Kenya flourishes as an economic powerhouse in the region with our largely capitalist-focused policies, entrepreneurial orientation, vibrant financial technology industry, vast diaspora, free speech, high literacy and university rates, burgeoning service sectors, and cooperative-friendly landscape that brings millions more people into the middle class every decade with staggeringly high gross domestic product growth rates among the highest in the world.
Further, here in Kenya, we pride ourselves in retaining one of the best central banks in Africa.
Our economy benefits from mostly sound decision-making and intentional planning.
However, we achieve rapid improvement in sustainable human development goals as a nation despite dim overregulation in some areas of life. As an example, in the new Central Bank of Kenya Amendment 2021 Bill, it states that CBK can determine capital adequacy requirements for digital credit providers.
While on the surface such a provision in the Bill seems innocent enough, but providers of credit without simultaneously holding public savings prove virtually no risk to society or the economy. In fact, they bear the risk themselves with their own capital.
Other countries use more liquidity ratios to regulate lenders that take deposits instead of absolute capital thresholds that lock out startup entrepreneurs
Why should we regulate that specific aspect unless there is an intention to only allow wealthy favoured individuals with arbitrary senseless shifting absolute capital requirements to dominate the sector?
The Bill further states that CBK can illogically regulate the management of these non-savings takers. Sadly, it follows a trend of overregulation that is barreling across Kenya at warp speed.
Regulation with anti-entrepreneurial conditions should not be our first solution to problems.
CBK should undeniably be given the power to regulate certain aspects of digital lenders including any exorbitant interest rates, data protection, privacy, and dispute resolution reporting provisions, but the pendulum should not swing to illogical conclusions. Otherwise, we are proverbially killing mosquitos that land on windows with massive sledgehammers.
How have we messed up overregulation in the past 15 years? We bizarrely mandated that insurance companies must all shift to multiple instead of few or single shareholders in a nod to clear ulterior motives. Also, different professions lobby parliament for bills to overcontrol and overregulate their industry.
Professional fields not directly influencing public safety do not need regulation. Further, some statutory professional cartels hold reckless power to set price floors that harms competition, pains consumers, and stifles innovation.
Additionally, in Kenya we previously tried, but thankfully did not follow through, to standardiae all curriculum in tertiary education institutions that could have dropped our university quality back to the 1960s. Then who could forget the now infamous overregulation attempts in the ICT sector, MP and MCA university degrees, solar industry, and agribusiness beekeeping?
How might Kenya look by 2030 if we continue on this trend? Might we need government licences to have children, live in one county over another one, be in the formal versus informal sector, receive lifesaving medical treatment, travel abroad, wear certain colours or types of clothing, or how many times we utilise the restroom per day? Where does the outlandish overstretch stop?
Researchers Lesley Curtis and Kevin Schulman long ago established that overregulation in sectors harms creativity, prices, and growth while decreasing quality.
These downsides occur even when rules are applied consistently, uniformly, and strictly enforced. But do our regulations that already exist get applied equally and enforced fairly? If not, why layer on even more when not absolutely necessary?
It would be helpful if bills also stipulated performance standards for the implementing government body. As an example, why not strengthen citizen reporting channels when banks, microfinance, and digital credit providers abuse their borrowers or violate terms of their loan agreements?
Guaranty time periods that government will respond to complaints. Ever tried reporting an errant lender to CBK only to be sent in circles and unable to get any resolution?
Regulation must include sensible top-down controls but also bottom-up operational mechanisms.
Kenya thrives as a great nation of hard workers that entrepreneurially creatively look to compete on a global scale. Let us not step on and curtail our future with nonsensical overregulation.
Prof Bellows may be reached on [email protected] or on Twitter: @ScottProfessor