Kenya's banking sector is one of the most developed in Africa, with dozens of licensed commercial banks, a world-leading mobile money ecosystem and a growing number of Kenyan banks operating across East Africa. A detailed legal and regulatory framework keeps the sector safe, sound and competitive. Over the last few years, that framework has changed significantly, with higher capital requirements, regulation of digital lenders and a new approach to loan pricing. This article provides an overview of banking law in Kenya and the recent developments every bank, investor and borrower should know.
| Law | What it covers |
|---|---|
| Banking Act (Cap. 488) | Licensing, capital, restrictions on lending and investment, corporate governance, inspection and CBK intervention powers |
| Central Bank of Kenya Act (Cap. 491) | The CBK's mandate on monetary policy, currency, supervision and digital credit providers |
| Prudential Guidelines | Detailed CBK rules on capital adequacy, liquidity, risk management, governance, outsourcing, AML and cybersecurity |
| Microfinance Act, 2006 | Licensing and supervision of microfinance banks |
| National Payment System Act, 2011 | Regulation of payment service providers, including mobile money |
| Kenya Deposit Insurance Act, 2012 | Deposit protection and resolution of failed institutions by the Kenya Deposit Insurance Corporation (KDIC) |
| Sacco Societies Act, 2008 | Deposit-taking Saccos, supervised by SASRA |
No person may carry on banking business in Kenya without a licence from the CBK. Applicants must show adequate capital, fit and proper shareholders, directors and senior managers, a credible business plan and sound risk management systems. Significant shareholdings are restricted: no single person may hold more than 25% of a bank's share capital unless it is another bank, a financial holding company, the government or an approved entity. Any acquisition of a 5% or greater stake requires the CBK's approval.
The Business Laws (Amendment) Act, 2024 raised the minimum core capital requirement for commercial banks in stages from KES 1 billion to KES 10 billion by the end of 2029, with interim targets along the way. Banks that cannot meet the new levels must raise capital, merge, be acquired or reduce their operations. The change is expected to drive consolidation in the sector and to strengthen banks' capacity to finance large projects.
Banks must maintain minimum ratios of core capital and total capital to risk-weighted assets, together with a capital conservation buffer. They must also maintain a minimum liquidity ratio and comply with limits on lending to insiders, large exposures and investment in land and buildings.
The CBK Prudential Guideline on Corporate Governance sets rules on board composition, independent directors, board committees, conflicts of interest and the separation of the roles of chair and chief executive. Directors and senior officers must be vetted by the CBK and can be removed for misconduct.
The CBK carries out on-site inspections and off-site surveillance. Where a bank breaches the law or is in financial difficulty, the CBK can impose penalties, issue directions, restrict activities, remove directors and officers, or place the bank under the statutory management of the KDIC. The receivership of Imperial Bank and Chase Bank in 2015 and 2016 led to significant reforms in governance and supervision.
The Central Bank of Kenya (Amendment) Act, 2021 and the Central Bank of Kenya (Digital Credit Providers) Regulations, 2022 brought previously unregulated digital lenders under CBK supervision. Digital credit providers must be licensed, disclose the full cost of credit, follow fair debt collection practices and comply with data protection rules. Lending apps that shamed borrowers by contacting their phone contacts have faced regulatory action. Later amendments extended the regime to non-deposit-taking credit providers more broadly.
Kenya repealed the statutory cap on interest rates in November 2019. Since then, the CBK has required banks to price loans using risk-based models approved by the CBK, and has moved to a common reference rate framework so that borrowers can compare loan pricing more easily. Banks must disclose all costs of credit to customers before a loan is taken.
The KDIC raised the maximum cover for depositors from KES 100,000 to KES 500,000 per depositor per institution, improving protection for small depositors.
The CBK has issued guidance requiring banks to integrate climate-related risks into their governance, strategy and risk management and to disclose how they manage them. See our article on Kenya's Climate Change Act.
Banks must comply with CBK guidance on cybersecurity, report material incidents and manage risks from cloud services and other outsourcing arrangements. These rules apply alongside the Data Protection Act.
Following Kenya's FATF grey listing in 2024, the CBK has stepped up AML supervision. Read our AML compliance guide.
The Central Bank of Kenya licenses and supervises commercial banks, microfinance banks, mortgage finance companies, forex bureaus, payment service providers and digital credit providers.
No. The interest rate cap was repealed in 2019. Loan pricing is now based on CBK-approved risk-based pricing models and disclosure requirements.
The CBK may appoint the KDIC as receiver or statutory manager. Insured depositors are paid up to the cover limit, and the KDIC manages the resolution of the bank.
We advise banks, fintechs and investors on licensing, capital-raising, mergers and acquisitions, regulatory compliance and disputes with regulators and customers. Contact our banking and finance team.
Clear, practical legal counsel for people and businesses in Kenya. This article is general information, not legal advice. For advice on your situation, speak to one of our advocates.
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