The latest news from the little-known but enormously important State-controlled Unclaimed Financial Assets Authority (UFAA) is the recent appointment of well-known communications and public affairs practitioner Richard Kiplagat as chairman of the board.
He has taken the reins at UFAA at an important juncture of the entity’s existence. Five years since inception, it is time to thoroughly reflect on its past and find out whether it is still fit for purpose. Me thinks that this is one fund that we must do everything to insulate from the eating chiefs and from being treated by the political elite as yet another source of largesse.
A source of inexhaustible money, where powerful politicians can draw money at whim and fancy to finance grandly conceived projects that only serve to create opportunities for kickbacks and back handers for political elite.
In a matter of only five years, holders of unclaimed assets have surrendered and reported to the authority assets worth Sh13 billion in cash, 564 million units of shares, and 1,454 safe deposit boxes to this fund.
Potential for growth is huge. In a recent baseline survey commissioned by the UFAA, the data showed that as October 2018, the total number of institutions holding unclaimed financial assets in the economy was 477,000.
The data put the estimated value of assets held by these institutions, which include banks, insurance firms, companies, utility companies and saccos, at a whopping Sh241 billion.
Clearly, the UFAA is sitting on and managing massive resources. I see it growing into one of the largest funds on the land.
In hindsight, it seems to me that the crafters of the original legal framework were worried about possible abuse of the fund by the political elite.
That is why they introduced the rule stipulating that money from this fund could only be invested in Treasury Bills.
I can assure that had they left everything to the discretion of the politically-appointed board, we would by now be seeing a new multi-storey corporate headquarters built by the fund. We would now be hearing about how the fund was negotiating to buy a quarry from some politically well-connected individual.
As UFAA enters the next five years of existence its investment mandate and guidelines must remain top of the agenda.
I say so because I recently heard from the grapevine that there were plans afoot to loosen the rule restricting investment to Treasury Bills and to introduce other asset classes into the picture.
Mr Kiplagat and the new team at UFAA must resist any changes in the legal framework, especially where it is clear that the changes are likely to introduce loopholes that rent seeking elites will just be too ready to exploit. We know from international practice and trends that at any point in time, no more of 30 percent of unclaimed assets end up being united with ultimate beneficiaries. The truth of the matter is that in most cases, 70 percent of unclaimed assets remain in the hands of entities such as UFAA for many years- even in perpetuity.
The statistics from UFAA bear these trends out. Since inception, the authority has paid claims amounting to Sh170 million compared to Sh13 billion cash in hand.
Managed well, this huge fund could grow into a major source of funds for long-term investments. Going forward, there would appear to be a very strong case for separating regulation from management of the fund.
Until recently, the Deposit Protection Fund was part of the Central Bank of Kenya.
To avoid conflict of interest, the two had to be separated- hence the creation of the Kenya Deposit Insurance Corporation (KDIC). The ideal situation- going by trends and practice internationally- would be one where we have a regulator that concentrates on licensing service providers and a fund dedicated to managing the money.
Sooner or later, and as the number of claimants continue to increase, the queues will be just too long for UFAA to handle.
We will need to evolve a network of service providers giving a range of advisory services to members of the public. And, we should consider expanding UFAA’s scope beyond financial assets to recovering unclaimed property.