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Kenya: Kenya Deposit Insurance Bill Becomes Law

(May 16, 2012) On May 9, 2012, Kenya's President, Mawi Kibaki, signed into law the Kenya Deposit Insurance Act, 2012, which provides for the establishment of a deposit insurance scheme and a corporation to manage the scheme and to wind up failed deposit taking institutions, among other things. (President Kibaki Signs Four Bills into Law, IJARAMEDIA (May 10, 2012).)

The Act establishes a Deposit Insurance Fund (the Fund) to replace the Deposit Protection Fund governed by the Banking Act of Kenya (as amended 2009), Part VIII. (THE LAWS OF KENYA, Cap. 488 §§ 36-42, Central Bank of Kenya website.) All banks, financial institutions, mortgage finance companies (defined under the Banking Act), and deposit-taking microfinance institutions (defined under the Microfinance Act) licensed by the Central Bank will automatically become members of the Fund, and the Fund will be used, among other purposes, to meet payments for insured deposits. (Kenya Deposit Insurance Bill, 2011, §§ 2, 24, & 25, KENYA LAW REPORTS (KLR) [click on No. 51 on the list].)

The Act also establishes the Kenya Deposit Insurance Corporation (KDIC). The KDIC will provide for a deposit insurance scheme for customers of member institutions. (Id. § 5.) This will include: administering the deposit insurance scheme; collecting contributions for the Fund from member institutions; and holding, managing, and applying the Fund. (Id.) The KDIC will also receive, liquidate, and wind up institutions for which it is the designated receiver or liquidator, a function previously overseen by the Central Bank, according to section 35 of the Banking Act, which is now repealed along with the above-listed provisions in Part VIII of that Act. (Id. § 75.) The KDIC will also work towards creating an environment for sound risk management and a stable financial system. (Id. § 5.)

The KDIC Act mandates the Central Bank to appoint the KDIC as the sole and exclusive receiver of a member institution in certain circumstances. These include circumstances in which an institution:

· has assets that are less than its obligations to creditors;

· deliberately violates a regulatory or supervisory order;

· lacks general transparency or fails to provide necessary access to inspectors;

· will not be able to meet any of its financial obligations; or

· engages in activities that violate any of the country's laws. (Id. § 45.)

Upon receiving notification of non-viability of a particular institution from the Central Bank, the KDIC is authorized to take one of two possible measures. It may force the institution to take certain actions, such as restructuring the whole or part of its business. It may, alternatively, assume control of part or the whole of the institution or appoint a person to do so. (Id. § 46.)

In addition to the Kenya Insurance Deposit Bill, President Kibaki signed into law three other bills: the Kenya School of Government Act, 2012 (for a 2011 version of the bill, see KLR, [click on No. 30]); the Public Service Superannuation Scheme Act, 2012 (for a 2011 version of the bill, see KLR [click on No. 20]); and the Supplementary Appropriation Act, 2012 (for a 2012 version of the bill, see KLR [click on No. 18].)