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Written by Ngigi wa Kamau
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Thursday, 17 July 2008 |
It is by now accepted that the former Minister for Finance Amos Kimunya was ambushed, coshed and pushed aside in a cynical power play. Still, those weeping for the Kipipiri MP make for a lonely huddle. Odd isn't it?
And why, even among those of us who believe that business and an entrepreneurial culture should be the foundation of our political and social progress, which belief in our political dualism casts us in the Amos Kimunya camp, is there little sympathy for the Finance Minister who has served through some of our highest economic growth for years?
There are two important reasons. First, Kimunya can hardly claim credit for the sustained economic growth. It is much more reasonable to credit this growth to his predecessor at the Treasury, David Mwiraria. Secondly, what Kimunya's tenure has been most memorable for is a decent into a clientelist crony capitalism that sustains a powerful and prominent class at the expense of both business and the consumers. That this system much glorified in other lands, where it has vaulted men into powerful office and sent the country at great cost chasing after their unique interests, ought to be a lesson for us as to its unsuitability. There are no tears for Kimunya because he has, even as he simulates otherwise, been a master at emasculating small and medium enterprises in the financial services sector so as to grant the big 'Muthaiga' boys preferential market rights and control, therefore paving their way to oligopolistic profits. Consider this:
In 2006, he increased the amount of funds insurance brokers had to deposit or guarantee the Commissioner of Insurance from Ksh. 1 million to Ksh. 3 million ostensibly to protect the public from errant brokers. However, this was in ignorance of the fact that to acquire annual licenses, all insurance brokers must take up professional indemnity insurance of at least Ksh. 10,000,000! His draconian proposal initially required a cash deposit with the Central Bank but was after protest softened to include bank guarantees. This came at a time when an increasing number of State Corporations were choosing smaller brokers due to their competitiveness over the larger more established houses. Following this realignment, many who could not raise the working capital/guarantees went out of business, much to the relief of larger players such as the president's business partners.
The Kipipiri MP subsequently killed the informal insurance credit market that had ensured that ordinary Kenyans could access reasonably priced insurance packages and then pay their premiums in instalments. Under the new cash & carry system, no indemnity is assumed until the premium is received by the insurer. This has snuffed out many smaller players who depended on these informal markets for survival as not many people are willing to take up insurance premium finance from banks.
After the brokers, the next prey was the group of smaller insurers. The former Finance minister has been looking to raise the minimum capital required of small players ostensibly to ensure sound financial bases and avoid the scandalous collapse of underwriters such as United, Stallion and Lakestar. However, as a financial expert he should have known that all the aforementioned underwriters failed, not because they had not enough in their capital bases but due to non-existent corporate governance structures. Indeed, in those years, cases seeking the winding up of some firms following non-payment of claims were thrown out after the directors cut deals with the arbiters. In fact, some of these directors simply went on to establish new underwriters, as anyone who knows what company insured President Kibaki's 2002 accident Range Rover would know.
Smaller banks have also been a recent target with proposals to raise minimum capital requirements, all measures that favour older institutions and inoculate them from the aggressive growth of smaller industry players. This is simply bad manners, and worse bad policy. Small disruptive players like Equity, K-Rep, KWFT and Family Bank have revolutionised banking in this country much to the advantage of the consumer and the wider (especially informal) economy.
And finally to the Nairobi Stock Exchange. Again, Kimunya's legacy has been one of favouritism for the elite, the big boys at the expense of equity and opportunity for all. Rather than advancing innovation and bringing down customer costs, the Finance Minister's measures in the financial sector (let alone what he did in other sectors) have served to entrench advantage and punish enterprise and innovation. The sleight of hand that publishes his actions as regulatory reforms deflects from the underlying protectionism and patronage. Little wonder that the scandals at the NSE only result in the auctioning off of another empty juicy seat.
It is ironic that on the gallows, the Finance Minister remembered the small folk again, claiming that the attack on him was an attack on them. He had himself targeted small businesses aspiring to grow, the very enterprises that are sure to create wealth and widespread advancement in our society. Justice can indeed be poetic.
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Last Updated ( Thursday, 17 July 2008 )
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It is a big failure for the Finance Minister to use his powers to protect an entire industry for the elites while promoting bad services and higher prices for those very services. Whether or not Amos Kimunya was aware of it is immaterial, the truly deleterious consequences of his actions must be made clear to the next chief of treasury.
The problem in Kenya's financial sector has never been the capital base. I doubt that those collapsing did so because of a poor capital base; the root cause is poor corporate governance which can only be controlled through frequent disclosures and audits. Regulatory bodies themselves like the CMA are reeling under low capacity in terms of legislated oversight authority, skills, processes and systems to ensure vigorous audits are conducted regularly and that any discrepancies to smooth functioning of these institutions is reported to the public while action is being taken to remedy it. To ensure disclosure requirements are adhered to, these financial institutions require better governance which can be expedited through robust financial reporting frameworks.
Of course this would require these institutions investing in more robust business processes supported by better management systems which I think is more effective than asking them to keep loading up their capital base. Reporting costs resources but this is where competitive advantage would shine for those able to innovate and create smart operational systems and yet ensure excellent customer service. This is musical ears to upstarts ready to take on the industry status quo because this is what entrepreneurism matches innovation. But to limit the entry of upstarts with capital requirements yet being long on the vibe that we are working on creating a regional financial hub in Nairobi just serves to show how action and words have been a mismatch.
There are upstarts willing to invest in cheap but robust management systems to ensure efficient management of their brokerage customers money; they wouldn't even mind reporting their financial status monthly because they are in principle out to provide a good service, they are people of integrity but they are now constrained by the capital requirements that Kimunya is putting forward.
This is the classical protectionism geared not for public good but to protect a few elites. In a sense the large players can continue conducting business, charging high fees for the services while offering a poor service; a pure oligopoly promotion.
From an innovation perspective, preventing the entry of these upstarts is cramming disruption innovation. It is postponing what happened to Barclays and Standard bank when the upstarts like Equity, K-REP, SACCOS and Family finance overturned tables for them.