Why super wealthy Kenyans are committing billions of shillings to philanthropyTuesday January 10 2023
Kenyans are giving money to philanthropy now more than ever as the number of wealthy individuals grows by the day.
As of September last year, the country was home to 8,500 dollar millionaires, according to a Henley Global Citizens Report.
A dollar millionaire is a high net-worth individual (HNWI) whose wealth is $1 million (Sh120 million) or more.
With the rise in the number of these HNWIs has been the need to commit money to different investment vehicles.
Impact investment, commonly known as philanthropy, is one of the ways Kenya’s wealthy individuals and families are investing their fortune.
READ: Why CSR should be more than show-off
Many banks and financial services institutions operating in Kenya now offer wealth management services besides routine banking products.
They are now selling legacy investment consultancy as part of their wealth structuring services.
Incidentally, this development has corresponded with a growing number of wealth consultants in the market in recent years.
For customers intending to invest in philanthropy, many products exist in the market today. These include education trusts, charitable foundations, and not-for-profit companies.
Lilian Onyach, head of consumer and high net worth at Stanbic Bank, says the company has a ‘‘framework that is legally guided to help [HNWIs] have an impact on society.’’
“For those who want to donate to, say, malaria eradication in Africa, we advise them on how best to do it,” the senior wealth manager told BD Life in a previous interview.
Joseph Rono, the director of strategy and investments at CPF Financial Services, describes impact investment as an ‘‘ethical’’ strategy to explain why many wealthy Kenyans are taking the route of philanthropy.
‘‘When you are the only person making money in a society of poor people, your investment is not sustainable. Wealthy people are realising this and coming up with investments that impact the population,’’ Joseph says.
The impact could mean creating employment, especially in a country like Kenya where nearly 7.5 percent of the population is jobless, he says.
‘‘Unemployment is a big concern to everyone, especially to the rich and to institutions,’’ Joseph adds.
But there is another reason why Kenya is popular with philanthropists, including those from overseas: geographical positioning that makes Nairobi a hub.
Lilian notes: “Our exchange control is one of the best in the world. This attracts a lot of foreign investors to come to Kenya.”
Family business coach Wanja Michuki says philanthropy is ‘‘not an investment vehicle per se’’ but an investment decision that constitutes a family’s or individual’s investment policy ‘‘to distribute social capital’’ without financial returns.
‘‘Investing in children orphanages or animal shelters has no financial return. The social impact, though, can be measured as a delta effect,’’ she explains.
On why wealthy families commit money to philanthropy, Wanja argues the decision is a win-win for all parties.
‘‘Wealthy families recognise that once they have a diversified wealth portfolio that preserves and grows capital through compounding, they are likely to earn more income than they can consume.’’
It is for this reason that they create social capital ‘‘through the distribution of wealth to initiatives they would like to support.’’
Findings of research done by Stanbic Bank three years ago show that 90 percent of wealthy Africans fear that their children might not take up business or continue their parents’ entrepreneurial legacy.
Lilian says this threatens to erode family wealth as soon as the patriarch and matriarch of the family pass on.
It is this need to preserve family wealth through investments that outlive individuals that is driving families to philanthropy, she says.
Peter Wachira, the principal officer at ICEA Lion Trust Company, describes philanthropy as ‘‘an excellent way’’ of bringing multi-generational family members together in a common cause through their shared values.
‘‘It offers an opportunity for those that may not wish to join the family business to get involved in activities that inspire them and contribute to the welfare of society and the environment,’’ Peter says.
On what determines the cause to fund, Wanja says this depends on what the wealthy are passionate about.
‘‘Philanthropy should be driven by passion and the desire to make a positive impact in society,’’ she says.
Peter agrees, noting that the choice of investment vehicle is driven by one’s interests as an investor.
‘‘You could invest in education, healthcare or animal protection. Other options include environmental conservation and sustainability, human rights and the arts.’’
How the philanthropic initiative will be governed and how funds will be sourced and administered plays a role in determining the area to invest in, according to Wanja.
‘‘A family can start a foundation and enrol donors to support its initiatives. This way, fundraising becomes a key component of philanthropy,’’ she adds.
READ: Evolution of philanthropy and CSR
The two concur that the process requires clarity on the individual’s or family’s values ‘‘and how their philanthropy will help to express those values.’’
Unlike in the west, philanthropy as a concept is only gaining traction now.
Joseph argues that the ‘‘capitalist nature’’ of Kenyans has somewhat slowed impact investment, as wealthy people seek to multiply their fortune.
‘‘Most wealthy individuals will usually give back through foundations. This is because there are fewer vehicles to carry out impact investments in our market,’’ he notes.
He adds: ‘‘We are more profit-oriented. This explains why we have not been deliberate in investing in areas that could have more impact in our society.’’
He believes, however, that as the market grows, more products will come up, and with them, better structures ‘‘to allow individuals to contribute money to philanthropic causes.’’
But who can be a philanthropist? And what is the eligibility criteria?
Anyone with capital they wish to distribute for social impact continuously without financial returns is eligible, experts note.
‘‘Some form of monitoring and evaluation (M&E) is important if you want to measure the impact of your giving,’’ Wanja says.
Peter adds philanthropy has been in practice among Kenyans for many years, although unconsciously.
Traditionally, individuals living in cities or abroad would simply send cash home to support a need. Now, this is changing, with an increasing need for accountability for funds dispatched.
‘‘People are coming up with different forms of measuring the actual impact. This is especially the case with East Africa’s diaspora community,’’ he reveals.
He adds that with the conversation around environmental, social and governance (ESG) issues gaining prominence in Kenya, there is a need to invest in sustainable projects.
‘‘We expect to see trust and foundation structures set up for these and other similar needs, possibly in the form of pooled trust funds,’’ he forecasts.
Wanja says wealthy Kenyan families are beginning to structure vehicles for charitable giving so that the practice is not ad-hoc but continuous.
‘‘That is why we are establishing proper governance structures to guide their giving,’’ she notes.
Having such structures in place, Peter adds, will not only ensure accountability but make it possible for almost every interested person ‘‘not just the wealthy’’ to support such causes.