banking and development

8/3/2019 Banking and Development

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Banking and itscontribution to economic

development.


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Major Challenges:

Youth Unemployment Targets ?

How do we encourage investment into Mombasa ?

How do we contribute to increase our GDP ?

How can the Financial Institutions contribute ?


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Micro Finance.Lessionsfrom Fursa Leo.

Needs Training, ideas, Financing.

MFIs marginally profitable, long gestation period.

MFIs are critical to poverty alleviation and job creation.

Well run MFIs have very low default ratios andtherefore good credit risks for banks.

Banks should link and support and guarantee local MFIsto access international investor funds from IDB, IFC,Princes Trust (UK), Endevor (US) etc. Most of thesefunds need long track records etc.


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SME Small and MediumEnterprises.(1)

Biggest opportunity for Kenya.

SMEs contribute 60% of South East Asias economic

production and 90% of the jobs.

Perceived as high risk are but a 2003 Mckenziestudy in India showed that risk is industry specific

and not size specific. Banks can encourage SMEs by acting as bridges

between large companies and SMEs which act assuppliers/subcontractors to large companies.


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SME Small and MediumEnterprises. (2)

Banks to encourage export financing and expos.

Banks to finance development of markets and sub-

markets.

Banks to finance equipment needed by SMEs

Government to act as guarantor to the banks to

mitigate the banks risks. India has set a successfulexample with SIDBI.


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Large Businesses (1).

The Competitive Advantage of Nations (MichaelPorter) identified CLUSTERS as the ideal way topromote development.

Nations have either a competitive natural advantage(Abu Dhabi and oil) or CREATE one (Bangalore andITC).

Kenya needs to create our own competitive clusters.

Most successful nations CREATE competitiveadvantages.


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Large Businesses (2)

Develop Mombasa by identifying potential clustersand help market them.

Potential clusters : Shipping services (Ship repairs,bunkering etc) free port trade facilities and services ,tea and coffee, Internet related services,

Used cars market (68,500 cars annually for Kenyaalone). Value retained $ 68,500,000 and hundreds ofnew jobs created.


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LABOUR EXPORTS.

Classic examples Phillipines, Bangladesh, Egypt.

Phillipines exports 250,000 sailors and generates $4

billion annually.

Phillipines exports nurses, medical staff etc andmakes 10 times more than its maid exports.

Bangladesh exports largely labor and its valuereturns are lower.


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LABOUR EXPORTS.

Training financing seamen needs 45k financing fortheir seamens book. Major solution tounemployment of semi skilled at the coast.

Travel expense financing.

Travel abroad insurance. (Kenyans strandedabroad)

Government can act as guarantor against passportissue etc.


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OPPORTUNITIES FROMTHE DIASPORA.

Ministry for the Kenyan Diaspora to market our skillsabroad .Ministry to protect our workers abroad. Theycontribute almost $ 1 billion and will soon exceed

tourism.

Banks should finance training needs for the diasporabefore they leave.

Banks to help channel Diaspora money into investments

in Kenya India did this successfully with NRI projects.

Government should look for tax incentives to encouragethe Kenyans abroad to invest back in Kenya.


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EMPLOYMENTTARGETS.

Ksh. 100,000,000/Ksh.100,000 = 1000 projects eachemploying 5 people will create 5000 jobs. In 5 yearsthis will create 25,000 new jobs.

Ksh 100 million($ 1.1 million) is less than 2% ofMombasas 2013 budget.

Ksh. 50 million(revolving fund) will finance 1000

new seamen jobs. Thats another 5000 jobs in 5years.

Clusters can contribute to another 20,000 new jobsover the next 5 years.


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Conclusion.

Banks do not look at the big picture of the economy andtend to focus more on existing client needs. They need tocreate products and projects that will support our

economic goals. Such products are not in line with theannual short term targets of banks.

Government needs to create incentives to encouragebanks to offer such products and consider offering someguarantees to mitigate their risks.

Close cooperation is needed between Financialinstitutions and Government is critical to incentivizedevelopment goals.

banking and development

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