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Columnists

Banking industry woes have killed many dreams

The fall of Chase Bank is likely to kill many dreams. It was not like any other bank in Kenya. To a large extent, it was the bank for micro and small and medium enterprises (MSMEs), young start-ups and many small Savings and Credit Co-operative Societies (Saccos).

It was the bank an ordinary person would go to.

On a personal note, I have closely worked with the bank to assist young startups out of local accelerator programmes.

The bank simply became my go-to bank when these young entrepreneurs sought capital for their startups.

The bank worked closely with the School of Business and supported my monthly entrepreneurship lecture series at the iHub.

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In turn, we encouraged any startup to work with the bank because of its positive philosophy regarding startups.

Many of my mentees branded it Kenya’s SMEs Bank. During my recent meeting with the chief executive, we agreed to profile women entrepreneurs whom the bank had nurtured.

The bank’s failure came as a major blow to all these initiatives for jobs and wealth creation.

Chase Bank was about to change Kenya’s investment narrative by raising confidence levels in banking to an extent that even mama mboga (vegetable vendors) got an opportunity to be banked.

Much of the savings that ended up in Chase Bank perhaps used to be kept under mattresses.

These deposits now account for the country’s paltry savings rate as a percentage of gross domestic product (GDP), which lags behind that of Tanzania and Uganda.

Wolfgang Fengler, a former World Bank lead economist in Kenya says, ‘‘In most of Africa, savings rates are relatively low, around 17 per cent of GDP.

Kenya is no exception and in fact it saves less than many of its peers (around 13-14 per cent of GDP over the last five years). This is half of the average for all low-income countries (26 per cent of GDP).

By contrast, neighbouring Uganda and Tanzania have already crossed the 20 per cent mark even though their per capita income is significantly lower.’’

Poor savings undermine investments. Even worse, the country curtails sustainable investments through its poor land registration practices.
The poor have sunk most of their money in land without proper land rights.

Much of the informal housing settlements are what Peruvian economist Hernando de Soto calls dead capital yet the poor have sunk in enormous investment.

Kenya’s land rights anomaly, coupled with poor addressing infrastructure, are some of what de Soto pointed in his book, ‘‘The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else’’ as the main drivers of business in an economy.

Peasants need title deeds to use as collateral to borrow and build enterprises, but this is still farfetched for the poor in Africa.

We need thriving enterprises to create jobs and banks that can bet on the small investors and borrowers.

While big banks have shunned smaller investors as costly, Chase Bank worked with the small depositors and excelled, only for it to be brought down by the wealthy.

Initial revelations show that troubles at the bank had nothing to do with small investors that big banks avoid.

The problem was with the big and mighty. Directors advanced themselves more than Sh10 billion and staff loans stood at close to Sh3 billion yet the bank’s capitalisation stood at Sh11 billion.

Central Bank of Kenya (CBK) should indeed release the names of those who illegally loaned themselves money knowing that it exceeded what they had injected into the bank as capital.

Chase Bank’s contribution to the economy may not have been quantified. It failed not because of the character of its customers but as a result of the greed of rich.

CBK must speed up its turnaround before all hope is lost in the banking industry.

Muhammad Yunus, Bangladeshi’s social entrepreneur, banker, economist and Nobel Laureate once said, ‘‘To overcome poverty and the flaws of the economic crisis in our society, we need to envision our social life. We have to free our mind, imagine what has never happened before and write social fiction. We need to imagine things to make them happen. If you don’t imagine, it will never happen.’’

Chase Bank imagined and succeeded. We must re-imagine and bring back the banking philosophy of this small bank.

The writer is an associate professor at the University of Nairobi’s School of Business.

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