On 1st November 2024, the National Assembly published the Business Laws (Amendment) Bill, 2024 (“the Bill”) that seeks to amend several laws to enhance consumer protection, boost trade and manufacturing and harmonise our legal framework in the banking sector. We shall highlight and analyse the proposed amendments below and explore the positive and negative impact these changes may have on trade, businesses, manufacturers, financial institutions and potential local and international investors.
The Banking Act, Cap 488
The Bill proposes an amendment to Section 55 of the Banking Act by providing that the Central Bank of Kenya (CBK) can prescribe penalties on financial institutions, credit reference bureaus or any person that fails to comply with the provisions of the Banking Act, Prudential Guidelines or directions issued by the CBK. The CBK can impose penalties of up to Kshs. 20 million for institutions or credit reference bureaus, or an amount that is three times higher than the amount gained or loss avoided by failing to comply. This provision imposes stricter penalties that are aimed at enhancing overall compliance with the laws, rules and regulations that govern the operation of our banking sector.
The Second Schedule of the Banking Act may also be amended to increase the minimum core capital required to operate as a bank or mortgage finance company gradually from Kshs. 1 billion in 2024 to Kshs. 10 billion in 2027. Our current framework is out-of-date as it only sets out the core capital requirements until 31st December 2005. Therefore, this is a welcome amendment that promotes a stable market which aligns with the current growth of our financial industry and available banking products.
The Central Bank of Kenya Act, Cap 491
The proposed amendments to this Act largely broaden the definition of digital credit and digital credit providers by replacing it with non-deposit taking credit providers. The objective of this proposal is to cover all non-deposit taking credit providers, which includes digital lenders and peer-to-peer lenders. The CBK will also have the power to register, license and regulate non-deposit taking credit providers, including determining pricing parameters and prescribing a Code of Conduct that such entities must adhere to.
The Bill further increases the scope of the CBK’s regulatory powers by ensuring that the CBK licenses and monitors the operations of credit guarantee companies that are not currently regulated under any other written law. Credit guarantee companies typically act as guarantors to financiers by absorbing all or a part of the financier’s risk on a credit facility made to a Borrower in the event that the Borrower defaults on repayments.
Under the proposed law, the CBK will have the power to determine the capital adequacy standards, minimum liquidity requirements, anti-money laundering procedures, permissible and prohibited activities and corporate governance of the entity, including certifying whether a significant shareholder is a fit and proper person. Should this amendment pass, it’s crucial for the CBK to draft further regulations and directions on the requirements on the operations of credit guarantee companies. This ensures that there is further oversight and supervision over institutions operating in the financing sector to ensure standard levels of market conduct, transparency in credit dealing, integrity of our financial systems, and the prevention of predatory lending practices that protect borrowers.
Microfinance Act, Cap 493C.
The Bill proposes an amendment to Section 4A of the Act by including that a person cannot carry out any non-deposit taking microfinance business without being properly registered under the Companies Act and licensed under the Microfinance Act.
Additionally, non-deposit taking microfinance businesses would be obligated to furnish borrowers with accurate information on the procedure and conditions of loans, the cost implications and their rights and duties. They cannot collect additional fees, penalties or charges unless this is allowed under the agreement they have with borrowers.
The proposal also increases the duties these institutions owe to Borrowers because they cannot harass, oppress or threaten borrowers, loan guarantors or any person when collecting or recovering debts. It is evident that these new provisions are aimed at ensuring consumers are protected and abuse is prevented, particularly for digital lenders who would now fall under this purview. The amendments to the Act create a structured framework for their operations, fostering accountability and a more regulated environment.
The Standards Act, Cap 496
The Bill proposes the addition of several provisions for the registration of manufacturers and quality testing of products. It seeks to ensure that any person that wishes to manufacture goods and products must be registered by the Kenya Bureau of Standards (“KEBS”). This brings every manufacturer within the scope and regulatory compliance framework of KEBS, ensuring they meet minimum quality standards throughout the production process before products are available for consumers.
This is further evident in the proposed inclusion of Section 10D which details the duties of manufacturers to ensure every product is designed and manufactured in accordance with the relevant standards, conduct sample testing is before product releases, establish procedures for tracing products from the factory to end-consumers, ensure appropriate labelling, and investigate and keep records of all complaints.
The Bill further proposes the inclusion of Section 12A and 12B into the Standards Act which would allow KEBS to establish or designate competent labs to offer testing services, issue test certificates and develop national measurement standards. Section 14D enables KEBS to appoint an inspection body for goods in the country of origin to verify that the goods conform to Kenya’s standards. Such bodies are liable to pay taxes in Kenya. These three proposals create efficiency in the testing and examination of products, which will enhance our quality standards and ability to enforce product quality specifications. However, if Kenya doesn’t have a double taxation agreement with the country in which they appoint an inspection body, such bodies may be subject to double taxation.
These amendments may lead to the improved quality of products manufactured and increased accountability for manufacturers enhancing consumer safety. The Bill further provides a stronger regulatory framework that may counter the prevalence of substandard goods entering the Kenyan market. However, these provisions may impose additional costs on manufacturers including registration fees, and compliance costs which may disadvantage the small-scale manufacturers.
Special Economic Zones Act, Cap 517A
The Bill empowers the Cabinet Secretary for Investments, Trade and Industry to set the minimum requirements for acreage of land and thresholds for investments for land that may be considered for declaration as a special economic zone. The Bill also clarifies that goods that remain within a customs-controlled and special economic zone are entitled to the tax benefits conferred under the Act. Tax benefits and incentives that are granted to enterprises and developers in these zones last for 10 years from the date of issuance of a license.
The proposed amendment to Section 11 of the Act seeks to streamline the administrative process of creating and managing special economic zones by establishing a one-stop shop for all enterprises to channel their applications for permits, approvals and licenses and ensuring compliance with the law. These amendments encourage large-scale investments and emphasise the role that special economic zones play in the development of trade, manufacturing, industry growth and ultimately, our economy.
The Kenya Accreditation Service Act, Cap 496A
The proposed Bill aims to modify the Act by adding new sections that outline the accreditation process for foreign Conformity Assessment Bodies functioning in Kenya and to set up an Accreditation levy at a rate of 3% on the value of any accredited service delivered to a third party by an accredited conformity assessment body.
This may lead to various advantages, including a more competitive market with the entry of more international players, the introduction of a new revenue stream allowing for better funding of regulatory activities and enhancement of services provided to certified bodies and the improvement of Kenya’s trade relationships by ensuring that foreign goods and services meet specific quality and safety standards. It has, however, several disadvantages which include increased stringent and time-consuming accreditation procedures and increased prices for services which may be passed down to the consumers.
The Scrap Metal Act, Cap 503
The Bill proposes to amend the Act by making changes to the composition of the Scrap Metal Council. The chairperson will now be appointed by the President, with additional representation for collectors, agents, smelters, and millers, ensuring inclusivity and balanced decision-making. This aims to enhance inclusivity and representation which provides a more diverse range of perspectives in decision-making through increased oversight and stakeholder engagement.
Conclusion
The Bill has been submitted for public participation before it is put before the National Assembly for consideration. Our team is closely monitoring the developments and will continue to provide updates and advice as the process evolves.
A polite note: The Business Laws (Amendment) Bill, 2024 has now been assented into Law.
For further assistance or information, please contact Benson Ngugi, Kabu Karanja or Jessica Obimbo.
