President William Ruto (seated, right), and his deputy Rigathi Gachagua with corporate chiefs at the NSE on October 11, 2022. PHOTO | DIANA NGILA | NMG
The new administration has in the past few weeks outlined its big plans for Kenya’s financial services sector and acknowledged the positive role that the industry can play in driving the government’s agenda to create wealth, cement Kenya’s position as the region’s foremost financial and technological hub and help millions of ordinary citizens overcome pressing economic challenges and achieve prosperity.
It is a bold vision that President William Ruto has tirelessly articulated in a series of ongoing engagements with stakeholders in the financial industry and private sector, including at the recent launch of the Enhanced Nairobi Securities Exchange (NSE )Marketplace.
Recognising the NSE’s potential to act as an agent of wealth creation and social transformation, Dr Ruto called for the accelerated listing of successful State-owned enterprises to cure the initial public offering drought on the bourse. The target is to have six to 10 parastatals trading on the exchange within the next 12 months.
Unlisted companies in the private sector have also been asked to match the government’s zeal and explore the exchange as an avenue to raise affordable financing. Dr Ruto has been clear that he will favour innovation in the markets, for example, championing the idea of introducing dollar-denominated bonds in local markets to finance government projects.
Dollar-denominated domestic bonds will not only cut dependence on foreign debt, but also deploy the billions of idle dollars held in local bank accounts into government projects that have direct linkages with the real economy and can positively touch millions of lives across the country in an immediate and impactful way. A government-financed project, whether it is infrastructure like roads or a port, or its social goods like education and healthcare, can put money in the pockets of citizens and transform lives for communities – idle billions in the bank cannot have the same impact. Domestic dollar-denominated bonds could, therefore, prove to be a game-changer.
The new administration has a bold and promising vision for the financial sector. As with all great plans, success will be determined by the quality of implementation. If they can execute their plan successfully, the government will not only usher in a long-awaited financial and economic renaissance, but they will also transform communities and lives at a pace and scale not seen before.
In addition to strong execution of its plan, the government also needs to take a strategic approach to address the underlying issues holding back Kenya’s financial sector from reaching its full potential.
One of the main reasons why financial markets have not been as vibrant in Kenya as they should is because of the poor savings culture. Kenya’s savings as a percentage of gross domestic product was reported at 12.37 percent in 2021 by the World Bank. This is way below Africa’s average of 17 percent. Uganda and Tanzania have crossed the 20 percent mark.
Several factors contribute to Kenya’s low savings rate. The notorious one is households’ overreliance on unsecured digital loans. We have a situation where many are channelling most of their earnings to mobile loan repayments and having little left for savings and investments.
It’s encouraging that Safaricom, NCBA Bank and KCB Bank, the leading players in the digital mobile lending sector, recently committed to reducing fees and giving penalised borrowers reprieve in a move engineered by President Ruto.
Dr Ruto has also asked that we start using borrowers’ credit history with Credit Reference Bureaus (CRBs) to reward those who pay on time. This is long overdue. CRB is not only for blacklisted borrowers. Those who show discipline and religiously repay on time ought to be able to access more capital at better terms. That is how it is in every advanced economy and how it should be in Kenya.
Poor financial literacy is also another leading cause of low savings. Financial literacy is still a huge gap when you consider a significant number of Kenyans don’t have basic money management skills like budgeting, reviewing their financial statements, saving, investing, and buying the right kind of insurance for their businesses, property and lives.
American founding father Benjamin Franklin is credited with the quote: “An investment in knowledge pays the best interest” When people think about investments, they usually think about getting the best interest return on their money. However, in the long-term getting the right information and building the right habits makes all the difference. That is why we need to champion financial literacy across the nation, something the NSE has done through different outreach programs to schools and institutions of higher learning.
In the long-term, we also need to look at the role the financial services sector can play in transforming rural economies where agriculture is the main economic activity.
Mr Kittony is the Chairman of the Nairobi Securities Exchange. [email protected]