Kenya: Vibrant Banking Can Spur Value Creation

21 October 2019

The banking industry plays a catalytic role in the growth and development of an economy.

For this reason, a robust and efficient financial services sector creates a macro-economic environment that facilitates growth and creation of value across all sectors.

The economy has recorded growth in recent years with the industry's role of facilitating sustainable development through affordable finance being central.

The industry's 2019-2023 Strategic Plan seeks to deepen financial inclusion.

Kenyan banks work with various stakeholders in the public and private sectors, aligning their operational models to better support the national development agenda.

Beyond providing financial services, banks have made great efforts to support the economy through various corporate social responsibility (CSR) initiatives.

The "Banking Industry Shared Value Report 2019" indicates that commercial banks spent Sh2.1 billion in 2018 towards CSR and a cumulative Sh6.7 billion over the past three years.

VULNERABLE GROUPS

Direct support by the industry of various initiatives was realised through marketing and sponsorships to social causes amounting to Sh1.7 billion.

Banks' tax payments have increased exponentially. In the 2017/2018 financial year, they remitted more than Sh73 billion to the Kenya Revenue Authority (KRA).

Over the same period, commercial banks spent Sh39 billion creating employment opportunities.

Meanwhile, banks lent a total of Sh2.53 trillion to the various sectors of the economy as at September 2018.

Despite that, much remains to be done to reduce the barriers to finance for vulnerable groups in the society, including women, youth and persons with disabilities.

It is encouraging to see the creative approaches banks have adopted in recent years to knock them down.

As the banking sector's umbrella body, Kenya Bankers Association (KBA) has championed sector-wide initiatives.

GREEN BOND

Recently, the SFI programme marked a milestone with the launch of a green bond, a regional first, a product of the Green Bonds Programme initiated by the industry.

Kenya's Green Economy Strategy and Implementation Plan identifies green bonds as a tool to make the country a low-carbon economy.

The global movement saw up to $167 billion worth of green bond issuances last year alone.

These milestones would not have been possible without a stable and resilient banking industry.

Besides creating more jobs and providing a revenue stream for the government through taxes, a vibrant and profitable banking industry will, undoubtedly, create more value for the country through initiatives geared towards public goods in education, environment and health.

INTEREST RATES

In recent years, the biggest headwind met by banks has been the Banking (Amendment) Act 2016, which introduced interest rate controls, whose unintended consequences are a downward trend in credit to the private sector in 2016-2018.

It is encouraging that the government and regulators are in discussions to review the Act in favour of a system that delivers the most value for all stakeholders.

Replacing the cap with risk-based lending frameworks will not only create room for greater financial inclusion, but also facilitate the industry to make a greater contribution to the economy.

Dr Olaka is the CEO of Kenya Bankers Association. [email protected]

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