Supervisory unit to monitor State-owned lenders

The government is set to establish a supervisory unit similar to that of the Central Bank of Kenya for State-owned development lenders.

The move will see the operations of lenders like the Agricultural Finance Corporation (AFC), Kenya Industrial Estates (KIE), Kenya Tourist Development Corporation, Industrial and Commercial Development Corporation and IDB Capital monitored closely by the supervisory unit.

The unit will approve the lenders charges, directors, executives, external auditors and their products.

It will also ensure that the financiers meet a prescribed liquidity levels and capital rations in line with what CBK does for the banking industry.

Presently, the operations of these companies are monitored by the Auditor General and the State Corporation Advisory council (SCAC)—a move that has led to the near collapse of some of the lenders like AFC on high non-performing loans. “We will develop a robust legal framework for the supervision of development finance institutions,” Finance minister Njeru Githae told Parliament when he presented the national budget statement on Thursday.

The minister said that a new Development Finance Institutions Bill is currently being developed to facilitate reforms in the sub-sector.

The move is aimed boosting the lending capacity of the State-owned financiers, reduce their reliance on Treasury and ensure they hold a healthy loan book.

In the past, these institutions have been used by politicians and senior government officials to lend to their companies and their cronies that almost led to the collapse of AFC and KIE in the 1990s on mounting non-performing loans.

In 2010, the government was forced to write off Sh6 billion worth of debt owed to the AFC by farmers.

Reports by the auditor general show that these institutions lack adequate funds and suffer high defaults.

The deputy chairman of AFC Joshua Choge reckons that political interference is emerging as the biggest threat to the growth of the corporation, adding that the lender is finding its difficult to recover millions of shillings lent to farmers

“We are finding it difficult to recover the money running into billions of shillings loaned to farmers due to constant political interference from some politicians who are approached by the defaulters to assist them in stopping the recovery process,” said Mr Choge in earlier interview with the Business Daily.

The quest to have a supervisory unit for development finance institution is part of a series of interventions geared at strengthening the monitoring of the operations of lenders.

This includes the establishment of a single supervisory body to watch over the financial sector and will bring together the Capital Markets Authority, Insurance Regulatory Authority and the Retirement Benefits Authority.