How to Register a Non Deposit Taking Microfinance in Kenya : Comprehensive Guide

How to Register a Non Deposit Taking Microfinance in Kenya

Introduction

Non-deposit taking microfinance institutions (NDT-MFIs) focus solely on lending without accepting customer deposits. Unlike banks or deposit-taking MFIs that rely on customer deposits as a primary funding source, NDT-MFIs generate capital through equity, loans, and grants to extend credit to clients.

Mode of Registration of Non-deposit taking Microfinance in Kenya

The preferred company structure for non-deposit taking MFIS is a private Limited Company, this structure offers several advantages:

• Limited Liability: Limited liability protects the personal wealth of company owners (shareholders) from debts incurred by the business.
• Adaptability: It allows for flexibility in ownership structure, management roles, and how the company raises capital.
• Regulatory Fit: This structure aligns with regulations governing non-deposit taking microfinance institutions in Kenya.
• Building Trust: A Private Limited Company portrays a more professional image, fostering confidence among clients and potential investors.

Steps to follow when Registering a Non deposit MFI in Kenya

• Business Plan

A comprehensive business plan is essential for the success of any microfinance institution. It serves as a roadmap, guiding operations, securing funding, and demonstrating a deep understanding of the market. A well-structured plan includes a thorough market analysis, realistic financial projections, a detailed operational outline encompassing loan disbursement, repayment, and collection strategies, and a robust risk management framework.

Stage one; Business Registration

Register your company as a Private Limited Company with the Registrar of Companies. Approval of Name

a) It is recommended that applicants propose at least three business names in the order of preference and book them with the Registrar of Companies and Business Names.

The applicant should avoid choosing names with close similarities with existing institutions licensed by the Central Bank, i.e ‘microfinance bank business’ ‘finance’ and ‘bank which may cause confusion and/or may offend the public; or lean towards certain religious, political and ethnic inclinations, etc. b) Applications for a business name should be submitted to the Central Bank for a letter of no objection before incorporation or change of name.

Stage Two: Application for Licence

1. The promoters/ shareholders should apply for a license to carry out deposit-taking business by duly completing and submitting the application form, accompanied by supporting documentation, including but not limited to: –

i). Certified copy of the Certificate of Incorporation.

ii). Certified copy of the tax Personal Identification Number (PIN) certificate.

iii). Certified copy of the registered Memorandum and Articles of Association indicating core capital in accordance with the Act (at least KSh.20 million or KSh.60 million for community and nationwide microfinance institutions, respectively).

iv). Verified official notification of the company’s registered place of business, including the prospective places of business (Head Office, branches, agency and outlets, if any).

v). Pay a non-refundable application fee to the Central Bank by Bankers cheque.

vi)A report of a feasibility study undertaken by the company covering the following; –

• Objectives of the business;
• Domestic economic situation;
• Financial sector environment;
• Legal framework;
• Risk analysis;
• Economic and financial analysis;
• Organizational structure

vii) Proposed management, detailing the professional The Microfinance Act, 2006 9 qualifications, skills and relevant experience in deposit taking business of the proposed managers;

(viii) Equity and ownership of the business;

(ix) Such other requirement as the Central Bank may prescribe.

Evidence of Capital

Provide evidence that the company and/ or promoters/ shareholders meet(s) the minimum capital requirements as prescribed in the Act and Regulations (Minimum paid up capital of at least KSh.20 million and KSh.60 million for a ‘community’ and ‘nationwide’ deposit-taking microfinance institution, respectively).

• Nationwide deposit-taking microfinance institution shall operate countrywide.
• While non-deposit taking microfinance institutions aren’t formally regulated by the Central Bank of Kenya (CBK), it’s crucial to have a good standing with the regulatory body.

Qualifications for carrying out deposit-taking microfinance business; Licensing provisions

(a) No person shall carry out any deposit-taking microfinance business, hereinafter referred to as ―deposit-taking business, unless such person is –

(b) A company registered under the Companies Act whose main objective is to carry out such business;

(c) A wholly-owned subsidiary of a bank or a financial institution whose main objective is to carry out such business; Licensed under Microfinance Act.

Non deposit taking Microfinance Institutions in Kenya

• Progressive credit.
• Wananchi credit.
• Molyn credit ltd
• Diversity micro-credit ltd.
• Mogo finance ltd.
• Kariby credit ltd.
• Aspira kenya

Additional Considerations

Stay updated on the evolving regulatory landscape and ensure compliance with all applicable laws and regulations.

• Digital Credit Providers (DCP) Regulations: Understand and comply with the DCP Regulations issued by the CBK.
• Consumer Protection: Adhere to consumer protection laws to safeguard the interests of your clients.
• Data Privacy: Implement robust data protection measures to protect sensitive customer information.

FAQS on How to Register a Non Deposit Taking Microfinance in Kenya

What is the role of the Central Bank of Kenya in regulating non-deposit taking microfinance institutions? The CBK plays a supervisory role by issuing Letters of No Objection and ensuring that these institutions operate within the legal framework.

Is a Letter of No Objection from the CBK mandatory? Yes.

Are there any specific regulations for non-deposit taking microfinance institutions? non-deposit taking microfinance institutions must comply with general business laws and regulations, including the Companies Act, Data Protection Act, and Consumer Protection Act

Conclusion on How to Register a Non Deposit Taking Microfinance in Kenya

It’s highly recommended to seek professional legal and financial advice to navigate the specific requirements and complexities of setting up a non-deposit taking microfinance in Kenya.

For enquiries Reach out to us on clientservice@afrilinkconsultants.com or on mobile phone +254707280366.