Kenyan businesses received most funding from Indian banks among low income African countries in the past five years, research by London-based Overseas Development Institute (ODI) has showed.
A report by ODI on international private capital flows shows Indian banks increased lending to Kenyan businesses six-fold between 2005 and 2012, a period when the emerging Asian economic giant has become the leading source of Kenyan imports.
The ODI report shows that Kenya attracted the lion’s share of cross-border bank lending going to low income African countries from Indian banks.
“Looking at low income countries (LICs), Indian banks have targeted mainly Kenya which attracted $100 million (Sh8.5 billion) in the first nine months of 2005 and more than $600 million (Sh50 billion) in the same period in 2012,” reads the report.
None of the other 19 African countries classified as LICs got more than $100 million in lending from Indian banks in either of the two comparative periods.
However, African middle income countries particularly South Africa and Mauritius were the biggest beneficiaries of Indian cross-border bank lending to the continent according to the report.
Loans to Mauritius rose from nearly $500 million (Sh42 billion) in March–September 2005 to almost $3 billion (Sh255 billion) in 2012, while for South Africa the increase over the same period was from just under $300 million to $1.3 billion. In Nigeria, however, flows contracted from $500 million in 2005 to just over $100 million in 2012.
The increase in lending by Indian banks comes at a time when the country’s companies have become more active in Kenya, especially in infrastructure and manufacturing sectors. Indian lenders have also sought to increase their footprint on the Kenyan market by opening representative offices.
Central Bank of India got approval to open a representative office in Nairobi from the Central Bank of Kenya in February. The bank has said it has plans to buy out or merge with a Kenyan lender within the next two years to facilitate its transformation into a fully-fledged lender.
A representative office is limited to marketing and negotiating lending and trade finance deals to customers, but cannot collect deposits from the public.
It is the second Indian bank to get the representative office licence after HDFC Bank Limited (India).
Indian firms have made significant investments in ports and roads, mining, healthcare and energy sectors in Kenya in recent years. Tata Chemicals manufactures soda ash in Magadi, while Essar Energy has a 50 per cent interest in Kenya Petroleum Refineries Ltd. Reliance Industries, Tata Motors, and Bharti Airtel are other Indian multinational corporations with operations in Kenya.
India also overtook the United Arab Emirates (UAE) to become Kenya’s top source of imported goods, growing its exports to Kenya by 27.1 per cent to Sh174.6 billion in the first 11 months of 2012 or 15 per cent of Kenya’s total imports.
Bank of India (BOI), which marked 60 years in Kenya this month, is also eyeing more participation in the increased India-Kenya trade. The bank plans to double the number of branches in Kenya from four to eight by setting up four new outlets in key industrial hubs of Kisumu, Nakuru, Eldoret and Thika in the next four months.
The chief executive of the BOI Kenyan branches, Mr R.K Verma, said that with the increase in Indian exports to Kenya the bank was looking to complement lending to Indian exporters by focusing on importers of their goods.
“We will be tapping these importers for additional business. As the volumes increase so will be our participation,” said Mr Verma.
During a visit to Kenya earlier this month, BOI executive director M.S Rhagayan said that the bank retained a strong focus on Africa.
He noted that the increased flow of capital from India to Kenya was indicative of the strong ties between Indian lenders and the Kenyan market, informing the bank’s decision to seek a bigger footprint in the country.