Comments on the Proposed Kenya Development Bank Draft Bill 2020

I feel greatly privileged as a member of the public in taking this opportunity to make my comments on the above. I do realize that the main objective is to unlock our potential as a country, enable investment and create an enabling business environment for sustainable economic growth. The stage we are in as a country requires that we rely more on the private sector for growth. Much has been done to remove most of the legal obstacles that hinder our entrepreneurs from being able to do more, but the finance area which is key to unlocking capital for investment has not been explored to the full. The time has come for us to put in place the prerequisite structures that will catapult us to the next level and give us a competitive edge as Kenyans. One of these enablers is the creation of a Development bank as you have wisely proposed. Having worked in the financial services sector for not less than 25 years, I have witnessed firsthand some of the challenges and obstacles faced by our business people towards realizing their set objectives because of this constraint. There is hope now through this channel that development can be realized and that our local entrepreneurs can use this for leaping onto the international stage.


My brief comments and observations are as below:


Capitalization


This type of bank needs to have a huge capital base by all standards, in comparison to the local commercial banks. This, in an effort to set it apart for the purpose for which it is being created. We need to look at things from a larger scope as such Kshs.100 billion capital for the bank as proposed, may not be sufficient. Some of our commercial banks and even retail giants have capital bases that are much larger than this. The minimum capital base in my humble view should at a minimum be 1 trillion shillings with plans to grow it even further. Let’s pull all stops to ensure it enjoys a capital base that will cover our needs well while ensuring the country`s interests are well-protected. To ensure the target is achieved, let firms that have large sums of funds such as pension firms, the NHIF, NSSF, local banks, and other foreign investors be invited by offering them bonds, and other relevant financial instruments to invest in the bank. Since Kenya`s international credit rating is good, we can ride on this to attract international investors to place their money in the bank. Bottom line is to ensure that the government shareholding remains the majority to take care of our national interests.


Purpose

  • Support local business activity, investment, and development projects by issuing loans and guarantees to business ventures. Lay greater emphasis on industrial growth by funding to support:1 Manufacturing 2: Trade finance, e.g. import and export trade. Our country has skilled local entrepreneurs whose effort to access international funding for large capital ventures is hampered due to the local business environment that is considered high risk. Commercial banks by their nature can only do so much and more so still are restrained by the capital ratio requirements and their short-term lending nature. For this reason, this Development bank should be set with standards, such that it fills in these gaps by helping issue first-grade internationally recognized bank guarantees for our local entrepreneurs. Most of the foreign firms that can finance local big projects enjoy this advantage which should now be localized. This is spacing our local enterprises can quickly fill eventually with time becoming international players.

  • Fund infrastructure projects both locally, and within the region thus the need to ensure the institution is well capitalized to have the capacity to finance development projects to the tune of USD 5B or thereabout for a start. This funding can begin with infrastructure later on moving to other projects where the risk is too high and those whose gains are long-term e.g., oil extraction, crude oil pipeline construction, housing, etc.

  • The government can use this as a convenient channel when initiating specialized support for groups e.g., the Youth fund, the Women Enterprise Fund, and any other such types that are unique in nature and outside the mandate of local commercial banks due to factors such as lower profit margins. It is through this type of bank that these special funding can be created to support viable start-ups which commercial banks currently do not accommodate.

  • To be the institution through which, the government can use to create a major partner player in large projects requiring huge capital outlay and need government guarantees for payment e.g., the 10,000km tarmac roads initiative. To locally support this objective, alongside the bank, the government can come up with a giant corporation that can handle large projects such as dam, railway, road, airport, and seaport construction. There should be established a pool of highly trained local experts of international stature based at this organization. This will capacitate the organization to successfully bid for large both local and international contractual jobs backed by funding from this bank. The bank will come in handy to help finance the setting up of a large local capital equipment manufacturer to support the organization as the country seeks to gain the desired competitive advantage. This will also enable the country to unlock the potential in this sphere and thus help to retain substantial amounts of foreign exchange while at the same time stepping up local expertise and job creation as we enhance our local manufacturing capacity using a model similar to the one that has seen the phenomenal growth of the Chinese giants. It is through this that our local contractors will gradually develop to become world-class.

  • Create a well-funded research arm of the same which will be able to assist in helping both our county and national government in identifying high-impact socio-economic development initiatives and prioritizing their funding. This will as well promote a well-synchronized development purpose at the two government levels thus minimizing conflict, eliminate duplication and enhance efficiency for faster development.

  • County governments can now have a local long-term and cheaper funding option for their economic activities rather than the current use of commercial banks which is expensive. On the other hand, caution should be applied to ensure that the institution does not take up the commercial banking space therefore set its minimum funding amount for registered enterprises which should be set at say USD 50M equivalent. It can become another lender to local commercial banks seeking long-term funds for venturing into certain sectors of the economy. The bank can become a good enabler through which the government can help shove up SMEs after the COVID-19 period. On this aspect, a policy should be in place to help disburse these funds in partnership with well-identified local commercial banks and SME financiers.

  • This is the answer to our Private Public Partnership enablement for our local entrepreneurs seeking to engage in large government projects that require long-term funding. Local players interested in sectors that have for a long time been neglected by commercial banks such as Agriculture, ICT and even security will thus ride on this to access capital eventually realizing their objectives.

  • Locally Agriculture is the main economic activity but very few commercial banks venture into supporting this area. This is the bank with the muscle that will provide capital to enable commercial farming to become a viable venture. It will support food production on a commercial scale, value addition, and processing for the export market. In the future, once these financially neglected sectors start to thrive an insurance firm specialized to take care of the unique risks (e.g. livestock insurance) associated with the same can be mooted to run alongside the bank.

Now more than ever we urgently need this finance institution in the race towards the realization of vision 2030, for the speedy attainment of upper middle-income country status and realization of our goal of becoming a regional logistic hub. As a country our challenges are numerous but these financial objectives once realized will become one of the key enablers accelerating the BIG FOUR agenda.


In conclusion, as is the usual practice in the banking requirements there is need for the bill to entrench the best international banking practices. There will therefore be the need to create an act that will protect investor funds by building confidence through the application of best international lending practices. This will go on to ensure the institution is focused on the set objectives as stated in the bill, observance of professionalism to avoid conflict of interest as has been the case in the past for the organization being collapsed into this entity. One example is: firms in which government officials, the bank directors, and other bank employees have an interest should not borrow from the institution to ensure sustainability.


I write this because I feel impassioned as a patriot to input my knowledge and experience from having been a worker in the financial services industry. The time has come for us to open the potential of our country as we look beyond our borders.


Kindly proceed with this noble idea as a matter of priority for the good of our country.


For the love of my country. God bless Kenya.


THE BANJAN 2021




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