With the recent advances in the banking and finance sector, the importance of regulatory oversight the keeps pace with the advancements has risen globally. The central banks play a key role in keeping the regulations in the banking sector up to date and the Central Bank of Kenya is making major efforts to tackle the unique challenges the African nation’s banking and finance sector faces.
Recently, the CBK has played a watchdog role to protect consumers from fraud, unfair levies another practices, while preventing unfair competition among banks. Additionally, the CBK has tried to avoid the dominance of the bigger banks over smaller ones as well as to prevent the type of mismanagement that hassled to the collapse of a number of Kenyan banks in the past.
Over the past few years, the country has seen waves of bank failure and collapse. The first wave happened between 1984 and 1989, before the Kenya Banking Act was constituted. Nine banks including Union Bank, Estate Finance Bank, Rural Credit and Finance, and Nationwide Finance, among others, collapsed causing losses of millions of shillings to customers.
While the second wave happened between 1993 and 1995 when 19 more banks collapsed, the third came to the fore in 1998 when six banks, Bullion Bank, Fortune Finance, Trust Bank, City Finance Bank, Prudential Bank and Reliance Bank also collapsed causing customers losses of millions of shillings.
In June 2015, the then Dubai Bank collapsed taking along with it 1.7 billion shillings in customer deposits. On August 14,, 2015 the Kenya Deposit Insurance Corporation (KDIC) took over as its receiver manager through CBK intervention. On August 20, the KDIC was again appointed by CBK as liquidator of the bank. In October of the same year, the Imperial Bank started wobbling and was put under the KDIC management by CBK, placing a cloud of uncertainty over 58 billion shillings of customer deposits.
Corruption is a serious socio-economic challenge in the country, both at national and devolved government’s levels. Cash diverted from socio-economic and other empowerment projects or even from the bank accounts of government institutions have been laundered through other banks and financial institutions. The CBK Governor Peter Njoroge introduced a new rule a few months ago that requires any person depositing or withdrawing more than one million shillings in cash to provide a written explanation or justification with regards to the source of the money and its intended use. This rule, among others, is also intended to prevent money laundering which has become a serious challenge to the financial system in the country.
Kenya happens to be a transit route for drug traffickers and people who deal in game hunting and poaching. Such people often make huge cash transactions and have in the past used banks and financial institutions as a conduit for their payments while escaping scrutiny. The new rule targets such people.
The DTB Bank of Kenya is under scrutiny following its failure to question and stop the withdrawal of millions of shillings from accounts that were linked to people who are also key suspects in the January 15 terror attack at the Dustin Hotel in Nairobi.
Financial fraud has become a bane, especially immobile financial transactions. Today it is common for citizens to receive calls or messages from unscrupulous people who pretend to be agents of the bona fide mobile telephone services providers and seek the personal details of customers including personal identification numbers (PIN) which they later use to pilfer cash from the victims’ accounts. Following the rise of such incidents, the government, the mobile operators, and the banks and financial institutions that offer mobile money services are working together to design rules and regulations that can curb such malpractices.
Unfair competition and the domination of some big banks and financial institutions over small banks have necessitated rules that can ensure fair play. The demand for more consumers’ protection created the need for on-going regulation of the sector. The capping of interest rates at four points above the CBK’s monetary policy committee (MPC) level in 2017, for instance was touted as a measure to stop banks and related financial institutions from charging too high interest rates that could harm consumers. This has, however, proved to be counterproductive with banks and financial institutions preferring to reduce the quantum of consumer loans disbursed while investing in other vehicles that ensure higher returns.
Mismanagement is another issue that can spur further regulation of the sector in 2019.Many Savings and Credit Co-operative Organizations (popularly known as SACCOs and whichhaveattracted14 million investors, especially from the SME and related informal sectors, are currently reported to be facing management challenges. Three SACCOs in the country: Ekeza, Mwalimu Co-operative, and Stima Investment Co-operative are currently under investigation for not meeting their customer needs by providing loans in time or for not facilitating acquisition of properties as stipulated by their original mandate. The issue can only be untangled by bringing clarity to the grey area in the role that the Saccos Societies Regulatory Authority (SASRA) plays at the national level and the role played by Saccos regulatory bodies at the county level, which leaves many Saccos in the counties unregulated.