CBK chief should use last term to make financial sector impact lives

The Standard  Central Bank Governor Patrick Njoroge’s first four years in office have earned him respect and reverence. His performance has eclipsed earlier doubts that being a man without a fat bank account and family, he did not have enough stake in the economy. When he settled down to business, the Yale University educated economist put the fear of God in the banks such that if you sit down with bankers today, they will most likely tell you how Dr Njoroge has driven the industry hard when it comes to compliance, promising fire and brimstone for non-compliance. He has been able to put in check political interference and created more independence for CBK; something that was rare in the past when the Executive could not draw the line. In the four years that the 57-year-old has been at CBK, he has managed to keep the shilling below a high of 107 units against the dollar last seen in October 2011 that gave shade to his predecessor - Prof Njuguna Ndungu’s career. His currency stability has essentially allowed the Government to continue borrowing without exposure to currency risk and has earned him applause from President Uhuru Kenyatta. Njoroge has also been able to change the image on the currency, albeit while fighting court battles, sparked by differences of opinion on what images the bank notes should bear. The governor has also kept inflation in check relatively - and with the help of government subsidies, managed to rope inflation down when it slipped to 11.7 per cent in May following a drought. While three banks – Imperial Bank, Chase Bank, and Dubai Bank – have faced closure since he took over, he has tried to salvage the situation, at times to the chagrin of some stakeholders. While there has been hope, especially for the depositors, nothing much has been done about the people who brought these banks down. This is perhaps where Dr Njoroge should spend most of his time, having had enough time to collect forensics of who really brought down the three lenders. It is during his time that a law capping interest rates on loans was passed. It was assumed that low rates would enable businesses and generally Kenyans easy access to credit. This has not however been the case, with banks opting to lend to the Government and starving businesses of loans. While Njoroge is firmly against the rate cap, he is yet to convince Kenyans that without the rate cap, banks will be disciplined enough to charge rates fairly, and that they would not revert to their rogue behaviour. The industry views local businesses as risky and can only access credit on punitive terms such as high interest rates or when backed by collateral. Banks have starved them of credit, and this is becoming a clear strain with many unable to finance their growth Here, Njoroge should enforce the Banking Charter for there to be meaningful risk-based lending, disciplined credit reference bureaus and fair pricing of loans. Another area that the Central Bank is yet to wrap its head around is mobile lending. This industry has exploded during Njoroge’s time and while regulating the mobile loan applications, a number of them based elsewhere, could be said to be in the purview of other regulators such as the Communications Authority of Kenya given their heavy reliance on technology. CBK should have as much say as it did when M-Pesa was rolling out. The mobile lenders have straddled many Kenyans into debts they cannot service owing to high interest rate regimes. While they are serving a need especially among Kenyans neglected by the mainstream financial institutions, their rates are exploitative and their target market is people who are already at the bottom. The governor himself has termed them predatory lenders and called for stricter controls. Question is, who else would institute these controls if it is not CBK in conjunction with other government agencies?