The challenge

The Central Bank of Kenya (CBK) has taken some encouraging steps toward expanding financial access and outreach, particularly for low-income households. The financial access survey (FinAccess), conducted in 2009, showed that the usage of formal and semi-formal financial services increased from 27% in 2006 to 41.9% in 2009, while the share of the population excluded from any financial service decreased from 38.3% to 32.7%, respectively. On the supply side, commercial banks have recognized that lowering barriers to entry, and lowering costs of transacting across other bank accounts, enables more customers to open accounts. As a result of these changes, the number of bank accounts in Kenya has increased dramatically from 2.3 million in 2006 to about 12.8 million in 2010.

Despite this progress, a fundamental challenge remains: an estimated 60% of the Kenyan population still does not have access to formal financial services, and the country’s financial sector is characterized by high interest rate spreads.

The opportunity

To move toward a solution, the CBK is proposing a review of the existing regulatory framework to cover emergent areas including: financial services consumer protection legislation; regional and cross border regulatory and supervisory issues; and impending regional integration of the East African Community (EAC). The CBK sought support from AFI to enable it to carry out this three-phased project with the overall goal of enhancing the level of financial inclusion and deepening in Kenya

The impact

The project generated and recommended key policy reforms to help consolidate recent gains and make it possible for the majority of Kenya’s formally excluded people to gain access to financial services. The initiative also further deepened Kenya’s financial system and competition by creating a competitive environment that is in line with international best practices.