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Dr. James Mwangi has been at the helm of Equity Group for the last 16 years. Over this period, he has redefined the Group to a purpose-driven organization that seeks to transform lives and livelihoods, giving dignity and expanding opportunities for wealth creation.

Let's start with the theme of this year's banking awards and the survey, which is on responsible banking in a new era. We crafted this theme before Covid-19 came to the picture, what has happened is that the concept of responsible banking has gained a lot more credence now. 

The concept of responsible banking is gaining credence globally. Describe how your bank is engaged in responsible banking.

The concept of responsible banking is gaining credence globally. Describe how your bank is engaged in responsible banking.

Responsible banking has always been an important aspect of the bank’s culture and is not new. However, as the rest of the world becomes more aware and sensitive to the principle of sustainable finance, it is important to note that the bank is taking up green finance to ensure environmental preservation is fulfilled. The bank has partnered with a solar power energy company that will soon be feeding to the main grid.

Are you currently using the ESG (Environmental, Social and Governance) factors to measure your sustainability and the social impact of your business?

Yes. The bank is a responsible and ethical entity that shares in the values enshrined in the Constitution of Kenya and expectations of the citizens through its ESMS policy. To promote a culture of good governance the bank has in place a comprehensive code of conduct which all members of staff are expected to read, sign off and follow every year.

How far are you from fully implementing the Banking Sector Charter?

We have implemented the Banking Sector Charter as required and guided by the regulator. The documents providing information as required by the Charter are all available on our website for our clients and members of the public to access.

How have you responded to your customers banking needs in the wake of the Covid-19 pandemic?

The bank has maintained platforms both internet and mobile banking during the period of lockdown to ensure that clients have access to their accounts and banking services. The bank has also reduced the handling of cash and advised clients to utilize our mobile and internet banking platforms. The bank has also adhered to the COVID-19 Ministry of Health guidelines by ensuring that sanitizer dispensers are available in all areas accessed by clients, social distancing is observed, provided all staff with masks and provision of temperature guns to the security personnel manning the building entrances. Aside from this, the bank has accommodated borrowing clients by giving moratoriums on either interest payment or principal repayment or both where it is required. The bank will continue supporting clients as is necessary as these are challenging times.

How would you describe your performance in 2019? (one word).

Stable

Where did growth come from if any?

Increase lending activities following slight improvement in economic activity in the year 2019.

Overall, how do you rate the quality of your loan portfolio?

Good but expecting a decline in quality following the effects of the Pandemic

What is your average loan size and average loan repayment period?

Average Loan size of 10 million and average loan repayment period of about four years

What is the distribution of your credit portfolio by sector, i.e. agriculture, manufacturing, construction, housing, trade and commerce etc.?

How has the Covid-19 pandemic impacted your performance so far and going forward?

So far there has been a limited impact on the financial performance. We however expect to feel the impact of declining economic activity from the 3rd and 4th quarter of the year. We are aware of many of our clients struggling to meet their obligation to us and we have been actively trying to assist them by restructuring or rescheduling their obligation to us. We have already undertaken a comprehensive business impact analysis and are well placed to whether any unexpected economic shocks as a result of the Covid 19 pandemic.

How would you describe the performance of your bank over the last 10 year?

Over the last 10 years our balance sheet has grown by over 3.5 times in size. A compounded annual growth rate of about 15%.

What does the year 2020 and the next 10 years portend for your bank?

We expect the year 2020 and perhaps also the year 2021 to be challenging largely due to the Covid 19 Pandemic. The year 2022 is an election year in the country so there is likely to be subdued economic activity. We will concentrate on our bank’s stability and consolidation for these three years. Thereafter we expect the bank to return to historical and natural growth trajectory.

The interest rate capping that has had a major impact on the banking sector has finally been scrapped. What does that mean for your bank and the industry?

Scrapping of the interest rate capping law was a positive outcome for the bank and industry. It means that the bank can now consider taking on more risk that is commensurate with the return. However, it is going to take some time to fully operationalize in order to work well for both lenders and borrowers.

How has the removal of the law affected your financial performance so far?

Not significantly as the deposit rates have remained high whilst we have not increased lending rates due to prevailing economic situation for most borrowers. Without a change in the margins, profitability remains at the same level.

Any new investments or advancements in ICT at the bank?

Technology is at the heart of our business and we continue to invest in our infrastructure to ensure that we continue operating safe and secure platforms. We are in discussions with a potential technology partner in order to improve our product offerings to clients. To this end we have:

• Upgraded our mobile banking product to add functionalities and improve user experience.
• Fully connected to Pesalink and I-tax platforms
• Partnering with Little Cabs to support them launch digital wallets.

Does your bank have a mobile money lending platform?

Not yet.

What is the loan uptake from the platform and the overall quality of the loans taken?

Not applicable.

How is Pesalink’s usage as compared to EFT, RTGS and other funds transfer methods?

Uptake of Pesalink was initially slow due to competition from more mature methods of funds transfer which clients were already familiar. However, in the past year we have seen volumes tick up on Pesalink as the platform gains acceptance by clients. In the end, Pesalink’s volumes will grow depending on the value proposition it delivers to clients.

What is the growth trend in the adoption of online and mobile technology in your bank?

It is a good thing that we have invested in both online and mobile technology as clients demand and the competitive environment dictates. Uptake of these is very high among our clients due to the convenience they offer at reasonable cost. Our mobile banking platform is very popular and has been particularly useful during this period of COVID-19.

Any changes on your business model?

No. We have not changed our business model as stipulated in our current 5year Strategic plan which is coming up for review this year. The Board and Management will decide on the new strategic direction to be taken during the review.

How is the scrapping of interest rate cap going to affect your strategy?

The bank does not intend to engage in unsecured lending as competence is in other market segments. Where the bank engages with riskier borrowers, it will be on the basis of risk sharing so that capital exposure is minimized. And such products will be targeting SMEs that are critical for job creation and economic growth.

What is your growth plan, where do you see yourselves in 5 years?

My vision for the next 5 years is to see the bank continue growing with the existing clients, ensuring that the bank remains on a sustainable balance sheet and profitability path as well as safeguarding the interests of its clients and all other stakeholders. Partnerships and collaborations will be critical in our next 5 years growth plans. This will enable the bank to leverage on more resources financially and enhance capacity in areas that it currently has shortcomings in. The bank has been built on a foundation of gradual solid growth yielding a robust and resilient institution able to withstand the shocks of a dynamic operating environment. 

How would you describe our macroeconomic environment currently (globally and locally)?

The current macroeconomic environment both locally and globally are more challenging than we have witnessed before. Economic growth has slowed down considerably impacting both households and businesses. The spread of the COVID-19 pandemic has made a bad situation even worse. The level of uncertainty is like that never experienced in the lifetimes of most people globally.

What do you see as the biggest threats to Kenya’s banking sector?

The banking sector in Kenya is exposed to both local and international threats. Locally, the operating environment is very unpredictable due to ever changing laws and regulations, a slow judicial process, inefficiencies at the land registry, losses due to fraud and other malpractices. Externally, trade wars among the big economies expose the sector to political risks as the banking sector could be a victim of unfavorable trading sanctions depending on the leaning of our government.

What are the next growth drivers in Kenya’s banking sector and why do you think so?

The SMEs and the youth will be the main drivers of growth in Kenya’s banking both as new clients or as existing clients scaling up to take advantage of a favorable economic climate. The government’s Big 4 agenda if implemented properly and devolution will act as catalysts for this potential growth. This is because of the importance of both county and national governments in stimulating growth that benefits the youth and SMEs. It is purely a game of numbers.

     Share capital

No. of branches

No of Agents

No. of employees

No. of ATMs

No of Active Accounts

No of Dormant Accounts

No of Current Accounts

No of Savings Accounts

No of Mortgage Accounts

Bank Profile

1.  Recent developments within the last one year

• ISO 9001 Certified.
• Partnered with Africa Guarantee Fund for SMEs.
• Added Crown Agent Bank UK to our list of corresponding banks
• Formed a Bank Subsidiary PB Capital Ltd to drive alternative investments especially in the ICT and Energy Sectors.

 List of Current Directors (Attached)

Auditors (As at 31st Dec 2019) Deloitte & Touche

The push for banks to do business more responsibly has been a long time coming.

The era of CSR (Corporate Social Responsibility) as the most appropriate way of showing concern for the wellbeing of society is long gone. 

The concept of  ESG (Environmental, Social and Governance) factors, first coined in 2005 – that acknowledged that issues like climate change and human rights, do have an impact on a company’s performance and are therefore important in measuring the sustainability and social impact of an investment – has been revamped by more robust propositions. 

Last year, the UN led an initiative referred to as the Principles for Responsible Banking involving 130 banks in 49 countries that set forth six principle that banks globally are expected to adopt that provide a framework for a globally sustainable banking system. Our own KCB was one of the 30 founding banks of this initiative.  The initiative has 274 financial institution members globally from the banking, insurance and investment sectors.

 “As society’s expectations change, banks must be transparent and clear about how their products and services create value for their customers, clients, investors, as well as society. The Principles for Responsible Banking help any bank – whatever its starting point – to align its business strategy with society’s goals,” the UNEP Finance Initiative, the movers of the project says on their website.

The signatories commit to:

1. Incorporate ESG issues into investment analysis and decision-making processes.

2.              Be active owners and incorporate ESG issues into ownership policies and practices.

3.              Seek appropriate disclosure on ESG issues by the entities in which they invest.

4.              Promote acceptance and implementation of the Principles within the investment industry.

5.              Work together to enhance their effectiveness in implementing the Principles.

6.              Report on their activities and progress towards implementing the Principles.

In 2013, the Kenya Bankers Association led an initiative that put together what they called a Sustainable Financial Initiative that set out principles for sustainable development that would guide Kenya’s banking sector under Vision 2030.  In 2015, the sector adopted the principles and adapted them for an e-learning platform that has been used to train more than 25,000 bankers.

 
Last year, the Central Bank of Kenya issued a Banking Sector Charter (BSC). It became effective from 1st March 2019 and banks were required to submit their implementation plans by 31st May 2019.

“The Charter represents a commitment from institutions in the banking sector to entrench a responsible and disciplined banking sector cognizant of, and responsive to, the unique socio- economic realities of the Kenyan populace,” says the preamble.

It specifically points out that it seeks to address the concerns of the public regarding the high cost of credit and the poor quality of customer service provided to the public by the banks.

The charter highlights four central pillars upon which it is hinged, that represent the vision of the banking sector in Kenya namely: 

1.     Adoption of customer-centric business models by banks;

2.     Risk-based credit pricing; 

3.     Enhanced transparency and information disclosure; 

4.     Entrenching an ethical culture in banks – doing the right thing.

The Banking Sector Charter (BSC) compels banks to use credit scores for pricing risk. No bank in Kenya currently does this and it is likely that it will take several months before it is done.

Responsible banking also dictates that customers should have access to all the necessary information about a bank’s products and services, including the charges, that help them make informed decision. The BSC also commit banks to exercise fairness by ensuring that all products are developed in line with the Risk Management Guideline on Credit Risk Management as well as Prudential Guideline on Consumer Protection. 

They are to highlight  key features like type of product, costs, target clientele, risks, rights and obligations of the parties and legibility and simplicity. These are to be placed on their websites and available in their branches.

To enhance  transparency, all commercial banks are required to upload their respective internal and external fees for all products on the cost of credit website to enable customers make rational financial (product) decisions. Failure to do so, the charter says, will result in administrative sanctions. These measures should help alleviate the information asymmetry in the banking sector, that has completely relegated the consumer to a secondary role.

The charter further acknowledges that banking services and products have become sophisticated, thus there is a need to extend financial literacy programmes to customers in order to ensure proper use of the available banking services and products. Under the charter, banks are therefore required to facilitate technical assistance through appropriate financial literacy programmes to customers in the Micro, Small and Medium Enterprises (MSMEs) sector so as to improve financial knowledge.

As we implement the BSC and entrench responsible banking, we need to ensure that we also deal with the underlying issues afflicting our financial system.

Social media is rife with stories of customers being defrauded by bank employees. There was a recent story on Facebook about a customer of a reputable local bank who went to withdraw...

In 2019, before the advent of the COVID-19 pandemic, the economy was already showing signs of slowdown, despite that, most commercial banks returned good results in the circumstance.

The Principles for Responsible Banking, launched in 2019, were originally developed by UNEP and a core group of 30 banks from around the world to guide banks as they strive to align themselves with the Sustainable Development Goals and the Paris Agreement on Climate Change. The original signatories to these principles acknowledged that only in an inclusive society founded on human dignity, equality and the sustainable use of natural resources can their clients, customers and businesses thrive.

Although Maisha Microfinance Bank is not a signatory to the UN Principles of Responsible Banking, the bank however indirectly contributes to the objectives and targets set out in the SDGs as follows: -

• 
  Our strategy is aligned to address the needs and goals of individuals and society through offering customer/society-driven products and services. We for instance, have in place products that are suitably developed to help boost businesses and in turn assist to boost the customers’ incomes, support job creation, contribute to poverty alleviation as well as contribute to safety nets and reduce inequity.
• We endeavor to work responsibly with our customers to encourage sustainable practices and enable economic activities that create shared prosperity for current and future generations. Our corporate tagline is “PROSPER WITH US”. This is what we seek to achieve with our customers
• To drive the bank’s outreach, we have adopted technology to help reach as many customers as possible in order to have a bigger and cost-effective impact

Being a new concept and also Maisha Microfinance Bank being a young institution, we are studying the concept with a view to determine which aspects of the principles we can customize to our situation.

Are you currently using the ESG (Environmental, Social and Governance) factors to measure your sustainability and the social impact of your business?

Being a nascent financial services player, we have not yet embedded ESG factors in our business approach initially. We hope to adjust our business model in the days ahead as the bank evolves

How far are you from fully implementing the Banking Sector Charter?

In line with the guidelines issued by the Central Bank of Kenya, Maisha Microfinance Bank Board and Management developed a customized banking charter with time-bound plans. The bank is 100% on schedule/target in implementation of the time bound plans. Some of the measures that have been deployed include deployment of a 24/7 customer care center to enhance customer complaints management and recourse mechanisms, expansion of mobile based lending and saving Product-M-Fanisi to other telco networks with an aim of reaching out to more unbanked and underbanked clientele in the society, enhanced credit scoring that allows customers to enjoy higher limits based on their loan repayment patterns. The bank in its business approach also promotes pricing transparency in its dealings with customers. 

How have you responded to your customers banking needs in the wake of the Covid-19 pandemic?

Due to the unprecedented occurrence of COVID 19 pandemic, some of our customers have had their incomes and/or cash flows adversely affected. We have consequently responded to various requests from customers to restructure loans and offered moratoriums on case-by-case basis to affected customers

Secondly, following the government’s directive to implement “STAY AT HOME” social distancing measures, the bank reached out to its customers advising them to transact remotely using the remote banking channels to avoid coming physically to the bank.

How would you describe your performance in 2019? (one word)

Improved

Where did growth come from if any?

In 2019, the bank recorded improved performance supported by, among others, the bank’s recapitalization, growth in deposits, efficiencies achieved through adoption of technology and implementation of cost controls especially loan impairment charges

Just to mention, during the year, the bank’s shareholders recapitalized the bank thus accelerating the bank’s balance sheet growth. The provision for loan impairment dropped from Kshs 60m in 2018 to Kshs 8.8 million in 2019. Deposits grew almost two-fold from Kshs 260 million in 2018 to Kshs 450 million 2019. The bank’s liquidity remained high closing 2019 at 30% liquidity

Overall, how do you rate the quality of your loan portfolio?

• Term loans- High quality
• Mobile loans- Medium

What is your average loan size and average loan repayment period?

• Term loans: kshs 500,000, 18 months
• Mobile loans: 5,000, 1 month

What is the distribution of your credit portfolio by sector, i.e. agriculture, manufacturing, construction, housing, trade and commerce etc.?

How has the Covid-19 pandemic impacted your performance so far and going forward?

It is not a business-as-usual setting for the banks. The bank, like any other locally and globally, has experienced a decline in the rate of loan repayments arising from effects of COVID 19 containment measures implemented. Further, in a response to customer requests, the bank(s) has/have offered moratoriums to customers on their loan repayments. In the short term, this is the experience banks will go through. We expect that when the COVID 19 situation improves and also following various government interventions, the economy will start regaining which in return improves customers’ business capacity to repay their loans. We have noted with the minimal measures put in place by the government, a number of affected customers are able to service their loans.

How would you describe the performance of your bank over the last 10 years?

Maisha Microfinance Bank is a nascent financial services player having been in operation for barely four years. The performance has been remarkable for the short period of operations as we have managed to expand our geographical outreach serving different parts of the country using technology

The bank has over the period in operation witnessed a remarkable growth in customer numbers (from zero customer base at initiation to about 400,000 now), the assets base has grown (to a high of Kshs 1.3 billion within 4 years), the bank has also invested in efficient business model (such as mobile banking and implementation of microfinance banking through the mobile, a unique proposition) and deployment of a lean cost business model

What does the year 2020 and the next 10 years portend for your bank?

Maisha Microfinance Bank aims to be a tier 1 microfinance bank in the next 10 years.

The interest rate capping that has had a major impact on the banking sector has finally been scrapped. What does that mean for your bank and the industry?

Just to clarify, microfinance banks are licensed under Microfinance Act 2006 and thus are not directly affected by the interest rate capping that was implemented on commercial banking sector (licensed under Banking Act Cap 488). The microfinance banking sector however subjects its products and related-pricing to regulatory approvals.

It is important to emphasize that the capping of interest rates is not a good approach as it denies lender the opportunity to price products according to customer risk profile. The even treatment of customers exacerbated by the introduction of IFRS9 accounting model compels the lenders to shy away from lending to customers whom they perceive as highly risky which is not a good thing for the growth of economy

How has the removal of the law affected your financial performance so far?

Not much impactful to the microfinance banking sector.

Any new investments or advancements in ICT at the bank?

Yes: the bank has invested heavily in ICT given its core business model depends heavily on ICT to provide customer-driven products and services. Some of the technological advancements include: -

1. Mobile banking – the bank has deployed a savings and loans solution dubbed “MFANISI” which allows customers to remotely open ordinary savings accounts, open fixed deposit accounts and take micro loans on a 24/7 basis. This product is available to telco subscribers of both Airtel Money and MPESA respectively
2. Enhancements on the bank’s mobile banking platform dubbed “M-DOH”. The bank has enhanced its mobile banking platform (M-DOH) to offer additional services to the customers. The customers who are enrolled on M-DOH are able to transfer funds from one account to another, pay for utility bills (KPLC, Nairobi Water, DSTV, ZUKU and many others), and purchase airtime, C2B and B2C transactions, among others
3. Servers virtualization – This helps the bank to achieve data redundancy and availability using the latest software(s). With this deployment, our aim is to ensure that in case of a disaster, the bank services to customers should not be interrupted. Further, this deployment also helps to reduce on need to deploy multiple physical servers that would ordinarily require physical space.

Does your bank have a mobile money lending platform? What is the loan uptake from the platform and the overall quality of the loans taken?

Yes, Maisha Microfinance Bank has a mobile lending platform dubbed M-fanisi which is available to mobile money subscribers on both Airtel and Safaricom networks . The uptake on the platform is follows:

M-fanisi on Safaricom network: Rolled out the product in February 2020 and so far we have disbursed over Kshs 300M.

M-Fanisi on Airtel network: Rolled out in 2017 and we have disbursed over Kshs 1.5B.

How is Pesalink’s usage as compared to, EFT, RTGS and other funds transfer methods?

We are currently not connected to Pesalink until the bank joins the Kenya Bankers Association later in 2020

What is the growth trend in the adoption of online and mobile technology in your bank?

We have seen an immense growth in customer numbers and generally business growth through our mobile lending and savings platform.

Any changes on your business model?

None. We continue to embrace technology in our business model

How is the scrapping of interest rate cap going to affect your strategy?

Not much impact to our business strategy

What is your growth plan, where do you see yourselves in 5 years?

We aim to be a tier 1 microfinance bank in the next 5 years

How would you describe our macroeconomic environment currently (globally and locally)?  

The macroeconomic environment has recently witnessed COVID 19 pandemic which has presented new unprecedented challenges to the banking sector locally and globally

What do you see as the biggest threats to Kenya’s banking sector?

Firstly, COVID 19 pandemic has presented a huge threat to the banking sector. Because of the pandemic and measures taken to contain the same, the banking sector is likely to be affected by escalating NPLs due to the deteriorating economic situation in the country. Cyber threats is also the other threat facing the banking sector especially during the COVID 19 situation – which requires banks to pay great attention to this.

What are the next growth drivers in Kenya’s banking sector and why do you think so?

One key growth driver will be adoption of technology. Many banks are increasingly appreciating adoption of technology to create efficiencies in their business models as well as to enable their responsiveness to respond to increasing customer demands

In above regard, we see a potential for banks using artificial intelligence, internet of things and big data to help create business efficiencies and growth.

Bank Profile

 Recent developments within the last one year

Rolled out a mobile loans and savings solution (MFANISI) on Safaricom Network in February 2020 which has increased the bank’s outreach to customers. Over 130,000 customers have subscribed and have access to the bank’s savings products and short term loans facilities.

 List of Current Directors

• Dr. Beatrice Sabana- Chairperson
• Mr. Ireneus Gichana-Chief Executive Officer
• Hon. Jared B Kangwana- Non-Executive Director
• Mr. Kamal Shah- Non-Executive Director
• Mr. Nelson Bichanga- Non-Executive Director
• Prof. Alejandro Lago- Non-Executive Director

Auditors (As at 31st Dec 2019)

PWC Kenya

KWFT has embedded and practices Sustainable Banking in its Business Strategy by employing the Triple Bottom Line approach to its financing i.e. People, Planet and Profit. This implies that in all of KWFT’s product offering, there has to be social impact to the customers and their households, conservation of the environment as well as sustainability (profit).

Being a customer centric bank, KWFT adheres to client protection principles at all levels of its operations. KWFT also encourages its customers to get involved in businesses that are environmentally friendly and undertakes free financial training to ensure the funded enterprises remain profitable and sustainable.

To ensure sustainability, KWFT has embraced green and renewable energy products to enable its customers conserve the environment. Some of KWFT offices are fully run on green energy.

KWFT also puts into consideration the environmental impact of its own operations as well as operations carried out by its customers, especially those in construction or manufacturing industries.

KWFT fully complies with statutory environmental regulations and works closely with the government bodies tasked with these regulations.

KWFT also has embraced Partnerships with key like minded Institutions with a view of  attaining financial inclusion and bring banking services closer to the clients

Are you using the ESG (Environmental, Social and Governance) factors to measure your sustainability and the social impact

Yes, in order to ensure sustainability and social impact, KWFT adopted ESG as a standard in that it ensures the total wellbeing of all its stakeholders.

KWFT also has a very competent Board who practice sound Governance Practices. The team is made up of seasoned professionals rich in various fields. Currently the KWFT Board of Directors comprise of 10 Board Members out of which 7 are women giving a 70% women representation. Also various committee are set up within the Board to ensure sound decisions are undertaken on various facets of the business

The Institution has invested in a safe working environment for all its 2,504 staff spread in 241 offices within 45 Kenyan Counties. The Staff have various welfare benefits which include ownership of the Institution as well as a very inclusive medical scheme for the staff and their families. KWFT has strived to provide workplace support for expectant ladies and, thereafter, the lactating mothers for the first six months of the baby’s life. The aim is in improving maternal and infant wellbeing through making the workplace mother and baby friendly. All KWFT branches also have mother’s rooms which provide a comfortable environment for breastfeeding mothers when they visit the branch to carry out banking transactions.

KWFT has been a champion in the Inclusivity and thus has its strategic direction focused to support and empower low and middle income women and their families. The Institution has thus invested in a vast branch network of 241 offices as well as in technology to offer banking services to over 800,000 women clients a majority who are based in the rural areas. Most of these clients are viewed unbankable by conventional banks but KWFT has been able to support them to participate in economic activities sustainably.

The Institution also vets carefully the Partners it does business with to ensure that they have the same ethos as KWFT. In the procurement procedures of the Institution, women are encouraged to participate in tendering, when they have the necessary prerequisites. They are also given opportunities to be suppliers.

To ensure sustainability in its operations, KWFT puts into consideration its impact on the environment. This includes the operations of its partners as well as the businesses supported by its customers. KWFT takes a further step to ensure all its stakeholders comply with the statutory environmental guidelines.

How far are you from fully implementing the banking sector charter?

There are various milestones achieved in fully achieving the implementation of the Banking Charter to ensure customer experience is enhanced at the Institution. KWFT is currently at 50% of the implementation of the Banking Charter

How would you describe your performance for 2019 (One word)

Fair

Where did the growth come from if any?

KWFT rolled out its digital lending platform to its customers early in the year 2018. Due to its convenience, the customers impressively embraced the product, enabling it to grow exponentially within a very short time. In 2019 alone, KWFT was able to disburse a total of Kshs 2,472,336,860 on digital lending only.

Overall, how do you rate the quality of your loan portfolio?

Over the years, KWFT has been operating in a PAR that is less than 10%. By end of 2019, the PAR rose to 17%.

What is your average loan size and average loan repayment period?

Currently, KWFTs average loan size is Kshs 20,709

The Average Repayment Period is 12 months.

What is the distribution of your credit portfolio by sector .i.e. agriculture, manufacturing, construction, housing, trade and commerce etc?

How would you describe the performance of your bank for the past ten years?

Fairly good, considering the dynamism in which the financial sector environment operates in.  

In the past ten years, KWFT has been able to transition from a credit only Microfinance Institution to a fully-fledged Microfinance Bank, regulated by the Central Bank of Kenya.

With the transition, KWFT was able to increase its product offering and be a one stop shop for customers needing a variety of banking products and services eg KWFT customers have been able to benefit from Trade Financing, Forex, Local and International money transfers, Agribusiness products and Personal loans among other competitive products.

KWFT has also been able to register impressive growth in terms of core capital, branch network, infrastructure, customer base, Deposits and Outstanding Loan Balance making the Institution competitive within the banking industry.

What does the year 2020 and the next 10 years portend for your bank?

KWFT is currently pursuing several new strategies to enable it accomplish its Social Mission and reach deeper into rural areas to bring financial inclusion in marginalized areas.

The interest rate capping that has had a major impact on the banking sector has finally been scrapped. What does it mean for your bank and the industry?

For the Industry, it will mean that demand for credit will increase as Small and Medium Enterprises will now have more access to finances from Financial Institutions as Banks will have sufficient margin to compensate for risks. This will still lead to more competition in the Industry

There will be an increase in access to credit for various sectors of the economy which will increase the overall economic growth of the country.

More Banks are increasing their efforts to raise cheap deposits.

Financial Institutions will keep leveraging on technology such as mobile banking to improve efficiency. By doing this, Financial Institutions will save on costs associated with adoption of the traditional approach to Banking.

For KWFT, it will continue with its efforts to continue serving the low and middle income women in rural and marginalized areas with innovative and competitive products with a view to empower and uplift their living standards. It will continue investing in digital platforms to improve efficiency and convenience to the customers.

How has the removal of the law affected your financial performance so far?

So far not much, as the business curve is still very low.

Any new investments or advancements in ICT at the bank?

The major investments in 2019 have been in :

• Biometric System
• Cheque Truncation System to enhance Direct Clearing
• Enhanced Mobile Banking System with direct connectivity to Safaricom
• Digital Lending (M-Loan) and Utility Advance Loan
• E-statements
• Loan Tracking System
• Lease Management System
• Group Digital Platform (Ongoing)

Does your bank have a mobile money lending platform? What is the loan uptake from the platform and the overall quality of the loans taken?

Yes, KWFT has a mobile banking Platform. In 2019, KWFT disbursed a total of Ksh 2,472,336,860 in the platform.

How is Pesalink’s usage as compared to, EFT, RTGS and other funds transfer methods?

KWFT client’s adoption of PesaLink is fairly good. Clients use the channel and enjoy convenience of the real time bank to bank transfers at their own comfort.

What is the growth trend in the adoption of online and mobile technology in your bank?

The growth of usage of mobile banking platform has increased rapidly. This is due to its affordability and convenience enjoyed by the customer.

Any changes on your business model?

No change in the Business Model.

How is the scrapping of interest rate cap going to affect your strategy?

Not much as KWFT will still focus on Micro Clients and seek ways to make products more affordable and accessible to customers by incorporating digital banking.

What is your growth plan, where do you see yourselves in 5 years?

KWFT envisions a 20% growth on a compounded annual basis.

How would you describe our macroeconomic environment currently (globally and locally)?

Various factors in the Macro Environment have adversely affected business decisions on things such as spending, borrowing, and investing.

Thus the Kenyan Economic Growth is expected to slow this year due to adverse effects of
the coronavirus pandemic, locusts invasion which might lead to high levels of inflation, unemployment and lower consumer spend.

What do you see as the biggest threats to Kenya’s banking sector?

• Cyber risks- Clients and staff are exposed to threats such as email fraud, phishing and malware.
• Increase of unregulated digital lenders.
• Government Interventions.

What are the next growth drivers in Kenya’s banking sector and why do you think so?  

Automation and Digitization. Business automation streamlines routine transactions, giving human tellers more time to focus on helping customers with complex needs. With the increasing use of mobile deposits, direct deposits and online banking, many banks find that customer traffic to branch offices is declining.

BOARD OF KWFT DIRECTORS

• Dr. Jaine Mwai
• Zipporah Mogaka
• Mwangi Githaiga – Managing Director
• Dr. Jennifer Riria
• Lily Musinga
• Sharlynne Mbai
• Mercy Kiogora
• Godfrey Kaindoh
• Kariuki Kitabu
• Nancy Mwangi

KWFT EXECUTIVE DIRECTORS

• Mwangi Githaiga- Managing Director
• Nancy Mwangi- Operations Director
• Kariuki Kitabu- Finance & Strategy Director
• Jackline Kerubo – Director Credit Administration
• George Kinyanjui- Director Microfinance
• Kibet Kipkemoi- Director ICT

AUDITORS - As at 31st Dec 2019 – Deloitte and Touche

The concept of responsible banking is gaining credence globally. Describe how your bank is engaged in responsible banking.

As a bank, we have put in place unique framework for ensuring that the bank’s strategy and practices align with United Nation’s responsible banking principles and the global Sustainable Development goals. Islamic banking is inherently and intrinsically founded on responsible banking principles. The bank only invests in businesses that are considered Shariah compliant which locks out sectors like gambling, alcohol, pornography etc. All our financial activities are vetted by the bank’s Board of Directors and the Shariah Supervisory Board to ensure no customer is disadvantaged, a successful governance culture that ensures transparency and accountability. The bank also invests in the community through the Gulf African Bank’s Foundation. The bank, on the basis of humanitarianism, also supports clients in distress through moratoriums amongst other arrangements. We are also the first bank and institution in the country to sign up and champion principle 5 of Women Empowerment Principles (WEPs) successfully committing to adapt gender neutrality in the work place and encouraging other companies to follow suit.

Are you currently using the ESG (Environmental, Social and Governance) factors to measure your sustainability and the social impact of your business?

Yes. These factors are critical in determining the impact we are making as a business through our customer’s enterprises and our community intervention initiatives. Prior to investing in any business, the bank carries out due diligence to determine the risks involved, the environmental and social impact of the enterprise before making a decision. Environmental concerns like impact on climate, social aspects like diversity & human rights and governance all constitute our ESG performance evaluations. This, as well is a key tenet in Islamic finance.

How far are you from fully implementing the Banking Sector Charter?

So far we have implemented almost all items on the banking charter required by the regulator.

How have you responded to your customers banking needs in the wake of the Covid-19 pandemic?

We have restructured deals worth more than Sh9 billion to defer them to a later date. That is just one way through which we have accommodated our customers. Prior approved and undrawn limits are allowed to be drawn and moratorium offered for businesses affected by the pandemic. We are also offering moratoriums on facilities to ease our customer’s cash flow position to meet overheads. The bank is financing businesses that need to bridge their working capital needs and also financing clients whose business have seen a trajectory demand of their product during this time. We have also been appraising clients based on their business turnovers during the pre-covid19 period and the future outlook while offering flexible repayment terms for clients affected by the pandemic amongst numerous other measures

How would you describe your performance in 2019? (one word).

Good

Where did growth come from if any?

Our NFI grew considerably, a payoff following our continued investment in our digital channels. Our FX business also performed considerably well with our trade finance business also recording an upward trajectory.

Overall, how do you rate the quality of your loan portfolio?

Our credit portfolio is healthy. It is underpinned by our prudent risk management framework. We have managed to maintain a low NPL ratio that is within industry levels

What is your average loan size and average loan repayment period?

Our average borrowing sizes vary per sector with the corporate segment averaging Shs120 M, SMEs Ksh 10M and personal consumers Ksh 3M and repayment periods varying per segment and deal as well.

What is the distribution of your credit portfolio by sector, i.e. agriculture, manufacturing, construction, housing, trade and commerce etc.?

We have optimized our credit portfolio along sectors with Trading, real estate, personal consumer, transport and communication, building/construction, manufacturing, energy, tourism/restaurants/hotels and agriculture being our key areas of concentration currently.

How has the Covid-19 pandemic impacted your performance so far and going forward?

We are currently juggling different critical priorities to ensure business continuity as we plan for the future in the face of the current pandemic which has had an impact on our performance. We have had to restructure many deals and deferred payment on some to support our customers. This has definitely affected our income and subsequently performance. However, we are also making sure that we continue lending to the industries that have not been affected adversely currently and going into the future. For example we still have customers who are in the construction sector who have not really been affected by the pandemic and continue meeting our customer’s working capital finance requirements. We are also re-innovating more and ensuring that our digital channels remain open to ensure customers can carry out all their needs from anywhere, at anytime.

How would you describe the performance of your bank over the last 10 years.

Exponential. We have expanded geographically and digitally. Our balance sheet has also remained resilient, recording year on year growth. We have achieved numerous firsts including but not limited to being the first bank to open women only branches, to offer Shariah compliant IPF, first Islamic bank to adopt paperless banking, first bank to launch a Shariah compliant credit card in EA, first Islamic bank to launch infinite banking services amongst numerous other firsts.

What does the year 2020 and the next 10 years portend for your bank?

In 2020, we have been forced to restrategize due to the unprecedented Covid19 pandemic and adapt to the prevailing circumstances. Our focus has been helping our customers to lessen the economic effect of the pandemic on them while still ensuring there is ROI. In the next 10 years, we are looking forwards to making Islamic banking the preferred mode of banking in Kenya. We also have a goal of having attained a strong Tier 1 status during this period, expanding regionally and reaching more customers through our digital channels.

The interest rate capping that has had a major impact on the banking sector has finally been scrapped. What does that mean for your bank and the industry?

The rate cap was repealed in November 2019 after lobbying by sector players. The repeal has led to increased flow of credit to the private sector with credit expansion to banks increasing considerably. This will have a spill over to the overall GDP of the nation. As promised, banks have been very considerate in pricing and have not jacked up prices to make up for perceived ‘lost profits’. As a bank, like other industry players, we are going to lend more to the real economy, especially the SME sector.

How has the removal of the law affected your financial performance so far?

It has had a positive effect on the bank’s performance.

Any new investments or advancements in ICT at the bank?

Yes. We have revamped our internet banking platform GABnet to include more functionalities, making it easy for customers to carry out all their everyday banking needs including but not limited to supplementary account opening, managing internal and external bank transfers, requesting debit and credit cards, payment of employee salaries, making bill payments etc. We have recently rolled out the first Shariah compliant credit card in East Africa and are also venturing into mobile lending.

Does your bank have a mobile money lending platform? What is the loan uptake from the platform and the overall quality of the loans taken?

We are currently venturing into this space.

How is Pesalink’s usage as compared to, EFT, RTGS and other funds transfer methods?

Pesalink is a mobile based platform, as such easy to access for most customers with mobile banking. There has been a growth in the usage of this service amongst this group when compared to EFT and RTGS.

What is the growth trend in the adoption of online and mobile technology in your bank?

We have registered a positive growth in the digital banking space. The trend is expected to grow further as we revamp our platforms and roll out new digital banking solutions.

Any changes on your business model?

We are keen on redefining our customer’s digital experience through mobile and online banking, and increasing our financing portfolio to the agriculture sector

How is the scrapping of interest rate cap going to affect your strategy?

We are going to lend more to the real economy, especially the SME sector.

What is your growth plan, where do you see yourselves in 5 years.

We are looking forwards to making Gulf African Bank a household name in the region and make Islamic banking the preferred mode of banking in Kenya. We also have a goal of having attained a strong Tier 2 status and Tier 1 in 10 years. We are also planning to expand our reach to more counties and in the region while reaching more customers through our digital channels.

How would you describe our macroeconomic environment currently (globally and locally)?

Quasi-stagnant. There is a deep recession – locally and globally- due to the unprecedented Covid19 pandemic. World Bank research indicates that Per capita incomes in most emerging and developing economies will shrink this year. In SSA region for instance, economic activity is on course to contract by 2.8% in 2020. Locally industrial output is low and so is consumption. The contraction in economic activity might slow down, leading to a rebound as more Covid19 containment measures are instituted and economies open up.

What do you see as the biggest threats to Kenya’s banking sector?

Fraud and data breaches that lead to losses are one constant threat that continues to affect the industry. The threat doesn’t have to hit you directly – when one of your vendors is hit, you are also affected as a bank. Banks have also found themselves having to continuously re-innovate as new lending sources emerge. Instances of economic stagnation, which are often unpredictable e.g. the case of Covid19 also affects most bank’s ability to earn. Political risk and uncertainty usually have real consequences on most institutions, the banking industry included.

What are the next growth drivers in Kenya’s banking sector and why do you think so?

As the technological landscape continues to change, banks will have to fuse different technologies into singular platforms that meet customer needs on the go. Continued investments and innovations in the risk sector will be critical in guaranteeing customer’s of the security of their confidential information and money as cyber security risks evolve. The tipping point will come in the form of harnessing artificial intelligence to create customers more personalized financial solutions.

The concept of responsible banking is gaining credence globally. Describe how your bank is engaged in responsible banking.

The bank uses the SDGs and other relevant national, regional or international including regulatory frameworks to identify assess and be transparent on significant (potential) positive and negative impact resulting from the bank’s capital allocation decisions and its provision of our products and services.

The bank undertakes forward-looking assessments of sustainability-related risks and opportunities at transaction, portfolio and strategic level and manage and mitigate significant risks.

The bank adheres to international standards and guidelines when it comes to financial reporting through the adoption of IFRS 9 and 16. The bank complies to the requirements of anti-money laundering, upholds all CBK regulation requirements as well as the MFI banking.

We are responsible to our Customers:

By treating them fairly, equipping them with financial skills to ensure they make sound financial decisions and also by tailor making our products to suit their needs. A good example is the Faulu Maisha Account. A one of a kind account that allows our Customers to earn a 5% interest to balances above Kshs.3000 and offers Insurance Benefits such as medical cover, last expense cover and Personal Accident cover.

We Invest Responsibly:

By ensuring our investments, work practices and buildings are geared towards both direct and indirect positive impact to the environment.

Responsible to our Employees:

We ensure we treat our employees’ fairy, meeting their needs as our internal customers and community members, and giving them an opportunity to give back to the society.

We are responsible to our communities:

We work with our community and other partners to build a better world and contribute to Education, skills development and local Economic development. One of the main Pillars in the bank is “Maiwaidha” Swahili word meaning advice in which the bank is dedicated in offering financial education to the community at large. This ensures the customers are in a position to make informed decisions as they enjoy a wide range of financial services.

Faulu engages in responsible banking by upholding the below six principles which are:

1. Alignment to the SDGs and Regulatory frameworks of similar nature with the focus of our efforts where we have the most significant impact (BOP)
2. Impact - Faulu has come up with products promoting financial inclusion, access to affordable protection products priced in accordance with the risks at hand to uphold a win – win situation for the bank and the customer.
3. Clients and customers- Faulu seeks to incorporate most of the feedback given by customers and ensure we uphold our key mantra which is to Champion the Customer by co creating sustainable financial initiatives for current and future generations.
4. Stakeholders. - The bank has identified and mapped out our key stakeholders with the aim of creating partnerships that enable the bank to deliver more in such ecosystems. Faulu holds regular customer engagement forums and Focus group discussions to continuously discuss its products and services in order to remain relevant to the needs of the customer in consultation with our regulator CBK.
5. Governance and Target setting- The bank has established policies and management systems and controls to ensure that sustainability objectives and targets are integrated into all decision-making processes across the bank.
6. Transparency and Accountability-The bank demonstrates the commitment to be transparent on and accountable for the significant positive and negative impact and contribution to the society’s goals. The bank also provides information on the implementation of the Principles for Responsible Banking in our public reporting.

Are you currently using the ESG (Environmental, Social and Governance) factors to measure your sustainability and the social impact of your business?

The bank actively participates in Sustainable Finance Initiative promoted by KBA for all the membership which comprise Faulu Microfinance Bank. Kenya banking industry has adopted the Sustainable Finance Initiative (SFI) Guiding Principles that will guide in balancing their business goals with the economy's development priorities and socio-environmental concerns. The banking industry, through their umbrella body the Kenya Bankers Association (KBA), adopted the Principles on March 31st 2015. The ESG framework is congruent to SFI principle 3 as shown below.

Principle 3: Managing & Mitigating Associated Risks.

Economic development is intertwined with social, humanitarian and environmental concerns; therefore financiers are materially affected by these concerns despite the fact that these risks may be perceived as indirect or secondary. The Guiding Principle is that firms should seek to mitigate social and environmental risks associated with their financing activities through client engagement and effective policies and risk assessment procedures; and in addition, firms should actively measure and report on the financial impact of these risks on their business performance.

With reference to the Environmental criteria the bank is advocating for digitization of processes with the aim of cutting down on paper heavy processes. The bank further does not fund activities with negative ramifications to the environment. The same is enshrined within a policy framework.

Social criteria is demonstrated on the bank’s core values which is shared with the wider Old Mutual Group. The Old Mutual Foundation advocates to positively impact all the communities we serve. A percentage of all our profits funds the Corporate Social Investment initiatives across the pillars of Environment, Financial Education and Health.

How far are you from fully implementing the Banking Sector Charter?

The Bank submitted to CBK a time bound implementation plan which was approved at Board level in line with the regulatory requirements mid last year and continues to submit to CBK on a quarterly basis a progress report on the implementation of the specific requirements of the Charter. The implementation rate is currently at 41% with the remaining items being tracked in line with the deadlines that had been provided to the regulator.

The following are the items that have been implemented so far. Under the (1st) first principle below is the progress achieved;

• The Bank developed its inaugural Key Facts Document (KFD) which is currently available in the Bank’s website for access by clients.
• The Bank has placed abridged versions of the salient features of products via product brochures and pamphlets in its places of businesses including outlets, marketing offices, agents, headquarters and branches.
• The Bank has revamped its Customer Experience Program by launched its Customer Service Charter, improving capacity as well as enhancing its automation capabilities. Staff up skilling has also been ongoing.
• Instituting an in-house staff education program on customer experiencem

Under the 4th (fourth) principle which is Financial Access

• Customer Centric Product Development Progress
• The Bank’s product development process includes the following pillars;
• Research embedded development & review process to incorporate market driven requirements
• Team based iterative development process to harness key skills in the Bank
• Strategic aligned process to ensure market alignment and dynamism

How would you describe your performance in 2019? (one word).

Spectacular

Where did growth come from if any?

The bank’s Profit before tax grew by 68% from Ksh 287Mn in 2018 to Ksh 482Mn due to growth of the loan book resulting to increase in interest income.The total assets grew by 9% from Ksh 27.2Bn in 2018 to Ksh 29.7Bn in 2019 attributed to increase in outstanding loan balances and total liabilities . The Customer deposits increased by 8% from Ksh 18.5Bn in 2018 to 20.1Bn in 2019 due to increased deposit mobilization initiatives

Overall, how do you rate the quality of your loan portfolio?

We are not where we projected to be however, there was an improvement in the non-performing loans from the year 2018. The bank is optimistic that there is a better future in improving the quality of our loan book.

What is your average loan size and average loan repayment period?

Average Loan size 414,170 and Average term- 47 Months

What is the distribution of your credit portfolio by sector, i.e. agriculture, manufacturing, construction, housing, trade and commerce etc.?

The credit portfolio is largely pegged on Households/Personal sector at about 72%. The rest of the segments include Trade (17.4%), Transport and communication (5%), Real Estate (2.9%) and Agriculture (0.01%)

How would you describe the performance of your bank over the last 10 years.

Progressive

What does the year 2020 and the next 10 years portend for your bank?

Given the positive growth trajectory that the bank has had over the past 4 years,the bank is working on sustaining and improving the positive growth in all KPIs. This will enable the bank to attain its ambition of becoming a leading MSME bank and Bancassurance Champion by the year 2025.

The interest rate capping that has had a major impact on the banking sector has finally been scrapped. What does that mean for your bank and the industry?

This means that banks will be able to price risks on loans (credit facilities) hence increase access of loans to the private sector as opposed to previously where banks will shy away from ‘risky’ borrowers

How has the removal of the law affected your financial performance so far?

It will be premature to clearly state the impact of lifting the rate cap to banks for now however, the private sector loan growth continues to improve as banks access credit to the MSMEs

Any new investments or advancements in ICT at the bank?

1. Security- In order to curb cyber security, the bank has invested in Network Security Enhancement solutions to improve our control environment. Amongst the solutions deployed is the IMSI solution by Safaricom and Check point
2. Enhancing the business- Upgrade of the bank’s mobile banking solution offering on both USSD and an application supporting credit scoring and digital lending. The enhancements support service delivery via Agency banking, Real Time Settlement (RTS) for customers with paybills/Till numbers and settlement accounts with the bank.
3. Support of continuous business improvement- Automation of customer feedback through a Net Promoter Score tool and embedding the ratings to service delivery to improve customer experience.

Does your bank have a mobile money lending platform? Yes, Faulu Chap Chap loan for Faulu Community Banking customers.

What is the loan uptake from the platform and the overall quality of the loans taken?

This percentage is the effective repayment rate of the Faulu Chap Chap loan. However, the bank is working on a mobile app that will enable the bank have credit scoring capabilities.

Digital field agent to identify where officers to manage targets and tell the location of the group officer which will work to improve the Community banking business and improve the performance of the Chap chap loan.

How is Pesalink’s usage as compared to, EFT, RTGS and other funds transfer methods?

We are in the process of joining Pesa Link

What is the growth trend in the adoption of online and mobile technology in your bank?

The growth has been on upward trajectory with an average 60% month on month.

Any changes on your business model?

Faulu’s strategy remains that of becoming bank of choice for MSMEs. Faulu customer centric business model is developed to be driven by innovation, digital and responsible banking. Based on current environmental and micro economic factors, the bank will majorly increase its concentration on technology and digital enablement to serve, attract and maintain customers. Shared distribution will also contribute greatly to the banks customer service offering points.

How is the scrapping of interest rate cap going to affect your strategy?

The bank shall continue to work towards digitizing its processes

What is your growth plan, where do you see yourselves in 5 years.

We plan to transform into a tier one bank with a long-term goal of becoming a tier one bank.

How would you describe our macroeconomic environment currently (globally and locally)?

With the Covid-19 pandemic, where majority of the countries in the world have suspended activities that involve masses including learning, travelling, meetings and gathering, there will be reduced business including major reduction in leading as business slow down, reduction in deposits as customers will divert the excess cash in catering for necessities. Panic purchases will also affect customers who may stock up too much holding cash that they may have availed for savings. In addition, locally the agriculture sector which is the backbone of the*aim of the country has been affected by the locust infestation reducing production resulting to high cost in food products.

What do you see as the biggest threats to Kenya’s banking sector?

• Reduction in transaction income as financial institution see lower flow in banking halls and reduce transaction charges to customer as the bank encourage for digital transactions. 
• High non-performing loans due to hard economic times
• Reduced lending – caution resulting from impact of economic slowdown on business
• Deposit flight as customers look for better investment avenues to reduce on risk

What are the next growth drivers in Kenya’s banking sector and why do you think so?

Technological innovations will be foremost among the drivers of growth in the industry given the changing customer preferences. Customers’ expectations are evolving when it comes to products and services consumptions which are largely driven by technology. These expectations will continuously force banks to be innovative and serve customers efficiently and conveniently as they grow their revenues.

Data driven insights informing decision making and leveraging AI and machine learning are indeed capabilities that will drive competitiveness and customer experience in the industry

Enhanced business models due to digitization of manual processes will impact both service to customers and operating costs

 Recent developments within the last one year

• Launch of a new Bancassurance Rensoft system
• Automation of customer feedback through an automated Net Promoter Score tool
• Launch of a new customer experience curriculum training

 List of Current Directors (by Dec 2019)

• Chancellor Dr. Peter W. Muthoka D.ML.MA(Ed), BA(Hons), EBS,MBS,FKIB,FKIM,DID
• Mr. George A. Adam
• COMNR. Peter Gachuba
• HON.DR.Catherine N. Kimura, LL.M, FCPSK
• MR. Joshua Muiru
• Ms. Sophia A. Mukoba
• Mr. Peter Mogan
• Ms. Nkirote Njiru
• Mr. Apollo Njoroge
• Mr. Andre Keller

Auditors (As at 31st Dec 2019)

Deloitte and Touche

The push for banks to do business more and more responsibly has been a long time coming.

It is no longer just about CSR (Corporate Social Responsibility). The concept of ESG (Environmental, Social and Governance) factors in measuring the sustainability and social impact of investment was first coined in 2005.

Then last year, the UN led an initiative involving 130 banks in 49 countries that set forth six principle that banks globally are expected to adopt that provide a framework for a globally sustainable banking system with the objective of helping banks to demonstrate how they make positive contributions to society. Our own KCB was one of the 30 founding banks of this initiative.

“ As society’s expectations change, banks must be transparent and clear about how their products and services create value for their customers, clients, investors, as well as society. The Principles for Responsible Banking help any bank – whatever its starting point – to align its business strategy with society’s goals,” the UNEP Finance Initiative, the movers of the project says on their website.

In 2013, the Kenya Bankers Association led an initiative that put together what they called a Sustainable Financial Initiative that set out principles for sustainable development that would guide Kenya’s banking sector under Vision 2030. In 2015, the sector adopted the principles and adapted them for an e-learning platform that has been used to train more than 25,000 bankers.

Last year, the Central Bank of Kenya issued a Banking Sector Charter (BSC). It became effective from 1st March 2019 and banks were required to submit their implementation plans by 31st May 2019.

“The Charter represents a commitment from institutions in the banking sector to entrench a responsible and disciplined banking sector cognizant of, and responsive to, the unique socio- economic realities of the Kenyan populace,” says the preamble.

It points out that it seeks to address the concerns of the public regarding the high cost of credit and the poor quality of customer service provided to the public by the banks.

The charter highlight 4 central pillars upon which it is hinged, that represent the vision of the banking sector in Kenya namely:

Adoption of customer-centric business models by banks;

Risk-based credit pricing;

Enhanced transparency and information disclosure;

Entrenching an ethical culture in banks – doing the right thing.

Even now that the Banking Sector Charter (BSC) compels banks to use credit scores for pricing risk, there is still no enforcement.

 
Responsible banking dictates that customers should have access to all the necessary information about a banks products and services, including the charges, that help them make informed decision. The BSC also commit banks to exercise fairness by ensuring that all products are developed in line with the Risk Management Guideline on Credit Risk Management as well as Prudential Guideline on Consumer Protection. They are to highlight key features like type of product, costs, target clientele, risks, rights and obligations of the parties and legibility and simplicity. These are to be placed on their websites and available in their branches.

To enhance transparency, all commercial banks are required to upload their respective internal and external fees for all products on the cost of credit website to enable customers make rational financial (product) decisions. Failure to do so will result in administrative sanctions. These measures should help alleviate the information asymmetry in the banking sector, that has completely relegated the consumer to a price taker.

The charter acknowledge that banking services and products have become sophisticated, thus there is a need to extend financial literacy programmes to customers in order to ensure proper use of the available banking services and products. Under the charter, banks are therefore required to facilitate technical assistance through appropriate financial literacy programmes to customers in the Micro, Small and Medium Enterprises (MSMEs) sector so as to improve financial knowledge.

But as we highlight these land mark achievements, we need to access if we are stretching ourselves too far before we deal with the underlying issues afflicting our own banking system in Kenya in as far as responsible banking is concerned.

Social media is rife with stories of customers being defrauded by bank employees. There was a recent story on face book of a customer of a reputable bank who went to withdraw US$5,000 only to discover when he got home that he had instead been given 50 notes of US$1 denominations amounting to US$50. I have also seen several stories of people who were defrauded on the numerous digital payment platforms and their banks became ambivalent as to whether the customers we telling the truth or not.

When such cases are reported to the banks, more often than not they are ignored. The BSC now has guidance on complaint handling. Banks must acknowledge complaints received from customers with in 48 hours and resolve them within 7 days. If not resolved in 7 days, then the customer must get a progress update every seven days.

It is a new era where technology is a sine-qua-non of banking.

Granted there is a steep learning curve especially for the customers but some of the incidents we are witnessing reek of negligence on the part of the banks. Why for example can’t a bank be responsible enough to ensure that the CCTV cameras capturing tellers as they serve their customers are working properly. Many banks absolve themselves from blame whenever a customer looses money on the digital platforms claiming the customer must have given their password to the fraudsters and the story ends at that.

I have an account in one bank where whenever a substaintial amount of money is deposited, I start receiving calls from fraudsters claiming to be calling from the bank regarding a problem with my password or ID. How do these fraudsters know that I have deposited money?

Lest we forget, the major reason for the enactment of the interest capping law in Kenya in 2012 was the greed exhibited by a majority of Kenyan banks that saw them hike rates to unpalatable levels. While banks competed on who would report the highest profit growth many Kenyans were left reeling under the weight of their debt burdens. Many businesses closed and bad loans in the banking sector soared.

Perhaps I should ask; Why are Kenyan banks still not charging their customers rates based on their risk profile? The initial purpose of Credit Information Sharing (CIS) for banks, that commenced in 2010 was to improve collections. Because customers fear being listed, they are more amenable to honoring their payment obligation on time. Indeed this has helped improve collections for banks

But what has it done for customers? Kenyan banks have been providing full file information on their borrowing customers to the credit bureaus for four years now so there is enough data to tack customer risk profiles but the sector has not moved on the use this information to price customer loans based on their risk profiles. In fact bureaus now provide banks with a PPI (Payment Performance Index) score. The banks however prefer to solely look at whether one is listed or not when appraising loan applications.

The Central Bank of Kenya, the regulator, previously argued that the rating system in Kenya is not yet mature, but that was four years ago.

The repeal of the three year law capping interest rate in November last year, came as a big relief to the banking sector and the economy as a whole. However, it is imperative that we ensure we never go back there.

The central bank has been quite categorical on banks keeping interest rates low, in fact, threatening to whip any bank that increases its rates. When one bank attempted to do so soon after the capping was removed, it was prevailed upon to rescind the move barely hours after. In short, while interest rates are no longer capped in Kenya, the big man is not using moral suasion, he walking around with a stick looking out for whoever seeks to raise this ugly head.

Our theme for this year is Responsible Banking in a New Era. This is something that is gaining currency of all over the world. Even in Kenya last year, the Central Bank came up with a Banking Charter, focused on responsible banking, that all banks are expected to adhere to.

Banking is the backbone of any country's economy, so such an important segment has to have a responsibility towards the community, country, and economy. Bank of Baroda has a global presence, we are present in more than 20 countries. 

Social media is rife with stories of customers being defrauded by bank employees. There was a recent story on Facebook about a customer of a reputable local bank who went to withdraw US$5,000 only to discover when he got home that he had instead been given 50 notes of US$1 denominations each, amounting to US$50 in value

The push for banks to do business more responsibly has been a long time coming.

The emergence of the novel coronavirus pandemic (COVID-19) has brought to the fore some very positive aspects of the banking industry in Kenya with regard to the concept and practice of responsible banking.

CBK Governor Dr. Patrick Njoroge, yesterday told the Parliamentary Departmental Committee on Finance and National Planning that it is impossible to change the amount that bank customers can deposit or withdraw from a bank because of the serious repercussions it would have on Kenya’s financial system.

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