“The CBK has reviewed the Microfinance Bill No.9 of 2026 and is supportive of it. Nonetheless, the Bill does not contain provisions on powers of the Central Bank to regulate, supervise and enforce compliance for anti-money laundering, combating the financing of terrorism, and countering proliferation financing,” he said in a submission to the National Assembly’s Finance and Planning Committee.

The Paris-based Financial Action Task Force (FATF) added Kenya to the list of countries under special scrutiny in February 2024, due to loopholes in countering money laundering and terrorism financing.

Kenya’s listing by the FATF has subjected the country to increased scrutiny due to strategic deficiencies in its measures to combat illicit financial flows. When a country is grey-listed, its banks face tighter due diligence from foreign banks, some international transactions experience delays, and investors flag compliance risk in country risk assessments.

The country has been sharpening its tools to detect and block illicit money flows, with hope of being removed from the financial crimes watchdog’s “grey list”.

Kenya adopted its Anti-money laundering and Combating Terrorism Financing (Amendment) Act in 2025, providing a legal framework that closes loopholes in the fight against illicit financial flows by targeting avenues such as the real estate sector, betting firms, and Saccos. 

“Penalties for violation of money laundering and terrorism financing are also not included in the Bill. These provisions are contained in the current Microfinance Act 2006 at Section 36B and 36C following AML(Anti-Money Laundering )/CFT(Countering the Financing of Terrorism) /CPF(Countering Proliferation Financing) deficiencies captured in Kenya’s Mutual Evaluation report of 2022. In this regard, the provisions of Section 36B and 36C of the Microfinance Act 2006 should be lifted verbatim to the Microfinance Bill 2026,” Dr Thugge said.

The State-backed Microfinance Bill No.9 of 2026 was tabled in the National Assembly on May 29, 2026, and aims to introduce a raft of changes, including raising the minimum core capital for micro lenders to Sh250million, up from Sh60million.

The micro-banks are expected to comply with the new capital requirements within five years after the government-sponsored Bill is passed in Parliament.

“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,” reads the memorandum accompanying the Microfinance Bill of 2026.

“The Bill therefore seeks to provide a safe and sound environment for the Microfinance Banks to meet the evolving needs of the consumers they serve. This is in line with Section 4(2) of the Central Bank of Kenya Act, which mandates CBK to foster the liquidity, solvency and proper functioning of a stable market-based financial system.”

The proposed changes are anticipated to trigger a new wave of mergers and acquisitions in the micro-finance sector. At least half of Kenya’s 14 microfinance banks face pressure to raise an estimated Sh2.9 billion to meet newly proposed minimum core capital requirements by the CBK, signalling a fresh wave of acquisition deals in the lending sub-sector.

Records show that as of December 31, 2024, the number of licensed microfinance banks held steady at 14, but the overall financial position weakened from 2023 with notable decreases in net advances and borrowings.

As of December 31, 2024, the sector MFBs experienced a 9.8 percent decline in total assets in 2024 to Sh57.9 billion. Net loans and advances to customers decreased significantly by 16.8 percent from Sh37.5 billion in 2023 to Sh31.2 billion in December 2024.