Nairobi — The government is set to establish a fully autonomous deposit protection body, the Central Bank of Kenya governor said on Tuesday.

Prof Njuguna Ndung'u noted that the government was working on a comprehensive legislative framework which, when passed by Parliament, would result in the creation of a deposit protection body.

Prof Ndung'u said the body would be modelled from well established institutions such as the Canadian Deposit Insurance Corporation.

The body, he added, will play a critical role in ensuring the protection of depositors who have lost or stand to lose their deposits following the collapse of financial institutions.

"Kenya has already established a deposit insurance scheme. We have seen the benefits accruing to depositors in failed financial institutions through the payment of protected deposits and subsequent liquidation dividends to affected depositors," Prof Ndung'u said.

He added: "This is an example of how a deposit insurance scheme plays a role as a financial safety net for depositors.The ideal situation is for depositors to be protected by well funded deposit insurance schemes."

The governor made the remarks at Sarova Whitesands Beach Resort in Mombasa when he officially opened the International Association of Deposit Insurers (IADI) African regional conference.

The objective of the conference was to build capacity within the existing Deposit insurance schemes in the African region and to create awareness on the importance of having them well managed.

Prof Ndung'u said one of the challenges facing the continent was that of providing a safety net to depositors in financial institutions which have failed.

He, however, added that Nigeria, Tanzania, Zimbabwe, Uganda, Sudan, Algeria, Morocco, Egypt and Kenya have already established deposit insurance schemes.

"The conference comes against the backdrop of the global economic meltdown.We have witnessed the collapse of financial institutions in the US and Europe which have comparatively stronger economies than in Africa," said the CBK governor.

"Were it not for the timely intervention by these governments with bailout and guarantee packages the collapse of the financail institutions would have had a major negative impact on depositors," he added.

He challenged African countries which have not established the schemes to embrace the concept so as to provide a safety net to its depositors.

"Only nine African countries have deposit insurance schemes in place. I am challenging the African Regional Committee of IADI to encourage more countries to establish the schemes," he said.