Monday, May 22, 2006

Bank’s we don’t need

From today’s papers, we have news on two groups applying for licenses to open banks. One is by a group that denies it has any tribal conotations despites it's MEGA name while the other hopes to be offer the Sharia banking services.
The first conjures up memories of dark days of the 1970’s when tribal empowerment groups sent shivers across the rest of the country. The Bank should not be licensed because it does not serve any purpose or group that it not already accessing banking services.

The second has a clearer purpose, and will join Barclays which started a similar service last year, but given the level of paranoia among many Kenyan Christians about anything-Islam, as witnessed during the 2005 referendum, the group efforts might also come up short.

Banking is about inclusiveness (for a fee), not discrimination or controversy - and it is in the best interests of the banking sector if these banks are not licensed.


pesa tu said...

Well i hope the depositors of these banks read history.The last community initiatives in the 1970s left the shareholders broke but the directors rich.
Consider this: any GEMA community leader who headed the land buying co.s and co-ops of the 1970s is/or died rich. But the shareholders of these ventures are still trying to hold AGMs under police guard to recover their funds.

kamujinga said...

I dont agree with you at all, bankelele. If anyone wants to set up a bank, I think we should let them.

On the Mega bank, yes it is tribal. Yes they might end up just serving, or predominantly serving the needs of one community. But what is wrong with that? You and I can go to Barclays if we want, no problem. The only thing I ask is that Mega Bank be properly regulated - they can then set up and serve or not serve anyone they want.

On the Islamic bank, I have even stronger views. They want to set up a bank which does not charge or offer to pay interest, but will be based on transaction fees. It just happens to be an islamic model - but that does not mean they will not serve non-muslims. In fact, the Islamic banks in Malaysia have very large non-muslim clientele bases. It is inclusive, and fee-based.

It is true the Christians may get a bit uneasy. But just because someone gets uneasy, does not preclude anyone else from doing something. Kenya is not a Christian hegemony, where only things that Christians do not find uneasy should happen. Unless I missed something?

Having said all that, there is one point, which you did not raise, which would advocate for no new banks, and that is the fact that Kenya is way overbanked. The capital requirements are way too low. South Africa has 12 banks. TWELVE. In Nigeria, minimum capital requirements are over $100 million equivalent.

So in summary, I think in Kenya we should raise minimum capital requirements. And then license any bank that wants to do business, AND regulate it well.

sassy said...

the Nigerian Central Bank reforms in the April Issue of African Business magazine is an interesting read.The Nigerian Central bank Governor implemented reforms by raising the banks capital requirements. Some banks had to close others had to merge. Others merged but still could not meet the requirements and they too had to close- depositors were refunded. Such reforms brought about change and boosted confidence in Nigerian financial sector.The same should apply to Kenya so as to regulate and avoid problems as pointed out. But as far as community initiated entities are concerned establishing such institution is the responsibility of the Central Bank and depositors who should be wiser by now with examples of trust bank and the rest.

BizKenya said...

I disagree with Kamujinga who says that raising the capital requiermnet is the solution. What we need are strong regulations by the Central bank.
I too disagree with Bankelele who says that these banks should be denied licences, its only up to people to choose where to bank.
if they offer better services than our "all inclusive" banks which are ripping off our savings, why not bank with them as long as the CBK has ken eye on their activities?

kamujinga said...

bizkenya, if we do not raise capital requirements, we will get a plethora of banks mushrooming in a small financial space. You might say that is good for competition, but actually, it isn't. Size matters. A big bank can afford the systems needed to serve well. A small bank can not. In addition, we can not open the door and let competition sort out the ones that survive, because it erodes confidence in the financial system. A bank is not like a kiosk. If a kiosk fails, nobody gets hurt, except the owners. If a bank fails, all the depositors lose, and faith in other banks diminishes.

Mashatall said...

I totally agree with Banks on the MEGA issue, i remember the guys doing the rounds here in the US touting the formation of the bank, and actually offering private placement of shares for interested individuals. They struck me as individuals who were more interested in looking for a finacial vehicle thru which they could mobilise funds to pursue their business interests, and i know for sure that they are not in this for offering better services or products. Also cant stand the tribal grouping and the gloating that comes with it, those tribal grouping days are over and such ideas dont fit in our diversified society. washindwe !!!!

bankelele said...

pesa tu: good point about leader's ill-motives

kamujinga: There are otehr banks serving the community without flaunting tribal tags

sassy: small banks are still under pressure to merge. Minister Kimunya seems to have the muscle lacking with his predecessor and may institute the 500M shilling minimum capital rule in the 2006 budget that has been ignored for years

BizKenya: Serving a niche, while ownwer are scheming and CBK observers are sleeping can be disastrous: Daima, most recent example

kamujinga: good point, failure of one kiosk will not bring down the market, but a bank collapsing is anotehr matter altogether

Mashatall: What else did MEGA promise Kenyans in the states?

Omani said...

I do agree with Sassy and Kamujinga that it is prudent, as the Nigerian Bank did, to raise banks capital requirements. This way there is credibility and security offered to the citizens by these financial institutions.

I however i do agree with Bankelele that MEGA should not get a bank license, it would be popularising the tribalism that is setting us back by having it institutionalised in the form of a bank.

We should burn down such ventures that keep us from working together as a country by constantly reminding us of our differences rather than our similarities.

Kenyan bank products are poorly differentiated and the industry has a rather ancient product focus.A routine exercise is to collect a few of our major banks product sheets and compare.Banks should be as creative to provide their services as others are doing around the world like one of Brazils top private banks

inmumbai said...

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would appreciate if yoy can help me with information on the best banks in kenya in terms of ratinsg and performance. pls also advise me of sites that could help me in my analysis.

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