We want an institution that can provide 10 years and above old money with the wherewithal to be the anchor investor in some of the large infrastructure projects we are dreaming of.
So, which government-owned financial institutions are going to be merged in line with the recent announcement by State House?
It seems that the plans have kept mutating. From what I gather, the top agenda issue right now is establishment of the proposed Kenya Development Bank.
I am told by impeccable sources that the National Treasury will be shortly presenting a Cabinet memo giving details on how this complex transaction is going to proceed.
Apparently, it has now been decided that the process will start with the amalgamation of three entities -namely the Industrial Development Bank (IDB), Industrial and Commercial Development Corporation (ICDC) and the former Kenya Tourist Development Corporation (KTDC) that is now known as the Tourist Finance Corporation (TFC).
This is a major departure from the plan announced by State House last month, which proposed amalgamation of these State-owned development finance institutions with institutions involved in SME lending, including Uwezo Fund and the Youth Fund.
The fate of the Development Bank of Kenya, which was also to be merged with these institutions, also remains unclear.
Also left out from the State House list is the Kenya Industrial Estates. By the look of things, it seems that the government is going back to the original recommendations of the Presidential Taskforce on Parastatal Reforms, which proposed a single SME lending agency.
Whichever way you look at it, the merger of three institutions and creation of the proposed Kenya Development Bank is going to involve very complex transactions.
The biggest headache will be the process of restructuring the balance sheets of the three institutions.
Given the fact that the three institutions owe billions of shillings in loans and grants to the government, we must expect to see complex debt- to- equity conversions.
And the transaction advisers will have to come up with a formula for minority shareholders in institutions such as ICDC and IDB.
With regard to the huge non-performing loans sitting in the books of the three development finance institutions, I am informed that the teams working on this project are thinking about transferring them to a special purpose vehicle, incorporated as a wholly-owned subsidiary of the proposed Kenya Development Bank- under an arrangement that will permit management of proposed Kenya Development Bank - to handle non-performing loans separately.
The thinking is that this will allow the proposed bank to concentrate on the main activities and allow it to start doing business on a clean sheet. The case for a large cross sector development bank as proposed cannot be gainsaid.
Our financial system remains dominated by commercial banks that are unable to provide long- term money and concentrate on giving overdrafts to existing companies.
Our capital markets largely remain a market for circulating shares of existing companies.
Thus, our dream must be to create a large cross-cutting development bank of the ilk of the Development Bank of Southern Africa (DBSA) and Emaar of Dubai.
We want an institution that can provide 10 years and above old money with the wherewithal to be the anchor investor in some of the large infrastructure projects we are dreaming of.
Granted, ICDC, IDB and KTDC played a big role in supporting the import industrialisation policy we practised in our immediate post- independent years.
They played a big role in supporting the Africanisation policy during our early years as an independent country.
We are at a point where we must start weaning ourselves from overdependence on Chinese funding for our big infrastructure projects.
The proposed Kenya Development Bank deserves support.
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