The Business Laws Amendment Bill 2024 (the Bill), which was tabled for the first time in Kenya’s National Assembly on 13th November 2024, contains a raft of amendments to several business laws including the Banking Act and the Central Bank of Kenya Act. We highlight some of the key proposed amendments below:
The Banking Act Cap. 488 of the Laws of Kenya (the Banking Act)
(a) Increase of Minimum Core Capital for Banks and Mortgage Finance Companies
The Bill proposes to increase the minimum core capital requirements for institutions regulated under the Banking Act to at least KES 10 Billion subject to the compliance timelines below:
Compliance Date | Min. Core Capital for Banks and Mortgage Finance Companies |
31st December 2024 | KES 1 Billion |
31st December 2025 | KES 3 Billion |
31st December 2025 | KES 6 Billion |
31st December 2027 | KES 10 Billion |
If the Bill is passed, the increase in the core capital requirements for financial institutions is poised to significantly influence capital-raising and M&As transactions in the sector as licensed institutions seek to comply by 2027.
(b) Penalties for Non-Compliance with the Banking Act
The Banking Act provides for the Central Bank of Kenya’s (the CBK) power to prescribe penalties for institutions or persons who fail to comply with the law or its guidelines. The Bill proposes to prescribe the penalties payable for non-compliance, as follows:
(i) Institutions and credit reference bureaus: the higher of KES 20 Million or three times the gross amount of the monetary gain or loss avoided by the failure or refusal to comply;
(ii) Corporate entities: KES 3 Million; and
(iii) Natural persons: KES 1 Million.
The Central Bank of Kenya Cap 419 of the Laws of Kenya (the CBK Act)
(a) Regulation of Non-Deposit-Taking Lenders
Whilst the financial services industry in Kenya is quite well regulated, the regulation of non-deposit-taking credit businesses and non-deposit-taking credit providers (NDT Lenders) not operating in the digital space, and therefore incapable of being defined as digital lenders, has remained a grey area. The Bill proposes to bring NDT Lenders under the regulatory authority of the CBK.
The Bill defines NDT credit business to include the granting of secured or unsecured credit facilities with or without interest to members of the public, asset financing, buy now pay later arrangements as determined by the CBK but excluding arrangements under the Hire Purchase Act, credit guarantees, peer to peer lending under collective schemes regulated under the Capital Markets Act and any other business that the CBK may determine as such. NDT Lenders are defined as persons licensed by the CBK to carry out NDT business.
The Bill proposes to grant the CBK the power to regulate all NDT Lenders, approve the channels through which NDT business may be conducted, determine parameters for the pricing of credit, supervise NDT Lenders and prescribe a code of conduct for NDT Lenders. Further, all NDT Lenders will be required to apply for and obtain licences from the CBK.
(b) Regulation of Credit Guarantee Business
The Bill proposes to introduce provisions for the regulation of the previously unregulated credit guarantee business in Kenya. A credit guarantee business is defined as the business of providing a guarantee to a lender through absorption of all or a portion of the lender’s risk on a credit facility made to a borrower in case of default while a credit guarantee company is defined as a company limited by shares incorporated under the Companies Act and licensed by the CBK to carry on credit guarantee business.
If the Bill is passed, any person intending to carry on credit guarantee business in Kenya shall apply to the CBK for registration and licensing, and thereafter, pay an annual licence fee
Entities already carrying on credit guarantee business in Kenya will have five years within which to apply for and obtain registration and licensing. However, credit guarantee businesses owned by foreign Governments that have entered into an agreement with the Government of Kenya (the GoK) aimed at enhancing access to financial services; credit guarantee providers owned or supported by international financial institutions and who have entered into an agreement with the GoK to provide credit guarantee services to targeted groups; and credit guarantee companies registered out of Kenya but who have entered into a partnership with a financial institution in Kenya to provide credit guarantee services shall not be required to apply for a licence.
The Standards Act Cap. 496 of the Laws of Kenya (the “Standards Act”)
(a) Regulation of Manufacturers
The Bill proposes the introduction of a requirement for manufacturers to apply to the Kenya National Bureau of Standards (KEBS) for registration prior to carrying out manufacturing activities in Kenya. Additionally, the Bill imposes an obligation on manufacturers to ensure that products are manufactured in accordance with the standards prescribed under the Standards Act. In particular, manufacturers will be required to, among other obligations, sample test their products before releasing them to the market, and enact procedures to ensure full traceability of products and investigate and take appropriate action in relation to complaints related to their products.
Further, the Bill obligates manufacturers to ensure that all their products comply with the Kenyan Standards, bear a valid standardization mark issued or recognized under the Standards Act and do not exceed their declared shelf-life. Manufacturers must also maintain records identifying each of their products, their suppliers and their immediate customers. Manufacturers also have an obligation to withdraw or recall any products which they believe do not comply with the Standards Act.
The Special Economic Zones Act Cap. 517A of the Laws of Kenya (the SEZ Act)
(a) Special Economic Zone Business Service Permit
Special Economic Zones (SEZs) are established under the SEZ Act and provide tax benefits and exemptions to investors operating in the SEZs. To carry on business in an SEZ, one must be licensed by the SEZ Authority. The Bill proposes the introduction of a new SEZ Business Service Permit for businesses providing services within a SEZ for which previously no incentive or benefit accrues under the SEZ Act.
(b) Benefits Accruing to SEZ Developers, Operators and Enterprises
The Bill proposes that, notwithstanding changes to any other written law, the incentives and tax benefits granted to a SEZ developer, operator or enterprise under the SEZ Act, shall be for a period of ten years from the date of issuance of a licence.
Conclusion
The Bill is still in its nascent stages of enactment, having only been read once in the National Assembly. Consequently, its provisions are subject to change following public participation and consideration by the appropriate committees of the National Assembly.
Please note that this is not legal advice and is intended primarily for information purposes. If you require tailored advice or further information, don't hesitate to get in touch with us on sarinke@mckayadvocates.com
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