative changes aimed at enhancing the regulatory framework across various sectors. Key amendments impacting the financial sector include:
Banking Act
- Increased Penalties for Noncompliance: The maximum penalty for noncompliance by financial institutions and credit reference bureaus with the Banking Act, Prudential Guidelines, or CBK directives has been raised from KES 5 million to KES 20 million or three times the gross monetary gain or loss avoided, whichever is higher. Individual noncompliance penalties have increased from KES 200,000 to KES 1 million, and corporate entities now face a penalty of KES 3 million. The CBK can also enact regulations for a daily penalty of up to KES 100,000 for continued noncompliance, up from the previous KES 20,000.
- Increase in Core Capital Requirement: The minimum core capital for banks and mortgage finance companies has been significantly increased from KES 250 million to KES 10 billion. A staggered six-year transition plan, from December 31, 2024, to December 31, 2029, has been established to allow existing institutions to meet this new requirement.
Central Bank of Kenya Act
- Broadening of Regulated Businesses and Institutions: The CBK Act now encompasses all non-deposit-taking credit providers, including digital lenders, buy now pay later services, peer-to-peer lending, and asset financing.
- Regulation of Non-Deposit-Taking Credit Providers: All entities offering credit without accepting deposits must now obtain a license from the CBK and align their operations, including credit pricing, with CBK regulations.
- Regulation of Credit Guarantee Businesses: A new provision governs the establishment, registration, licensing, and exemption of credit guarantee companies. These businesses must register with the CBK and comply with its guidelines, including capital adequacy requirements. Failure to register attracts a penalty of up to KES 1 million or a three-year imprisonment term, or both for individuals, and a fine of up to KES 10 million for corporate entities. Existing credit guarantee businesses have five years to apply for registration and a license.
Microfinance Act
- Nature of Non-Deposit-Taking Microfinance Business: The definition now specifies that this involves providing credit secured by physical collateral (movable or immovable), not cash.
- Registration and Licensing of Non-Deposit-Taking Microfinance Businesses: A new section (4A) outlines operational requirements, mandating registration under the Companies Act and licensing under the Microfinance Act. Existing businesses have six months from the Act’s commencement to obtain a license. Noncompliance for new businesses carries a penalty of a KES 100,000 fine a three-year prison term, or both. Existing licensed businesses can continue operations while awaiting license approval.
- Exemptions: The Cabinet Secretary can issue regulations for exemptions, but businesses with annual revenues exceeding KES 500,000 will not be eligible.
- Consumer Protection Measures: Non-deposit-taking microfinance businesses must adhere to consumer protection measures, including prohibitions against harassment, abuse, or oppression during debt collection.
Standards Act
- Standards for Manufacturers: Manufacturers must ensure product compliance with the Standards Act, conduct sample testing before market release, meet labelling requirements, and implement product traceability procedures.
- Bureau Laboratories: The Kenya Bureau of Standards is authorised to establish accredited laboratories for developing test methods, providing proficiency testing, and issuing testing and measurement certificates.
- Calibration Facilities: The Kenya Bureau of Standards will be accredited to offer calibration services and can license accredited bodies to provide these services.
Special Economic Zones Act
- Minimum Investment Amount: The Cabinet Secretary can set the minimum investment amount for special economic zones based on the Special Economic Zones Authority’s recommendation.
- Duration of Incentives: Benefits for special economic zone developers, operators, or enterprises are now limited to 10 years from the license issuance date.
- Special Economic Zones Business Service Permit: A new permit is introduced for entities providing services within the zones without receiving incentives under the Act.
Kenya Accreditation Service Act
- Accreditation of Foreign Conformity Assessment Bodies: Foreign bodies conducting assessments in Kenya must be accredited by the Kenya Accreditation Service or obtain an exemption within three months of the Act’s commencement.
