Background
The Business Laws Amendment Bill 2024 became law in Kenya on 27 December 2024, after having been signed into law (assented) by the President of Kenya on 11 December 2024. The Act can be accessed here TheBusinessLaws_Amendment_Act_No.20of2024.pdf
In our assessment, the Act’s primary focus is to introduce the regulation of all previously unregulated financiers in Kenya’s financial services sector. Previously, with the exception of digital lenders, non-deposit taking financiers were largely not regulated. By doing so, it appears that Kenya, currently in FATF’s Grey List, is looking to assuage its international financial position as far as counter money laundering, terrorist financing, and proliferation financing are concerned.
Detailed provisions
On 23 February 2024, Kenya was places in the ‘Grey List’ of the Financial Action Task Force (FATF). Grey listing of Kenya has significant impact of its global financial image and reputation, possibly deterring foreign investment and negatively impacting economic growth. In particular, international financial organizations and donor countries may reduce or withhold financial assistance due to increased AML/CFT risks.
The FATF Recommendations are the basis on which all countries should meet the shared objective of tackling money laundering, terrorist financing and the financing of proliferation. The FATF calls upon all countries to effectively implement these measures in their national systems[1].
The Business Laws Amendment Act largely amended the Central Bank of Kenya (CBK)Act (with some changes to other laws like the Banking Act, the Microfinance Act the Standards Act). It’s primary focus however appears to be to introduce the regulation of all previously unregulated financiers in Kenya’s financial services sector. Previously, with the exception of digital lenders, non-deposit taking financiers were largely not regulated.
Detailed provisions
We provide below a summary of the specific provisions of the Act, noting in particular the provisions that may affect companies and entities that are in the business of lending or offering credit guarantee facilities to businesses that are resident or operating in Kenya.
- Shift to regulation of all financiers
The Act’s primary focus appears to have been to introduce the regulation of all previously unregulated financiers. Previously, with the exception of digital lenders, non-deposit taking financiers were not regulated.
(a)granting of loans or credit facilities, whether or not digitally, to members of the public or a section of it, with or without interest, and either secured or unsecured on the goods or assets purchased;
(b)asset financing whether directly or through a third-party financier;
(c)buy now pay later arrangements as determined by the Bank but does not include hire purchase agreements governed by the Hire-Purchase Act;
(d)credit guarantees;
(e)pay as you go arrangements as maybe determined by the Bank;
(f) peer to peer lending under collective investment schemes regulated under the Capital Markets Act; and
(g)any other activity as the Bank may determine to be a non-deposit taking credit business for purposes of this Act.
Effectively, with these and other related amendments, the Act backtracks on the CBK’s previous focus on regulating digital lending/credit business (in addition to traditional banks) in favour of broader regulation of the lending industry irrespective of whether lending is done digitally or otherwise.
2. Introduction of regulation of credit guarantee business by the Central Bank of Kenya
One of the key changes introduced by the Act is the formal regulation of credit guarantee business activities under the oversight of the Central Bank of Kenya.Credit guarantee businesses are included in the definition of non-deposit taking credit business which are now regulated by the CBK. This marks a significant shift in the financial landscape, as it brings entities engaged in providing credit guarantees within the supervisory and licensing framework of the CBK.The regulation of credit guarantee businesses is aimed as regulating and supervising credit guarantee companies in general, including for anti-money laundering and combating the financing of terrorism and countering proliferation financing purposes (AML/CFT/CPF)[3]The Act provides detailed provisions for the licensing and regulation of
According to the Act, any person (legal person) who wishes to undertake credit guarantee business in Kenya (a “credit guarantee company”) must obtain a license from the CBK, and the detailed requirements for licensing include that such company must be a company incorporated under Kenya’s Companies Act 2015.
3. Exception as to licensing and registration of credit guarantee companies
The Act exempts from the requirement to obtain a license from CBK credit guarantee providers:
- “… owned by a foreign government and has entered into an agreement with the Government for the purposes of supporting access to financial services in Kenya;
- … owned or supported by international financial institutions and has entered into an agreement with the Government to provide credit guarantee services to targeted groups, sectors or regions for a specified period of time;
- that are registered outside Kenya and has entered into a partnership with a financial institution in Kenya to provide credit guarantee services
These exemptions essentially mean that foreign credit guarantee providers (falling within the above limitations) are not required to obtain licenses from the CBK.
Overall, the consequence of the Business Laws Amendment Act 2024 is that the entire lending industry in Kenya, for the first time, has come under regulation by the Central Bank of Kenya, with the exception of foreign government owned/supported credit guarantee providers. Non-Kenyan providers of credit guarantees that are not owned by foreign governments nevertheless qualify for exemption from regulation and licensing by the Central Bank if they enter into partnership with local (Kenyan) financial institutions. The regulation of non-deposit taking financiers including credit guarantee businesses is aimed as regulating and supervising credit guarantee companies in general, including for anti-money laundering and combating the financing of terrorism and countering proliferation financing purposes (AML/CFT/CPF)[1].
The impact of the law- on Kenya’s Grey Listing, local business access to credit, and overall the economy- remains to be seen.
[1] See memo from the National Treasury on the then proposed amendments to the CBK Act here PROPOSED-AMENDMENTS-TO-THE-CENTRAL-BANK-OF-KENYA-ACT-FOR-PURPOSES-OF-REGULATION-AND-SUPERVISION-OF-CREDIT-GUARANTEE-BUSINESS.pdf
[1] Kenya’s progress in strengthening measures to tackle money laundering and terrorist financing
[2] See memo from the National Treasury on the then proposed amendments to the CBK Act here PROPOSED-AMENDMENTS-TO-THE-CENTRAL-BANK-OF-KENYA-ACT-FOR-PURPOSES-OF-REGULATION-AND-SUPERVISION-OF-CREDIT-GUARANTEE-BUSINESS.pdf
[3] See memo from the National Treasury on the then proposed amendments to the CBK Act here PROPOSED-AMENDMENTS-TO-THE-CENTRAL-BANK-OF-KENYA-ACT-FOR-PURPOSES-OF-REGULATION-AND-SUPERVISION-OF-CREDIT-GUARANTEE-BUSINESS.pdf