Inside govt’s moves to rein in microfinance sector amid tax uproar
By Aloys Michael, May 30, 2026As public attention remains fixed on taxes, levies and the rising cost of living, a quieter but potentially transformative financial reform is making its way through Parliament.
The Microfinance Bill, now before the National Assembly, proposes the most significant overhaul of Kenya’s microfinance regulatory framework in two decades, signalling a shift toward tighter oversight, stronger consumer safeguards and enhanced powers for the Central Bank of Kenya (CBK).
With businesses and households increasingly squeezed by tax measures and economic uncertainty, access to affordable credit has become a critical lifeline.
Against this backdrop, lawmakers are seeking to modernise the rules governing microfinance banks, institutions that serve millions of small traders, entrepreneurs and low-income earners often overlooked by mainstream lenders.
“The objective of this Bill is to repeal and replace the Microfinance Act, 2006, to address the evolving business of banking as well as the institutions offering microfinance banking services,” the Memorandum of Objects and Reasons states.
The proposed law argues that the sector has evolved significantly since 2006 and requires a framework capable of addressing new risks while maintaining financial stability.
It seeks, in its own words, to provide a safe and sound environment for the Microfinance Banks to meet the evolving needs of the consumers they serve.”
Key in the bill is a significant strengthening of regulatory authority.
Part II bars any institution from conducting microfinance banking business without a licence and grants CBK powers to inspect premises suspected of operating illegally.
The regulator would also gain broader authority to revoke licences, oversee ownership changes and supervise mergers, acquisitions and transfers of assets and liabilities.
The bill also introduces stricter minimum capital requirements, liquidity thresholds and risk-management obligations.
“Institutions are to put in place sound risk management measures, while on capital adequacy and liquidity safeguards.”
For depositors and investors, these provisions are designed to strengthen resilience in a sector that has occasionally faced governance and operational challenges.
Consumer protection takes centre stage
Unlike previous reforms that focused heavily on institutional stability, the new bill places consumers at the centre of regulation.
It introduces protections against false advertising, strengthens disclosure requirements on loans and limits the interest recoverable from defaulted facilities.
The legislation also criminalises misleading promotions and prohibits non-deposit-taking entities from accepting deposits or cash collateral from members of the public.
These provisions arrive at a time when many borrowers are increasingly sensitive to lending costs as higher taxes and inflation continue to strain household incomes.
For policymakers, consumer confidence appears to be emerging as a key pillar of financial sector reform.
Another major shift involves corporate governance.
The bill seeks to separate ownership from management by prohibiting significant shareholders from participating directly in the management of microfinance banks. It also introduces stricter requirements on board composition and directors’ duties.
Further restrictions on insider lending, dividend declarations and share transfers suggest regulators are moving toward banking-sector governance standards traditionally associated with larger commercial banks.
The objective is to minimise conflicts of interest while improving accountability and transparency.
The digital supervision era
Perhaps the most consequential proposal is one that would require institutions to provide the Central Bank with online access to their systems.
Combined with enhanced reporting obligations under the provision, this signals a move toward technology-driven supervision, enabling regulators to monitor institutions more closely and respond faster to emerging risks.
For lenders, however, compliance costs and operational adjustments may become a new reality.
While tax-related legislation continues to dominate headlines, the Microfinance Bill highlights another challenge facing the economy: ensuring that credit remains accessible, transparent and secure.
The Bill reflects a broader policy shift from simply expanding financial inclusion to strengthening the quality and safety of financial services.
If enacted, it will give the CBK extensive authority to regulate, supervise and enforce standards across the sector.
The success of the reforms will ultimately depend on whether tighter regulation can coexist with the flexibility and innovation that have made microfinance a crucial source of funding for Kenya’s small businesses.
For millions of entrepreneurs navigating an economy weighed down by taxes and rising costs, that balance could prove just as important as any fiscal measure debated in Parliament.