The Kenya Deposit Insurance Corporation (KDIC) went to the roof top the other day to tout how it will be enhancing the deposit coverage limit for bank deposits from Sh100,000 to Sh500,000.
This is how acting Treasury Secretary Ukur Yatani justified the move during the occasion to launch of the enhanced deposit coverage limit held at a Nairobi hotel.
First, that the insured coverage limit needed to go up because it has remained at the level of Sh100,000 since 1986.
Secondly, the figure needed to be adjusted upwards with the dynamic changes that have occurred in the banking sector since 1986 including size of average bank deposits, inflation trends, explosion of technology and the exponential growth of mobile money.
Thirdly, by enhancing the deposit coverage limit, up to 98 percent of bank depositors will now fully covered.
Fourthly, that by value of bank deposits, the upward adjustment in deposit coverage limit had increased from the current level of 8.2 percent to 20 percent.
Finally, that the increase in the coverage limit from Sh100,000 to Sh500,000, makes Kenya among the highest in Africa. The enhanced deposit coverage limit will take effect in July 2020.
What is deposit insurance? Plainly, this is the amount of money that a depositor is refunded after a bank collapses. Even where a depositor has balances of millions of shillings in a collapsed bank, the only money he is assured of is Sh100,000. Which is why KIDIC was originally known as the Deposit Protection Fund.
On the face of it, this is a very small amount of money. But the truth of the matter is that when you look at the statistics contained in successive Central Bank of Kenya’s bank supervision report, you will find that 90 percent of bank depositors have balances that are below Sh100,000. As a matter of fact, the statistic on average depositor balances has been at under Sh13,000 for many years.
So, what does this mean in the context of the decision by KDIC to increase deposit coverage limit from Sh100,000 to Sh500,000?
Put simply, it means that the enhanced deposit coverage limit that KDIC is crowing about can only benefit a tiny elite depositors.
The truth of the matter is that far greater majority of the ordinary consumers of banking services in this county are not in a better place in terms of safety of deposits.
KIDIC has lately been talking big about transiting to risk-based premiums. And, there has been glib talk about introducing differentiated premiums. Where is the capacity? It is like trying to leap in the dark.
Methinks that what we are dealing with here is the lack of regulatory rigour and dearth of ideas and vision in this critical body. Today, one of the issues that should be on top of KIDIC’s agenda is safety of mobile money depositors. What protection does the mobile money depositor have? Yet we all know that the number of depositors in platforms such M-Pesa far exceed the number of bank depositors.
When I load Sh70,000 on M-Pesa, how safe is the deposit? How safe are the deposits in the M-Pesa trust account where the totality of the cash on the platform sits?
And, we should be debating the feasibility of a single consolidated deposit guaranteed fund. Today, we have KDIC under the Banking Act, the policy holders Compensation Fund under the Insurance Act, the Investor Compensation Fund under the Capital Markets Authority Act and the Retirement Benefits Authority and the Saccos Guaranteed Fund. A CEO of one regulatory authority is not able to have a full view of risks to the consumer.
There is a strong case indeed for reforming KDIC. In the first place, it must be made to operate with more transparency and better disclosure standards especially to depositors of fallen banks.