Regulatory Alerts2014-07-10 | 1770274296Microfinance Banking Circular No 1 of 2014 - Operationalization of Kenya Banks' Reference Rate (KBRR)
The Central Bank of Kenya has introduced a new transparent credit pricing framework, the Kenya Banks' Reference Rate (KBRR), which is also applicable to microfinance banks. The KBRR has been set at 9.13% effective July 8, 2014, and microfinance banks are expected to price their flexible rate loans using this base rate, with the final interest rate to customers being KBRR + a deviation factor. The new framework aims to increase transparency in credit and mortgage pricing and will be implemented gradually, with existing flexible credit facilities transitioning to the new framework by June 30, 2015.
KUU YA KENYA Haile Selassie P. O. Box 60000 - 00200 Nairobi, Kenya Telephone: 2860000, Fax: 340192 MICROFINANCE BANKING CIRCULAR NO. 1 OF 2014 TO: ALL CHIEF EXECUTIVES OF MICROFINANCE BANKS OPERATIONALISATION OF THE KENYA BANKS' REFERENCE RATE (KBRR) In January 2014, a Committee led by the Cabinet Secretary for National Treasury Hon. Henry Rotich was constituted to explore ways of increasing and enhancing private sector credit and mortgage finance supply in Kenya. Subsequently, a Press Release on the operationalization of the recommendations of the Committee was issued by the Cabinet Secretary for the National Treasury on 30th May 2014. One of the key recommendations of the Committee was the introduction of a transparent credit pricing framework to be known as the Kenya Banks' Reference Rate (KBRR). This framework is also extended to microfinance banks.
Following the Monetary Policy Committee meeting held on 8th July, 2014 which set the CBR at 8.50 percent, and considering the weighted 2-month moving average of the 91-day Treasury bill rate, the Central Bank of Kenya (CBK) has set the KBRR at 9.13 percent.
The purpose of this Circular is to operationalize the KBRR as follows :-
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The KBRR of 9.13 percent shall be effective from, 8th July, 2014, and will remain at this level until its next review in January 2015 (if market conditions do not drastically change).
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All microfinance banks will price their flexible rate loans using the KBRR as the base rate.
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For individual microfinance banks, the interest rate they charge their customers will be KBRR + K. We expect microfinance banks to vary their lending rates to be as close as possible to KBRR.
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Microfinance banks will disclose to their respective borrowers and the Central Bank the breakdown of any deviation, K, from the KBRR, thereby enhancing transparency in pricing of credit and mortgage.
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All flexible/variable credit facilities applied for shall be priced using the new KBRR framework.
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Existing flexible/variable credit facilities shall be transitioned to the new KBRR framework by 30th June 2015.
The CBK will work closely with microfinance banks and other stakeholders to facilitate a smooth and effective implementation of the framework. It will also work with the stakeholders to facilitate a wide dissemination of the framework to the public.
F.P.K. PERE DIRECTOR, BANK SUPERVISION 10th July 2014 Cc.
Mr. Benjamin Nkungi Chief Executive Officer Association of Microfinance Institutions (AMFI) Methodist Ministries Centre Oloitoktok Road off Argwings Kodhek Road, Lavington P.O. Box 10701-00100 NAIROBI