CBK NewsletterKeeping you Informed No. 5 A of Publication Issue 1/ March 2013

Understanding financial system stability

 Role of the Central Bank in financial system stability  African Mobile Phone Initiative launched  Coin Re-circulation Campaign CENTRAL BANK OF KENYA

VISION A World Class Modern Central Bank

Principal Objectives

The Principal objectives of the Central Bank of Kenya (CBK) are: 1. To formulate and implement directed to achieving and maintaining stability in the general level of prices; 2. To foster the liquidity, solvency and proper functioning of a stable, market- based, financial system; 3. Subject to (1) and (2) above, to support the economic policy of the Government, including its objectives for growth, and employment.

Without prejudice to the generality of the above, the Bank shall:  Formulate and implement foreign exchange policy;  Hold and manage its foreign exchange reserves;  License and supervise authorized foreign exchange dealers;  Formulate and implement such policies as best to promote the establishment, regulation and supervision of efficient and effective payment, clearing and settlement systems;  Act as banker and adviser to, and as fiscal agent of, the Government; and  Issue currency notes and coins.

CBK Newsletter Issue 1/March2013 CBK NEWS 1 CBK NEWSLETTER

Patron Governor In this Issue Deputy Patron Deputy Governor

Chairman, Editorial Board Stephen Mwaura

Editor Samson Burgei

Assistant Editor Nancy Sang

Members Peter Gatere, Joyce Yego, Cappitus Chironga, Daniel Ndolo, Kate Kittur, Dr. Roseline Misati, Evans Muttai, Samuel Tiriongo

Reviewers Matu Mugo, Chris Gacicio, New Mobile Banking Isaya Maana 3

Photo Credits Platform Launched Nathan Kiawa Kimani Ndune Design & Layout Assessment for Deposit Outbox Communications 5 [email protected] Protection Fund Board 020 2317477 Contributors 6 African Mobile Phone Financial Cappitus Chironga Services Initiative (AMPI) launched Jane Ikunyua Dr Phares Ochola Evelyn Kilonzo Evans Muttai 8 CBK Hosts AML/CFT National Elizabeth Onyonka Stakeholders Forum

The Editor welcomes comments and articles from readers and stakeholders. Contact us through: 22 Central Bank launches a coin [email protected] re-circulation campaign The CBK Newsletter is published by the Communications Office, Central Bank of Kenya, Haile Selassie Ave., . www.centralbank.go.ke CBK Newsletter Issue 1/March2013 CBK NEWS 2 The Governor's Message mandate as provided in the law. The Bank’s direct financial stability function includes regulation and supervision of the commercial banks, deposit taking The microfinance institutions and forex bureaus, credit reference bureaus, lender of last resort facility; system-wide national payment Central and settlement system; deposit protection (safety net), resolution of failed institutions and macroeconomic management Bank through formulation and implementation of monetary policy. In addition, the Bank has a fiduciary role to maintain public confidence and in the financial sector by addressing all factors that lead to long-term stability. The Bank works together with other regulators stability, both at micro (institutional) and on assessment of financial system, whose financial results are published in the annual Financial macro (system-wide) level therefore helps to facilitate early identification of sources Stability Report (FSR). There is move to of risks and potential vulnerabilities. The publish these reports on a bi-annual basis. stability assessment should allow systematic and At the regional and international periodic processes of monitoring and level, the Bank is part of global initiatives evaluation of each of the sources of risks, inancial stability is a critical function spearheaded by the incorporating intra-regulator, cross-sector of central banks the world over. A (EAC), the Common Market for Easter and and cross-border linkages to identify the stable financial system is one that is Southern Africa (COMESA), the Financial most material risks (fault lines) to the predictable and efficient in performing Stability Board (FSB) and the International F financial system. Monetary Fund (IMF) to develop and its role and gives confidence to savers and investors. A stable financial system is Kenya has a multi-regulatory regime promote implementation of effective strong and capable of withstanding shocks where the financial system comprising of regulatory, supervisory and other financial and other disruptions that may interfere financial institutions, financial markets and sector policies. The FSB initiative brings with the financial intermediation process, financial infrastructure fall under different together national authorities responsible which might impair allocation of savings to regulators, namely; Central Bank of Kenya for financial stability, international financial investment opportunities in the economy. A (CBK) for deposit taking institutions as well institutions, sector-specific international stable financial system should have strong as the payments, clearing and settlement groupings of regulators and supervisors, institutions that ensure public confidence system; Capital Markets Authority (CMA) and committees of central bank experts. and trust in the institutional framework. for the capital markets intermediaries such Looking ahead, the Central Bank will as the stock exchange and investment Safeguarding financial system stability invest in capacity building in its financial banks; Retirement Benefits Authority is an important policy objective for the system stability function as part of its (RBA) for the pensions industry; Insurance Central Bank of Kenya and indeed other core strategic objectives to ensure that Regulatory Authority (IRA) for the insurance financial sector regulators. An unstable appropriate structures and systems are in industry; Sacco Societies Regulatory financial system can disrupt economic place to steer the sector towards a world Authority (SASRA) for the deposit taking activity and undermine public confidence. At class status as envisioned under the Bank’s Sacco societies; and other regulated entities the peak of 2008 financial crisis, authorities Vision. Additionally, the envisaged capacity falling under several government ministries. around the world devised specific strategies development should support the Bank’s Cognizance of this, the Central Bank, to mitigate adverse effects to the financial financial inclusion goals, with emphasis jointly with other regulators established the system, with mixed results. In the U.S on financial inclusion for financial stability. Financial Sector Regulators Forum in 2009 for instance, the strategies largely helped Building highly skilled capacity, ensuring under a Memorandum of Understanding restore stability in the banking system and robust legal and institutional framework (MOU), to enhance policy coordination and secondary credit Markets and prevented and leveraging on international experience information sharing in order to achieve and further foreclosures of homes and will be crucial in the detection, analysis and maintain stability of the financial system. collapse of several institutions, all of which prevention of emerging threats to financial would otherwise have had far reaching At the institutional level, the Central stability. ramifications on the global economy. Bank has an elaborate framework Regular assessment of financial system for discharging the financial stability Prof. Njuguna Ndung'u CBS CBK NEWS News 3 New Mobile Banking Platform Launched

customers to use M-PESA as the delivery channel to the “M-Shwari” bank products. The product enables subscribers to build up savings and earn interest on the money. Apart from attracting savings, the innovation offers an opportunity to access credit services through the mobile phone. The new platform adds to other successful initiatives that have enhanced financial inclusion and reach of banking and financial services to the unbanked and under- banked population. Mobile based financial services have been a phenomenal success in Kenya, thanks L-R: CBA Chairman, Desterio Oyatsi; CBK Governor, Prof. to a supportive policy and regulatory Njuguna Ndung’u; Minister for Information & Communication, Hon. Samuel Poghisio; Minister for Finance, Hon. Njeru Githae environment that allows integration and Chairman, Limited, Nicholas Ng'ang'a toast to the between mobile phone services new mobile banking product, 'M-Shwari'. providers and commercial banks to leverage on mobile phone technology new mobile banking product known as M-Shwari to provide financial services at a lower was launched in November 2012, targeting existing costs for their customers without M-PESA users. M-Shwari is a suite of banking compromising quality of service. A products developed by of Africa The product was launched by Hon. in partnership with Safaricom, and allows prospective Njeru Githae, Minister for Finance. Collaboration with other Central Banks Between August and November, and practices. enhanced financial inclusion. 2012, the Central Bank of Kenya These include licensing of During the same period, the hosted officers from the Central deposit taking microfinance Central Bank also hosted officials Banks of Burundi, Uganda and institutions, introduction of from the Ministry of Finance, Tanzania for for joint onsite agency banking for banks and Malawi on 21st November, inspection of a regional banking deposit taking microfinance 2012 for knowledge exchange groups. Joint inspections of institutions, introduction of on financial sector reforms in banks with regional presence credit information sharing and Kenya. The Malawi delegation are part of the EAC central roll-out of mobile financial was taken through the recent banks ongoing efforts towards services by banks. banking sector reforms towards harmonized supervisory rules

CBK Newsletter Issue 1/March2013 CBK NEWS 4 News CBK Pension Fund feted The CBK Pension Fund won a trophy for being the Best Retirement Benefit Scheme during the 3rd annual Institute of Certified Public Secretaries of Kenya (ICPSK) Champions of Governance (COG) Award Ceremony held in Moses Barboi, Pensions Administrator (second right) and Stephen Thuo, Asst. Director, Finance & IMS Department (extreme right) receiving Best Retirement November 2012, at Panari Benefit Scheme trophy from Seno Nyakenyanya, PS Min. of Cooperative Dev. and the ICPSK Chairperson, Catherine Musakali. Hotel. The Fund was participating for the first time in the COG Award are above board. adequate funding level, adherence to laws and regulations, high competition organized by ICPSK. The CBK Pension Fund was feted quality service to members, The Award fetes organizations that under the Retirement Benefits transparency and disclosure, entrench good governance practices Schemes category in recognition among others. and whose business transactions of its strong earnings record,

Supervisory College launched he Central Bank of Kenya (CBK) hosted the December 2011. inaugural meeting of the Kenya Commercial Bank This therefore made it neccessary for CBK as the home Group Supervisory College on 3rd – 4th October supervisor to design a framework for a supervisory 2012 at the Kenya School of Monetary Studies. T college to bring together supervisors of these banks i.e The CBK Governor, Prof. Njuguna Ndung'u said during the KCB Group, in all countries where they operate, as his opening remarks that the model was made possible an avenue to share supervision information. through the technical assistance and capacity building support of the IMF’s East African Regional Technical The Supervisory College also serves as a forum for Assistance Centre (East AFRITAC). the supervisors to collaborate in strengthening their supervisory practices to enhance regional financial The concept of the supervisory college is informed by the stability. The pioneering college had representatives need to enhance information sharing and collaboration from the five East African Community central banks as among financial sector supervisors owing to continued well as from the Bank of South Sudan. cross-border expansion of financial sector players as well as the convergence of their cross-sector operations. CBK plans to rollout supervisory colleges for all Kenyan banks that have significant business presence outside Some 10 Kenyan banks had a total of 240 branches Kenya. outside Kenya as at 30th June 2012, up from 204 in

CBK Newsletter Issue 1/March2013 CBK NEWS News 5 Assessment for Deposit Protection Fund Board he International Association of Deposit Insurers (IADI) The Core Principles are and policymakers to benchmark Theld its 5th Regional Training a set of internationally their deposit insurance system Workshop at the Kenya School of against best practice and align Monetary Studies (KSMS) from 5th accepted standards, them with broader public policy to 9th November, last year. rolled-out in 2009, that objectives. are used to benchmark The purpose of the workshop was The lead assessor from the Federal to assess the Deposit Protection an effective design of Deposit Insurance Corporation Fund Board's (DPFB) level of a deposit insurance (FDIC) led a team of six others Compliance with IADI Core system that promotes drawn from the World Bank, Deposit Principles for Effective Deposit Protection of Swiss Banks and Insurance Systems. Prof. Njuguna financial stability. Security Dealers, Nigeria Deposit Ndung’u, Chairman DPFB, who is Insurance Corporation (NDIC), The Core Principles are a set of also the Governor of the Central Philippines Deposit Insurance internationally accepted standards, Bank of Kenya officially opened the Corporation (PDIC) and Office of rolled-out in 2009, that are used to workshop. Technical Assistance, US Treasury. benchmark an effective design of a deposit insurance system that The one-week workshop provided After the assessment, the assessors promotes financial stability. The the IADI assessors and participants prepared a report, which was assessment includes identification with an opportunity to critically shared with the DPFB's Senior of the strengths of the deposit evaluate DPFB's compliance with Management on Friday, 9th insurance system, and the nature the eighteen (18) Core Principles set November, 2012 . The assessors and extent of weaknesses, if any. by IADI. are expected to prepare a more This should help deposit insurers comprehensive report and submit the same to DPFB management in due course.

The workshop was held at an opportune moment when DPFB is in transition following the enactment of the Kenya Deposit Insurance Corporation (KDIC) Act (2012) that was assented to by the President of the Republic of Kenya in May 2012. The Act has broadened the mandate of DPFB to a risk minimizer and promoter of financial stability. L-R: David Walker, Canadian Deposit Insurance Corporation, Rose Detho, Director, DPFB – Kenya, Vijay Deshpande (Standing), Federal Deposit Insurance Corporation, Vilma Rosa Leon-York , US A total of 45 participants from 14 Dept. of the Treasury, Int. Affairs, Prof. Neil Murphy, US Dept. of the Treasury and also Advisor to countries attended the workshop. KSMS and Dr Jacob Ade Afolabi, NDIC during a wrap-up meeting after the 5th Regional Training on IADI Core Principles Assessment workshop held in Nairobi.

CBK Newsletter Issue 1/March2013 CBK NEWS 6 News

African Mobile Phone Financial Services Initiative (AMPI) launched frican policymakers and included representatives proposed as a framework regulators from Alliance from financial services through which African Afor Financial Inclusion providers, telecommunications AFI Network members will *(AFI) network member companies and international seek to determine effective institutions gathered to launch development agencies. solutions for advancing the first African Mobile Phone MFS across the African Financial Services Policy The discussions centered continent. The work of AMPI Initiative (AMPI) on 14th around effective ways to share will be coordinated through and 15th February, 2013 in knowledge and experiences two key mechanisms: Zanzibar, Tanzania. Hosted on Mobile Phone Financial by Bank of Tanzania (BoT), Services (MFS). It was noted a) AMPI African Leaders Central Bank of Kenya (CBK) that the development of mobile Roundtable meeting, and AFI, participants included phone financial services was which will provide a high level financial sector not even across Africa despite platform for high level policy makers and regulators its latent potential as a critical African AFI members from 18 African regulatory tool for enhancing financial to meet annually to institutions. Other stakeholders inclusion. AMPI was therefore coordinate and take a lead role in the overall development of MPFS policy and regulatory frameworks in their countries.

b) AMPI Help Desk tasked with providing a virtual help desk to facilitate all technical coordination.

AMPI is expected to become the primary platform for AFI's African members to A group photo of participants during the launch of the African Mobile Phone Financial provide high-level leadership Services Policy Initiative (AMPI) in Zanzibar. in broadening knowledge *AFI, is a global network of over 80 member countries representing financial policymakers from and promoting MFS policy developing and emerging countries working together to increase access to appropriate financial development in Africa and services for the poor.

CBK Newsletter Issue 1/March2013 CBK NEWS News 7 throughout the whole of the AFI Network.

Following discussions at the FIRST ANNUAL AMPI Inaugural African Leaders’ MEETING Roundtable meeting, strategic objectives, governance and The Zanzibar Declaration institutional structures to implement the new regional 15 February 2013 initiative, AMPI, were agreed We, African policymakers and regulators, as members upon. These were then of the Alliance for Financial Inclusion (AFI), met in formulated into the ‘Zanzibar Zanzibar, Tanzania to launch the first African Mobile Declaration’, which was Phone Financial Services Policy Initiative (AMPI). endorsed by participating During our meetings we heard from each other, policymakers at the conclusion and from stakeholders, including high-level of the meeting. The CBK representatives from financial services providers, Governor, Professor Njuguna telecommunications companies, and international Ndung'u, was elected for a one- development agencies. year tenure as Chair of AMPI, and Banque Centrale des Etats Together we reflected on effective ways to support de l'Afrique de l'Ouest (BCEAO) policy reforms for mobile financial services in Africa Governor Tiémoko Meyliet Kone within a regional framework. Following these was appointed as the vice- discussions we agreed on the strategic objectives, chair. governance structure, and logistical arrangements for this landmark initiative – the AMPI. The Help Desk would have six regional focal points We believe that AMPI will be the firm platform for AFI across the African regional members in Africa to provide high-level leadership whose participation would in the overall development of mobile financial be coordinated by the AFI services policy and regulatory frameworks, and to Management Unit. The coordinate efforts of regional peer learning. This in initiative is expected to go turn will broaden knowledge and promote MFS policy a long way in reducing the development throughout the entire AFI Network. unbanked populace in the African continent. “The benefit Our initiative is a framework through which our of expanding mobile financial members will determine effective policy solutions for services to Africa’s unbanked advancing MFS across the African continent through is undeniable,” said Professor cooperation among policymakers and regulators, Ndung’u. “Together we have private sector players, development partners as well as the experience, the knowledge research institutions. and now a common regional commitment to make Africa We are confident that AMPI will serve as a mechanism the world leader in this field, to drive responsible uptake of the use of Mobile through smart, secure and Financial Services (MFS) in Africa and contribute to practical policies as well as mutual learning and best practices. cost-effective financial services delivery channels.”

CBK Newsletter Issue 1/March2013 CBK NEWS 8 News

FRC Hosts AML/CFT

to establish Kenya as a leading National Stakeholders financial services hub in the world. “For this objective to be realized, a strategic partnership Forum between the Government and the financial sector is very Kenya has made significant steps towards important. The success of the sector will therefore depend combating money laundering and the on the effectiveness of this financing of terrorism. The enactment of the partnership”, he added.

Proceeds of Crime and Anti-Money Laundering On his part, CBK Governor, Prof. (Amendment) Act is an important step towards Njuguna Ndung’u, noted that in the last two years, the Central the eradication of money laundering. Bank has issued regular AML/ CFT guidelines to financial institutions to further support o further enhance the is intended to raise awareness and enhance the implementation AML/CFT initiatives, on money laundering vices as of the law. The guidance has the newly established well as train reporting entities, covered the operationalization Financial Reporting Centre law enforcement authorities T of the AML law, suspicious (FRC) and in partnership with and the Financial Intelligence transaction reporting and the Kenya School of Monetary Units personnel on Anti Money measures to be adopted by Studies (KSMS) and the United Laundering initiatives. The financial institutions to combat Nations Organization on Drugs extensive training programme the financing of terrorism. He and Crime (UNODC) held a will significantly contribute to the added that the Central Bank National Stakeholders Forum curbing of money laundering and has revised the Forex Bureau on Thursday, 4th October, 2012. financing of terrorism in Kenya. Guidelines so as to align them The forum aimed at creating with the anti money laundering sufficient AML/CFT awareness The Assistant Minister for law, while requiring Deposit within the financial sector in Finance, Hon. Dr. Oburu Taking Microfinance institutions Kenya. Odinga, in his opening and their agents to implement remarks expressed gratitude AML/CFT measures. "As far as The National Stakeholders Forum to the development partners Kenya and other developing is the inaugural awareness who have supported Kenya to economies are concerned, initiative in which the FRC, develop the necessary laws to significant efforts have been with support of the Danish combat money laundering and directed toward a safer Government will run an extensive financing of terrorism. He said financial system through the AML/CFT programme spanning the government was seeking establishment of an International over 24 months. The programme

CBK Newsletter Issue 1/March2013 CBK NEWS News 9 AML training center, the Financial Reporting Centres (FRC) and other structures," said the Governor.

Mr. Thomas Konigsfeldt, Political Counselor, Danish Embassy said there was need to counter regional links to terrorism. “Denmark aims at supporting the CBK and KSMS initiative by providing training on subjects like the establishment of effective asset recovery units in banks”, he said.

Speaking during the forum, Prof. Kinandu Muragu, Executive Director of KSMS, said the forum marked the beginning

Hon. Dr. Oburu Odinga, Asst. Minister, Ministry of Finance and John “For this objective Wanyela, Chairman, Financial Reporting Centre (FRC) share a light to be realized, moment during the National Stakeholders Forum held in Nairobi. a strategic development of an important journey in were done in good faith. The counteracting money laundering forum further noted the need for partnership in Kenya. “The safety of Kenya's banks to cooperate with FRC and between the financial system has been a to expand awareness about FRC concern for the Central Bank of so that all stakeholders get to Government Kenya which is committed to know its functions. and the financial contribute in every way to making Kenya a leader in financial sector The half-day forum attracted sector is very integrity,” he said. key decision makers in the financial sector and international important. Going forward, the forum community including CEOs and The success agreed that legislation should compliance chiefs of commercial be adapted to each country's banks, forex bureaus, deposit of the sector culture and that reporting of taking microfinance institutions, will therefore suspicious transactions should embassies and senior be handled with care , informed intelligence officers. depend on the by intelligence to avoid trampling effectiveness of on individual liberties. The forum however noted that banks were this partnership” protected legally if their actions

CBK Newsletter Issue 1/March2013 CBK NEWS 10 Financial Stability

Role of the Central Bank of Kenya in financial system stability

comprising of financial institutions, Introduction financial markets and financial Kenya’s Financial infrastructure: A financial system, at the very System basic level, is the structure or • Fulfils its key economic Kenya’s financial system is arrangement that allows the functions without significant dualistic in nature, made up of transfer of money between sav- failures or adverse systemic both the formal and informal ers (investors) and borrowers. impact on the real and/or sectors. The formal financial A financial system can operate financial sectors; system comprises the banking on a global, regional or country • Is resilient to current or potential industry, mortgage finance level. Financial systems play an internal or external shocks; companies, foreign exchange important role in the resource bureaus, credit reference bureaus, • Facilitates effective assessment, allocation process by enabling microfinance industry, capital pricing and management of the channelling of savings or markets industry, insurance risks and funds from households to the industry, pensions industry, corporate or production sec- • Promotes public confidence and payments system subsector, the tors. It comprises the totality of credibility. Savings and Credit Cooperative financial institutions, markets, (SACCO) societies; the hire This definition, which has been instruments, services and so on. purchase companies (HPCs) and adopted globally, outlines a Its stability is therefore of funda- Development Finance Institutions number of necessary conditions mental importance to govern- (DFIs). The informal financial that must hold for a given ments in general and financial service providers include Rotating financial system to be described sector regulators in particular. and Accumulating Savings and as stable. In particular, a stable Credit Associations (ROSCAs financial system must instil and ASCAs), Chamas or merry What is Financial public confidence and trust in go rounds, shopkeepers and the institutional framework. The System Stability moneylenders, among others. financial system must also be The International Monetary Fund predictable and efficient; and The financial system in Kenya (IMF) defines financial system should be run by competent comprises financial institutions, stability as a range of conditions financial authorities. in which the financial system, financial markets and financial

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market infrastructures that fall under different regulatory authorities, namely; regulation and supervision of Central Bank of Kenya (CBK), Capital Markets Authority (CMA), Retirement efficient and effective payment, Benefits Authority (RBA), Insurance Regulatory Authority (IRA), and Saccos clearing and settlement systems’. Societies Regulatory Authority (SASRA). This article focuses on the role These provisions clearly indicate of Central Bank of Kenya in achieving and maintaining financial system that the focus of financial stability stability. mandate is the entire financial system. Central Bank of Kenya Implementation of the Financial Stability The Central Bank regulates the macroeconomic and financial largest segment of the financial system stability. function system in terms of value, namely, Within CBK, the financial stability the banking sector, foreign Mandate function is a shared responsibility among various Departments exchange markets, deposit-taking The Financial Stability objective of the Bank, namely, Bank microfinance institutions, and of the Central Bank is drawn Supervision; Research and Policy mortgage markets. It is also from the Central Bank of Kenya Analysis; Banking Services & Risk responsible for domestic securities Act (Cap.491, Laws of Kenya). Management; Financial Markets; markets operations and the Specifically, Section 4(2) states and the Deposit Protection Fund national payments and settlement that, `the Bank shall ‘foster the Board (DPFB). The Bank’s direct system. In addition, the Bank liquidity, solvency and proper financial stability function entails through the Deposit Protection functioning of a stable market- the regulation and supervision of Fund, not only plays a crucial role based financial system’. Section the banking industry, provision of in crisis resolutions, but the very 4A(1)(d) also states that, `Without short term loans to banks as the existence of the DPFB signals prejudice to the generality of lender of last resort, oversight of the stability to the financial system. Section 4, the Bank shall formulate system-wide national payment and The Bank is also the custodian of and implement such policies as settlement system, management of monetary policy, a key pillar for best promote the establishment, Continued on page 14

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1. L-R: Benedict Ssekabira, Director, Commercial Banking, Bank of Uganda; Agapiti Kobello, Director, Bank Supervision Department, Bank of Tanzania; Joy Ntare, Executive Director, Financial Stability Directorate, National Bank of Rwanda. The officials were in Kenya to attend a supervisory college for a Picture regional banking group. 2. L-R: Florian Werner, Kevin Mellyn, Mike Angus and Charlton Goredema, all consultants from MasterCard, with Mark Lesiit, CBK Director for Banking and Risk Management (extreme Speak right) and Stephen Mwaura, Asst Director, NPS. MasterCard presented the findings of a consultancy to identify and analyse policy options to encourage inter-operability of the payment system infrastructure in Kenya.

3. His Excellency the President, Hon Mwai Kibaki being taken around the Central Bank Stand by the Governor, Prof. Njuguna Ndung'u during last year's Nairobi International Trade Fair. Hon Dr. Sally Kosgei, Min. for Agriculture is on the extreme right.

4. L-R: Molly Dingani, Southern Africa Chairperson CBZ Bank, Zimbabwe; Marie-José Ilunga, Rep., Central Africa Sub Région, Director, Banque Centrale du Congo ; Idrissa Nasa, Afraca Vice Chairman, Directeur General/CEO Coris Bank International, Burkina

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Faso; Anthony Olufidipe, West Africa I Chairperson & Deputy General Manager Union Bank of Nigeria; Saleh U. Gashua, AFRACA Secretary General and Millison Narh, Afraca Chairman & Deputy Governor, BOG cheer as Prof. Njuguna Ndungu, Governor, CBK cuts the commemorative cake to mark the inauguration of the new AFRACA Executive Committee.

5. Jared Getenga, Project Manager, Kenya Credit Information Sharing Initiative (KCISI) gives his remarks during a recent Credit Information Sharing workshop in 5 Nairobi.

6. Kornelio Koriom Mayik, Governor, Bank of South Sudan shake hands with CBK Governor, Njuguna Ndung'u after signing the MoU. Looking on are Gabriel Buoc, Board secretary, BSS and Kennedy Abuga, Bank Secretary CBK.

CBK Newsletter Issue 1/March2013 6 CBKCBK NEWSNEWS 1414 Financial Stability

Continued from page 11 & Investment Committee (FSIC) of the CBK Board. The Bank also the deposit protection (safety net) In view of this, the Central Bank obtains data from all sectors of the and resolution of failed institutions has made financial stability one financial system and generates through the Deposit protection of its core strategic functions in Financial Soundness Indicators Fund Board and macroeconomic its 2012-2015 Strategic Plan. In (FSIs). These indicators (FSIs) are management through formulation addition, the Board of Directors published on the IMF websites and and implementation of appropriate of the Bank has stablished the helps other countries to compare monetary policy to achieve price Financial Stability and Investment financial system conditions of their stability. As a regulator therefore, Committee (FSIC) with clear countries. CBK has a fiduciary role to terms of reference focussing on At micro-prudential level, maintain public confidence in the financial system stability. financial sector by addressing all the Bank focuses on the risks factors that would undermine the and potential vulnerabilities at sector’s long-term stability. the industry (banking sector) level, especially the individual institutions. Micro prudential supervision is critical at this stage and linkages between the parent How does CBK conduct company and subsidiaries at cross-sector/cross border levels. financial system stability This is becoming increasingly assessment? important given the emergence of Systemically Important Financial The Central Bank of Kenya on an aggregate level. Institutions (SIFIs) that pose conducts financial system stability systemic risks - a problematic In conducting stability assessment at macro (system-wide) institution from one country can assessment, the Central Bank and micro (institutional) prudential severely affect its subsidiaries in collaborates with the Capital levels. other countries. Quantitative tools Markets Authority (CMA), such as; Stress testing, Distance At the macro level, the Bank Retirement Benefits Authority to Default (DtD) analysis, and uses the assessment frameworks (RBA), Insurance Regulatory Value at Risk (VaR) are therefore based on the International Authority (IRA) and SACCO used in to assess the soundness Monetary Fund (IMF) Financial Societies Regulatory Authority of institutions . Financial Soundness Indicators (FSI) and (SASRA ). Through its various Soundness Indicators such as COMESA frameworks. It conducts departments, it collates useful Capital Adequacy Ratios, Return macroprudential (system-wide) data and information on key on assets, non-performing loan analysis to establish the stability indicators and developments ratios, exposures, and liquidity of the overall financial system. necessary for carrying out the ratios are also useful tools in This involves use of quantitative assessment. The output of this this assessment. In addition and qualitative tools to carry out exercise is published in the annual Qualitative information such as diagnostic tests based on data Financial Stability Report (FSR) corporate governance, compliance and information obtained from while the analytical report on to prudential guidelines and the banking, financial, insurance, Macro-financial conditions are regulatory framework, management pension, and cooperatives sectors presented to the Financial Stability

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counterparty linkages. Institutional Arrangement in As mentioned, the financial stability Financial System Assessment mandate at the Bank can be viewed As mentioned, the financial stability mandate at the Bank in terms of micro-prudential, macro- can be viewed in terms of micro- prudential and crisis management prudential, macro-prudential and crisis management components. components This mandate is operationalised as follows;– quality as well as institutional impact on the entire economy. arrangement is assessed. With more local institutions expanding to the EAC region, Research Department The Bank therefore looks at the Bank is now paying greater Research and Policy Analysis factors that could affect the stability attention to cross-border operations Department is responsible for of the financial system as a whole, that may pose systemic threats, by macro prudential (systemwide) at a system-wide and industry examining common exposures and stability assesment function. It is level, and analyses how they could responsible for ensuring that the Bank works towards achieving COMESA Framework for Maintaining Financial System Stability and maintaining general price stability. Its critical role in monetary policy decisions helps in informing appropriate policy formulation that enhances rather than destabilizes stability of the financial system. It also coordinates the financial system stability objective in the Bank with other financial regulators and other stakeholders (EAC, COMESA, AACB, IMF and AfDB). It coordinates activities of the Financial Sector Stability Technical Committee (FSSTC), whose membership include all financial sector regulators. It ensures data

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information sharing critical in services providers. It also plays oversight policy role on activities monitoring financial system the role of Lender of Last Resort of the above Departments in stability and facilitates publication for short term liquidity support for achieving and maintaining stability of Financial Stability Reports. banks facing liquidity problems. of the financial system. Jointly with the Ministry of Finance, The Central Bank therefore the Department participates in the Financial Markets continues to entrench financial regular Debt Sustainability Analysis system stability function in its exercises as unsustainable debt Department core strategic objectives to ensure level have destabilising effect to the Financial Markets Department that appropriate policies are financial system, as is the current implement the Monetary Policy formulated and implemented to case in European financial and Commitee's monetary policy drive the sector to a world class economic crisis. decisions through open markets operations, operates rediscount status as envisioned in Vision 2030. It is against this background Bank Supervision window to provide liquidity and undertakes investment of the that amendments to the CBK Department country’s foreign exchange Act are ongoing to entrench and Bank Supervision Department reserves. It also partially incorporate financial stability as is responsible for executing the implements the fiscal agency a direct mandate of the Bank financial system stability function function of the Bank through and also align it to the New at the micro prudential level. It sale of government securities Constitution, which is in line with undertakes the regulation and and facilitates secondary trading best practice in other modern supervision of the banking industry securities and Horizontal Repos central banks. – commercial banks, mortgage window operations. In summary, the emergence of finance companies, deposit taking the financial crisis in 2009 that microfinance institutions, foreign Deposit protection progressed into an economic exchange bureaus (forex bureaus) crisis has yet to be resolved . and credit reference bureaus Fund Board This has provided new impetus (micro-prudential analysis and The Deposit Protection Fund to custodians of global financial remedial action). Board (DPFB) provides a deposit system to place the stability of the insurance scheme (safety net) sector at the forefront. The Bank Banking Services & for customers and also handles therefore seeks to build on the resolutions to member institutions experience of this development Risk Management facing insolvency. This is covered in in strengthening domestic Department the next article. cooperation among various Banking Services & Risk regulators in the sector to ensure Management Department The Financial Stability that Kenya’s financial system promotes the development as well & Investment remains stable so that it plays as oversight of the system-wide its crucial role in achieving the stability of the national payment Commitee country’s long term development and settlement infrastructure, The Financial Stability & Investment goals. regulates and supervises payment Committee of CBK Board provides

CBK Newsletter Issue 1/March2013 CBK NEWS Financial Stability 17 Collaboration between Financial Sector Regulators in Kenya

Kenya’s financial Memorandum of Understanding includes the retirement system in made up (MOU) signed in August 2009 benefits schemes, fund of different types between the Capital Markets managers and custodians. of institutions and Authority (CMA), the Central The Authority is mandated to service providers Bank of Kenya (CBK), Insurance protect the interest of members offering a wide range Regulatory Authority (IRA) and and sponsors of retirement of financial services, the Retirement Benefits Authority Benefits schemes, and to whose functions (RBA). The Sacco Societies advise the Government on the are supervised Regulatory Authority (SASRA) was national policy with regard to and regulated by enjoined later. The broad mandates the retirement benefits industry, different regulatory of these regulators are: among other objectives. bodies, government • CMA is charged with the • SASRA is a Semi-Autonomous ministries and responsibility of supervising, Government agency under the agencies. In an effort licensing and monitoring Ministry of Co-operatives with to better coordinate the the activities of market the responsibility to licence and supervision of these intermediaries, including the supervise Deposit Taking Sacco various financial sector stock exchange and the central Societies in Kenya. It has the players, the Financial depository and settlement dual objectives of protecting Sector Regulators system and all the other persons the interests of Sacco members have established licensed under the Capital and ensuring that there is collaborative Markets Act. It regulates and confidence in the public towards arrangements supervises the capital markets the Sacco sector savings. which are intended that include the Nairobi Stock to facilitate their • The Attorney General’s Exchange (NSE), investment effective performance Chambers regulates the hire banks, stockbrokers and and promote safe purchase companies and collective investment schemes. and stable financial different types of institution institutions in Kenya. • IRA is an agency established involved in financial services The regulators will under the Insurance Act business. collaborate in the to regulate, supervise and Since signing the MOU, areas such as joint develop the insurance industry. the regulators have enhanced onsite supervision of Its regulatory objectives their areas of collaboration to institutions, public include ensuring compliance include knowledge exchange and education and by insurance/reinsurance capacity building; amendment of awareness campaigns, companies and intermediaries the respective legal frameworks information sharing, with legal requirements, to support the collaboration; and joint capacity promoting compliance; harmonization of financial building among others. protecting consumers and sector licensing circles and joint promoting efficient, fair, safe The partnership participation at the Agricultural and stable markets. between the Society of Kenya (ASK) Shows. regulators was • RBA regulates and supervises formalised through a the pensions industry that

CBK Newsletter Issue 1/March2013 CBK NEWS 18 Financial Stability Deposit Protection and Financial Stability

the Kenya Deposit Insurance The Deposit Protection Fund insurance coverage to Act (KDIA) 2012 and signed Board (DPFB) was established customers of member it into Law. The Law provides in 1985 as a body corporate institutions and winding up for the establishment of a pursuant to Section 36 of the of failed institutions in the deposit insurance scheme and Banking Act. The public policy banking sector. However, a corporation to manage the objective behind the creation a review of the operations scheme and to wind up failed of DPFB was the restoration of and structure of the DPFB deposit taking institutions, among public confidence in the banking was deemed necessary other things. It also establishes system following a number of after it emerged that deposit a Deposit Insurance Fund to bank failures in the 1980s. insurance systems around the replace the Deposit Protection world had evolved in response In establishing the DPFB, the Fund, and the Kenya Deposit to emerging challenges and Government sought to achieve the Insurance Corporation (KDIC) to complexities of the financial objective of providing an effective replace the Deposit Protection systems. deposit insurance scheme to Fund Board (DPFB). The KDIC’s foster financial stability. The DPFB A Task Force was then set responsibilities will include was therefore established with a up in 2006 to study model providing a deposit insurance threefold mandate, namely; deposit insurance systems scheme for customers of member in other countries, review • to provide a viable deposit institutions; administering the existing legislation and a draft insurance scheme for deposit insurance scheme; legislation that would align customers of member collecting contributions for the with best practice in deposit institutions; Fund from member institutions; insurance, provide DPFB with and holding, managing, and • to levy contributions from more autonomy, enhanced applying the Fund. The KDIC will member institutions and to corporate governance also receive, liquidate, and wind prudently hold and manage and expand its mandate up institutions for which it is the the Fund; appropriately . The assignment designated receiver or liquidator. • to liquidate and wind up culminated in the publication The KDIC will also work towards operations of any institution of the Kenya Deposit creating an environment for in respect of which DPFB Insurance Bill in September sound risk management and a is appointed by CBK as 2011. stable financial system. liquidator, pursuant to Section Kenya Deposit Insurance Act There is a transition period of one 35 of the Banking Act. 2012 year during which to migrate from Over the years, the Fund DPFB to KDIC, and put in place On 14th May 2012, the President the new institutional structures. has continued to execute of the Republic of Kenya, H.E. its mandate within the Hon. Mwai Kibaki, assented to The main objects of the Law established law, providing are as follows:-

CBK Newsletter Issue 1/March2013 CBK NEWS Financial Stability 19

Alignment to international Enhanced Corporate institutions. Though DPFB best practice Governance carries the responsibility of failed member institutions, it has The provisions of the Law will Under the current set-up, the no role in mitigating industry facilitate compliance with CBK Governor chairs the Board and institutional risks. The international best practice, and simultaneously oversees the new law therefore allows for a which have been codified by day to day management of DPFB framework that empowers KDIC the International Association of through the CBK administrative to proactively manage the risks Deposit Insurance in the form structures. Section 7(1) of KDIA of providing deposit insurance by of “Eighteen Core Principles for provides for an independent expanding the mandate of KDIC an Effective Deposit Insurance Board comprising of a non- to include risk minimization and System.” executive chairperson appointed resolution of problem banks. by the President; the Permanent Autonomy Secretary in the Ministry of Effective Resolution Though DPFB is a body corporate Finance; the Governor of the Mechanism in its own right, it currently Central Bank of Kenya or his The expanded mandate will also operates as a functional representative; five members (who allow KDIC to contribute to the department of Central Bank are not public officers) appointed stability of the financial system of Kenya (CBK). The Law by the Minister for Finance and as a financial safety net through establishes the Kenya Deposit the Chief Executive Officer who early detection, timely intervention Insurance Corporation (“KDIC”) shall be an ex-officio member. and resolution of troubled as an operationally independent banks. In this regard, KDIC will entity from CBK with its own Expanded Mandate participate, jointly with CBK, management and staff who are Due to the narrow scope of its in the inspection/examination answerable to the KDIC Board. mandate, the DPFB is currently of member institutions and in classified as a ‘’paybox’’ deposit problem bank resolutions. insurance system with the added responsibility of liquidating failed Rules, Regulations and institutions. Currently, DPFB’s Guidelines role is restricted to payment of the In order to enable KDIC to execute insured deposit of Kshs.100,000/= its expanded mandate, the law and the liquidation of failed provides for the publication of Rules, Regulations and Guidelines. These will cover such areas as scope of deposit coverage; determination of contributions by member institutions; the nature of records to be held by institutions; recovery of penalties imposed on institutions; and prescribe for anything which under the Law ought to be prescribed. In essence, the new law will empower KDIC to play a more effective role, in collaboration with other safety net participants, in fostering financial stability. CBK Newsletter Issue 1/March2013 CBK NEWS 20

Capacity Building for financial stability

he topic of capacity building crisis and the special role of as a driver of financial central banks across the world in Tmarket stability in Kenya resolving the crisis and containing and the wider African region has its effects are justification enough case of continued to generate a lot of for institutions to deliberately debate. The debate has largely pursue a prudent capacity Kenya revolved around the relevance building agenda with the common of various programmes offered goal of creating an enlightened by institutions, their length, and competitive environment where School of whether our financial institutions sound decisions are made from a attach as much value to building reasoned input. the capacity of their human Capacity building continues Monetary resource as they do in pursuit to be an integral part of how of the bottom line. Yet it is clear financial institutions can achieve that both the financial market Studies the cutting edge in services design

CBK Newsletter Issue 1/March2013 CBK NEWS Financial Stability 21

Investment opportunities in this area have continued to expand, thanks Success of this programme both locally and regionally motivated to the restlessness of the human the School to explore other higher education training gaps, still with resource factor in these institutions the objective of strengthening and few education institutions have sectoral stability. Amongst these are Masters level programmes in seized the initiative. Finance, Financial Economics, Economic Policy and Analysis and Public Policy Analysis , offered in and delivery and strengthen their stability– and not just because collaboration with Jomo Kenyatta competitive edge. In the developed of its geographic location in this University of Agriculture and world, focus has been on a fair mix gateway to other African countries. Technology (JKUAT) of both short term and long term As a training institution, the programs including research. On impetus behind its formation was At the KSMS, on-the-job the other hand, the approach in in response to financial sector training is essential and remains developing countries has been instability in Kenya which had the most important engine of overwhelmingly on the short term the potential to spread to other growth of the sector. This is training side. The latter group of Eastern and Southern African why the school continues to countries have not fully embraced countries. explore areas including Masters capacity building as a critical The School began by offering level programmes in Financial component of stability and hence short management development Journalism, Financial Computing enhancement of financial gains. courses and professional courses and eBanking, Programme Investment opportunities in this then considered appropriate at Monitoring and Evaluation and area have continued to expand, the time. However, with time, Agricultural Finance. From thanks to the restlessness of the demand became increasingly these many programmes, the human resource factor in these sophisticated hence creating the School hopes to develop its own institutions and few education need to offer further education. signature programme which will institutions have seized the KSMS in collaboration with Moi only be offered by the School. initiative. It is in this area that the University, took a deliberate move Kenya School of Monetary Studies the School seeks to develop a and rolled out the first ever African has been trying to be the leader in pool of expertize in the region to Capacity Building Foundation the wider Anglophone Africa since support the financial sector's need (ACBF) funded Masters in Banking 2008. for highly skilled manpower, in line and Finance (MBF) targeting with its long-term objective of a In this region, KSMS is the financial sector institutions in regional Centre of Excellence for ideal place for capacity building Kenya and the Wider Eastern and capacity building in Kenya and the geared towards financial Southern African Countries. The rergion.

CBK Newsletter Issue 1/March2013 CBK NEWS 22

The Central Bank launches a coin re-circulation campaign

ou are in your favourite supermarket purchasing your weekly groceries. To Yyour surprise, you are short- changed by the cashier. Reason - they don't have coins. The same story is repeated in the Matatu- you cannot receive your proper change as there are no coins available. This "Chomoa Coins" campaign. This is a familiar story to many Kenyans campaign was officially launched especially, those who reside in the on 26th November 2012 by the urban centres. Governor of the Central Bank of In the recent past, numerous Kenya, Prof. Njuguna Ndung’u. The bulk of coins are concerns have been raised by the The campaign was necessitated by held by the members public and media over unavailability concerns raised from retailers and of adequate coins in the market. general public regarding shortages of the public either in The Central Bank has however of loose change at points of sale their homes, offices indicated that there are adequate outlets. numbers of coins in the country or car pouches. The going by the circulation figures and Besides educating the public on tendency is such trends in the last few years. importance of coins, the campaign aimed at: that when shoppers In response to the public outcry, • Encouraging the general public receive their change the Central Bank of Kenya together to utilize coins in making low with the Kenya Bankers Association value payments in the form of coins, and major Supermarkets in Kenya • Calling upon the public to they most likely represented by their umbrella circulate coins by dropping body Retail Traders Association of them at designated change deposit them at Kenya (RETRAK) , came together points in supermarkets and home, in car pouches to launch the National Coin re- banks. circulation Campaign dubbed • Informing the general public or piggy banks. and traders in particular that

CBK Newsletter Issue 1/March2013 CBK NEWS 23 they have a responsibility an average of 100 coins towards their currency in their homes, then we and should accept all are looking at an excess legal tender coins that are of 200 million pieces in circulation. that are not available for circulation as they To ensure adequate supply should, causeing an of coins, the Central Bank artificial shortage. issues coins through its A typical shopper network of Branches, withdraws notes from Currency Centres and over the ATM, shops at the 1200 commercial bank suppermarket, receives branches countrywide. The mixed change, puts the Bank has issued more than notes in the wallet, then 1.3 Billion pieces of coins shoves the coins into a into circulation in various jar somewhere at home. denomination. During the The result is an artificial month of October 2012 shortage. The coin alone, 9 Million pieces of campaigns carried out by coins were issued to the the Central Bank together commercial banking sector with other stakeholders for use across the country. therefore aim at changing The figure grew to 12 million the coin hoarding pieces in the month of culture and encouraging November 2012. So where re-circulation and does the problem lie? Where acceptance of all coins are the 1.3 billion coins in business transactions. hidding? The campaigns have mobilized the public to The bulk of coins are held exchange for notes, the by the members of the coins in their possession. public either in their homes, Shops and kiosks owners offices or car pouches. are being encouraged to The tendency is such that accept all denominations when shoppers receive their of coins as they are legal change in the form of coins, tender. they most likely deposit them It is therefore clear that at home, in car pouches or the problem of coins piggy banks. The practice inadequacy in circulation inadvertently leads to coins cannot be addressed by shortage. Whereas a saving adding new coins but by culture is beneficial to every ensuring that there is an investor, the habit of keeping efficient mechanism for coins without releasing re-circulating existing Scenes during the launch of 'chomoa' coin them for re-circulation can coins within the economy. also be injurious to the Let us get the coins campaign. economy. If for example 2 moving! million shoppers piled up

CBK Newsletter Issue 1/March2013 CBK NEWS 24 Financial institutions may also face liquidity challenges if their clients decide to withdraw funds, due to percieved association with money The negative laundering. Foreign financial institu- tions that offer correspondent banking services may decide to limit their trans- actions with institutions located in impact of money money laundering havens and subject these transactions to extra scrutiny, driving up the cost of doing business. laundering Beyond the economic and finan- cial costs posed by money laundering, t’s a Monday morning and you any financila system. Recent studies there are the social costs to the soci- are on the road battling the jam or typologies on the trends in money ety as well. Money laundering tends Iin your trademark jalopy. Sud- laundering show that launderers often to have a corrupting influence on the denly, you grind to a complete halt tend to place their ill-gotten gains in fabric of society, resulting in increased in Uhuru Highway of all the places. what are commonly referred to as criminality. It corrupts the judiciary, Your attempts to seek help from fellow “sterile" investments. These are invest- law enforcement, and financial institu- motorists are unsuccessful. Just as ments that do not generate additional tions. Money laundering transfers you are about to dispair, Benson, your productivity to the economy. Examples economic power from the market, gov- childhood friend pulls aside in a sleek, of sterile investments include high ernment, and citizens to criminals . In top of the range Toyota and offers to value assets such as luxury motor ve- some instances, it could even lead to help. You take note of the suave suit, hicles, real estate and art. There have the control of legitimate governments high end cell phone and of course the been instances where entire sectors of by money launderers. bling. As the conversation progresses, an economy are driven by the interests Benson reveals he is a motor vehicle of money launderers, as opposed to Vision 2030, Kenya’s economic dealer and offers to trade-in your actual demand. When such busi- blueprint aims to transform the “jalopy” for a new improved model at a nesses no longer suit the purposes country into a regional economic and price that you cannot afford to let go. of the launderers, the projects are financial hub. This is in recognition You accept the offer but at the back of abandoned leading to the collapse of of the fact that the globalization of your mind, however, there is the small entire business sectors and damaging financial markets offers opportunities issue of how he made all the money. the economies that rely on the funds for increased economic growth and later, you hear of Benson’s rumoured generated from such businesses. prosperity. It should be noted therefore, connections with a suspected drug that as emerging markets begin to dealer. The car dealership, you learn, is One of the most serious effects of open their economies and financial just a small piece of Benson’s empire money laundering is its impact on the sectors, they become increasingly that now includes hotels and a chain private sector. Launderers often use viable targets for money laundering of supermarkets. You wrestle with the front companies; business entities activity. This, coupled with advances in fact that your own brother-in-law, who controlled by criminals to combine communications and technology, pres- closed his motor vehicle dealership a illicit funds with legitimate funds in ent criminals with additional opportu- while ago, would wonder why you are order to disguise their true origin. nities to launder their ill-gotten gains. dealing with an unscrupulous com- This enables front companies to offer In such instances, a negative reputa- petitor who drove him out of business. products and services, at below- tion arising from money laundering Anyhow, you decide to take Benson's market prices. As a consequence, may diminish legitimate global op- offer because its too good to let go. legitimate business enterprises are portunities and sustainable economic This unfortunately is the reality of the often “crowded out” by front compa- growth. It is for this reason that one of negative social and economic effects nies as they are unable to compete. the pre-requisites for transforming into of money laundering on the society. This in turn increases the potential for global international financial centers monetary and economic instability due be it New York, London, Singapore or Money laundering poses a to misallocation of resources and arti- Hong Kong has been to adopt a robust seriious challenge to the stability of ficial distortions in the prices of goods anti –money laundering legal and and services. regulatory regime.

CBK Newsletter Issue 1/March2013 OPPORTUNITY TO INVEST IN GOVERNMENT BONDS AND BILLS

Did you know you could save and invest in secure high return Kenya Government Bonds and Treasury Bills?

WHO CAN INVEST? Any individual,corporate body,groups and non-Kenyans can invest in Government securities by opening a Central Depository System (CDS) Account (for Free) with the Central Bank of Kenya directly or through your commercial bank.

STEPS IN OPENING A CDS ACCOUNT 1. Visit the nearest office of the Central Bank of Kenya (Nairobi,Mombasa, Eldoret, Kisumu, Nakuru, Nyeri or Meru) or Kenya Commercial Bank, Equity Bank, National Bank, Cooperative Bank and Kenya Post Office Savings Bank and obtain a CDS opening /mandate card and fill out your details. Note: CDS account application cards for individual and corporate applicants are different. 2. Attach a recently taken coloured passport size photograph and a copy of your National Identity Card(ID) or Passport. 3. Take the filled CDS mandate card to your commercial bank for certification. 4. Your bank will certify your particulars in the completed CDS mandate card by way of appending the bank’s stamp and signature of two of their authorized signatories on the space provided. 5. Corporates are required to affix a company seal on the mandate card. 6. Send the filled up mandate card and attachments to the issuing office. 7. Once the CDS account is opened in your name,you will be notified of the CDS account number via the address you have provided on the CDS mandate card. A formal notification letter will also follow. 8. Once you have been allocated and notified of your CDS account number,you can apply(bid)for the Amount of Treasury Bond or Treasury bills you wish to invest in.

GUIDELINES FOR APPLICATION(BID)FOR BONDS AND BILLS 1. Obtain application forms for bonds/bills from any of the Central Bank of Kenya’s office in Nairobi, Mombasa, Eldoret, Kisumu, Nakuru, Nyeri or Meru or Download the form from the CBK website:http://www.centralbank.go.ke/ securities/ApplicationForms.aspx 2. Fill out the following • Bond/Bill Issue Number. • Duration/Tenure as provided for in the respective prospectus/advert. • Value date . • Total face value-Amount you wish to invest(Kenya Shillings). • -This is the investor’s desired yield. • Your details-as per the CDS mandate card. 3. The minimum investible amount in Treasury Bills is Ksh.100,000.00 and 50,000.00 for Treasury bonds. 4. Sign the application form and submit to any CBK office or financial institution specified in 1 above 5. NB.Do not make payments for the Treasury bills and bonds until you confirm with the central Bank of Kenya of the exact amount you will need to pay.

For further information call Central Bank of Kenya (National Debt Office)on: 2863600 or email [email protected] CBK Newsletter Issue 1/March2013 Newsletter CBKKeeping you Informed www.centralbank.go.ke