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Opinion & Analysis

World Bank survey doesn’t benefit all

Jua kali artisan at work in Nairobi. FILE PHOTO | NMG
Jua kali artisan at work in Nairobi. FILE PHOTO | NMG  

Why did Kenya do so well in the just released 2017 World Bank Ease of Doing Business index? If you look at the statistics in the document, you will see that the main reason why our ranking improved is the indicator described as ‘‘getting credit’’.

Indeed, at position 29 out of 190 countries - our ranking on this indicator placed us in the territory of advanced markets.

According to the index, Kenya ranks with the very top when it comes to the ease SMEs are able to access credit.

How did the country end up scoring so highly on this indicator? Two things.

Since the last survey, the government has introduced two key measures. First, was the passing of the movable property law in 2016, and second, the fact that we now have a working credit reference bureau mechanism that enables the sharing of borrowing and default data.

It is patently clear from the statistics in the survey that these two factors are the reason we have been ranked highly on ease of getting credit.
I must confess that I am not a great fan of the World Bank’s Ease of Doing Business index. Its scope is very narrow. In fact, it is a mere annual ranking of regulatory-friendliness.

Countries are ranked high for merely introducing laws and regulations regardless of whether the regulatory-friendliness is making a positive impact on the economy or not.

You will be ranked high even in circumstances where corporate profits are tanking.

And it matters not whether the number of new firms coming up to enjoy the business–friendly laws is growing or shrinking.

Because of the way the survey is structured, we surely deserved to be ranked 29th in the world on the indicator of ‘getting credit’ since the government had introduced a new law on moveable property- and having introduced credit reference bureaus several years ago.

But the truth of the matter is that these laws have not helped ‘Wanjiku’ in accessing credit. If anything, credit to households and SMEs has literally dried up.

Going by recent published accounts of commercial banks, lending to households is at a historically low level.

What is my point? It is that while the sharing of the negative credit information may be important for ranking under the survey, it is not a sign that getting credit has become better for the borrower.

If anything, commercial banks merely use credit information to threaten borrowers. Unlike the situation in well-functioning markets where the credit reference mechanism is used to assess and price risk, in Kenya it is a weapon to bludgeon customers to repay loans immediately or face the threat of being cut off from credit markets.

Clearly, the fact that we have been ranked high on ease of getting credit is of little consequence to Wanjiku.

Another reason why the survey has ranked us high this time round is better performance in an indicator known for ‘‘protecting minority investors’’.

The measures here include: disclosure of related party transactions, ability of minority shareholders to sue directors for misdeed, access to internal corporate documents, shareholder rights, corporate transparency etc.

Clearly, the ranking was given to us in recognition of changes and measures that the government has introduced in the Companies Act.

Still, the fact of the matter is that for SMEs and the vast majority of Kenyans these factors don’t contribute to making the business environment any more favourable. This is because the vast majority of SMEs are not incorporated.

At position 71, we have been given a good ranking in the category of ‘‘getting electricity’’ which basically measures procedures, time, and cost of getting electricity.

In this category, we surely deserved to be ranked high especially in view of new electricity connections Kenya Power has accomplished in the last three years.

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