Business Laws (Amendment) Act, 2024: A New Era for Kenya’s Business Regulations

Introduction

The Business Laws (Amendment) Act, 2024 (“the Act”), which came into effect on 27th December 2024, marks a significant milestone in Kenya’s regulatory framework for businesses. The Act introduces major changes aimed at modernizing the country’s financial and commercial sectors to align with the global best practices and foster economic growth. For businesses across various sectors, understanding the implications of this legislation is critical to ensuring compliance and minimizing legal risks.

In this article, we unpack the key provisions of the Business Laws (Amendment) Act, 2024, and offer insights into what businesses should do to remain compliant in this new regulatory environment.

1. Understanding the Scope of the Business Laws (Amendment) Act, 2024

The Act amends various laws, including the Banking Act, the Central Bank of Kenya Act, the Microfinance Act, the Standards Act, the Special Economic Zones Act, the National Electronic Single Window System Act, the Business Registration Service Act, and the Companies Act. 

 The primary focus of the Act is to:

1. Strengthen the regulatory framework for financial institutions and credit providers.
2. Enhance consumer protection measures in credit transactions.
3. Introduce a comprehensive framework for non-deposit-taking credit providers.
4. Promote transparency and accountability in business operations.

These amendments signal the government’s commitment to fostering a fair and secure business environment while addressing emerging challenges in Kenya’s dynamic financial landscape.

2. Key Changes and Their Implications for Businesses

2.1 Non-Deposit-Taking Credit Providers

One of the most notable changes in the Act is the regulation of non-deposit-taking credit providers. Previously referred to as “digital lenders,” the new legislation broadens the scope to include a wide range of credit providers, including those offering buy-now-pay-later schemes, peer-to-peer lending, and credit guarantees.

The Central Bank of Kenya has the powers to:

1. Register, license and regulate non-deposit-taking credit providers. 
2. Approve channels through which non-deposit-taking credit providers credit business may be conducted.
3. Determine parameters for pricing of credit. 
4. Supervise non-deposit-taking credit providers in such manner as the Bank may prescribe. 
5. Prescribe an enforceable Code of Conduct that is binding all non-deposit-taking credit providers in their conduct of business. 

Implications:

1. All non-deposit-taking credit providers must now be registered and licensed by the Central Bank of Kenya.
2. Failure to comply with the licensing requirements can result in penalties of up to KShs.20 million or three times the monetary gain from non-compliance.
3. Daily penalties for continued non-compliance may also be imposed.

What Businesses Should Do:

1. Review your credit-related services to determine whether they fall under the definition of non-deposit-taking credit providers.
2. Initiate the registration and licensing process with the Central Bank of Kenya to avoid hefty penalties.

2.2 Consumer Protection in Credit Transactions

The Act places a strong emphasis on consumer protection. Non-deposit-taking credit providers must furnish borrowers with clear information about the terms and conditions of credit facilities, including costs, repayment obligations, and the financial risks involved.

Implications:

1. Providers must ensure transparency in lending practices.
2. Borrowers must be informed of financial costs associated with the procurement and servicing of any loan before acquiring loans.
3. Non-deposit-taking credit providers are required to furnish borrowers with accurate information on the procedure and conditions for lending and recovery.
4. Borrowers must accept the terms and conditions applicable to the credit. 
5. Harassment or abusive debt collection practices are expressly prohibited.
6. Providers must maintain confidentiality of borrower information in compliance with the Data Protection Act.

What Businesses Should Do:

1. Revise internal policies to align with the new consumer protection requirements.
2. Establish a robust complaints handling mechanism to address customer grievances in a timely manner.

2.3 Credit Guarantee Business

The Act introduces a new framework for credit guarantee companies, which are now required to be registered and licensed by the Central Bank.

Key Amendments:

1. Credit guarantee companies must apply for registration and licensing with the Central Bank.
2. The Bank has the authority to supervise, impose sanctions, and enforce codes of conduct on credit guarantee businesses.

Implications:

1. Unregistered credit guarantee businesses face significant penalties.
2. The Central Bank has the authority to supervise and impose sanctions on credit guarantee companies.

What Businesses Should Do:

1. Ensure that any credit guarantee arrangements comply with the new licensing requirements.
2. Review partnerships with third-party financiers to verify their compliance with the new regulations.

2.4 Amendments to the Banking Act

The Act introduces stricter core capital requirements for banks and mortgage finance companies. The minimum core capital requirement is set to increase gradually to KShs.10 billion by 2029.

Implications:

1. Financial institutions must plan for the incremental capital requirements to remain compliant.
2. Non-compliance may result in significant penalties and operational restrictions.

What Financial Institutions Should Do:

1. Review and adjust capital strategies to meet the new core capital requirements.
2. Engage with regulatory authorities to ensure compliance with ongoing requirements.

3. Special Economic Zones and Manufacturing Standards

The Act also amends the Special Economic Zones Act and the Standards Act to promote transparency and accountability among manufacturers. Businesses operating in special economic zones can now benefit from tax incentives and regulatory relief.

Implications:

1. Goods sold within a special economic zone are not deemed to have entered the customs territory and may qualify for tax benefits.
2. Manufacturers must ensure that products meet Kenyan standards and maintain proper records.

What Businesses Should Do:

1. Assess your operations within special economic zones to maximize available benefits.
2. Ensure compliance with Kenya Bureau of Standards requirements to avoid penalties.

4. Risks and Penalties for Non-Compliance

The penalties for non-compliance with the Business Laws (Amendment) Act, 2024, are significant. They include:

1. Fines of up to KShs.20 million or three times the monetary gain from non-compliance.
2. Daily penalties for continued non-compliance.
3. Revocation of licenses and business permits.

Businesses must take proactive measures to understand and comply with the new regulations to avoid these penalties.

5. Conclusion: Staying Ahead of Regulatory Changes

The Business Laws (Amendment) Act, 2024, represents a major shift in Kenya’s regulatory landscape. For businesses across various sectors, compliance with the new requirements is essential to ensuring operational sustainability and avoiding penalties.

Understanding the implications of this legislation is key to navigating Kenya’s evolving business environment. Companies are encouraged to proactively review their operations, engage with regulatory bodies, and implement necessary changes to ensure compliance.

At B M Musau & Co., Advocates LLP, we are committed to providing legal insights and support to help businesses adapt to these changes effectively. If you have any questions about the Act or need assistance with compliance, our team is here to guide you through the process.

Prepared by:

B M Musau & Co., Advocates LLP

Your Trusted Legal Partner for Success

Disclaimer:

This article is provided for informational purposes only and does not constitute legal advice. Readers are encouraged to seek professional legal counsel for specific guidance related to their business operations. B M Musau & Co., Advocates LLP disclaims any liability for actions taken based on the content of this publication. For further assistance, please contact our office directly.