Banks can seize the moment to become more inclusive

A mobile subscriber withdraws money from an M-Pesa shop. The M-Pesa platform is a demonstration that the low income segments of the population are a valuable asset. PHOTO | FILE 

By KARIM BOOMSMA

The signing of the Banking (Amendment) Bill 2015 into law caught many by surprise and threw the entire financial sector into a spin.

In a statement released immediately after the formal signing ceremony, President Uhuru Kenyatta observed that he had consulted widely before assenting to the Bill and that he had acted in the best interests of the public who were increasingly frustrated by the “insensitivity of the banks.”

The Bill had generated heated debate with some economists and financial institutions dismissing it as bad for the economy.

Some key players including the Central Bank of Kenya and the Treasury counselled against signing the Bill into law. On the extreme end of the divide, the Bill’s proponents hailed it as what Kenya needs to save citizens from the negative economic impacts of high interest rates.

The new law means bank interest rates will now be capped at four per cent above the indicative Central Bank Rate (CBR) currently at 10.5 per cent, a significant difference from the current average lending rate of 18 per cent.

Savers, on the other hand, will be assured of earning 7.35 per cent interest at the minimum on deposits up from the current range of 1.42 percent to four (4) percent.

Law or no law, most people agree that business thrives in an environment where the market dictates pricing with businesses themselves making deliberate efforts to be more inclusive. While the first P (profit) is fundamental, businesses must not forget that sustainability depends on investment in the other 2Ps planet and people.

Banks should therefore treat the new dispensation, unwelcome as it is, not as an inconvenience but as opportunity to be more innovative and build more sustainable and inclusive institutions.

Globally, it is agreed that access to credit is one of the main pillars of economic growth. Sadly, many Kenyans have been locked out of access to credit because they have no collateral or formal jobs. But even where collateral exists, the high interests put credit from financial institutions above the reach of many.

Now that the new law is in place, it is not clear whether it heralds a new dawn of financial inclusivity or not. There have been allegations that the law could lead to capital flight or withdrawal of financial institutions from the poor or from specific segments of the market.

This doesn’t have to be so. Banks can make money in this economy and under this new law by reengineering their approach to the lower end, usually unbanked and under-banked populations.

Despite accusations of greed and insensitivity, I believe the financial sector in Kenya is on the right track. The innovations, particularly on mobile money, have made headlines globally and have brought millions of previously unbanked populations into the fold.

The M-Pesa platform, launched in Kenya in 2007 by mobile service provider, Safaricom, is a demonstration that the low income segments of the population are a valuable asset, not a liability.

With this singular innovation, Kenya rose to the top of the list of African countries with ease of access to financial services, thanks to the high uptake of mobile money.

With an estimated 75 per cent of Kenyans in the banked segment, Kenya is ahead of giants such as South Africa, Nigeria and Ghana.