Jun 9th 2015 BUSINESS

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TUESDAY, JUNE 9, 2015 WWW.BDAFRICA.COM KSH60 |TZ SH 1,700 |UGSH2,700 | RFrNO. 2113

Bank jobs iseto seven-yea

high as depositaccounts hit 28mLenders use technology to recruitseven million customers in 12 months

CEOs admit fims cooking books

BY VICTOR JUMA

Kenyan banks last year aggressively expand-

ed their operations, increasing the indus-

trys staff count by 2,864 and the number

of customer accounts by 30 per cent to 28.4

million, according to the latest Central Bank

of Kenya (CBK) report.

The CBK says in the banking inspection

report that the banking industry now has

36,923 employees or 8.4 per cent more than

the previous years 34,059.

This was the second-largest wave of hir-

ing in the industry after 3,834 in 2008.

The rapid growth in 2014 staff numbers

came on the back of an aggressive expan-

sion that saw the lenders open 101 new

branches in a year.

The rapid growth in staffing and custom-

er numbers is linked to the rapid uptake of

financial services in Kenya and in Eastern

Africa where 11 local banks have establishedoperations in the past 10 years.

The CBK report also shows that Kenyan

banks heavily invested in technology-driven

service delivery, including mobile and In-

ternet banking that resulted in the open-

ing of 6.5 million new deposit accounts, the

highest increase in a single year.

Kenyan banks continued to lev

on robust ICT platforms in the prov

of quality banking services that are

cient and on a wider scope, the CB

port says.Mobile banking contributed the m

the rapid uptake of formal financial se

among the previously unbanked popul

according to the report.

Banks have rolled out mobile ban

products on their own or in collabor

with telecommunication BANKS, Pa

BANKS STAFF AND CUSTOME

Efficiency is at an all-time high, with

one worker serving 770 customers

Staff Acco(

2008 25,491

2009 26,132

2010 28,846

2011 30,056

2012 31,636

2013 34,059

2014 36,923

SOUR

BY MUGAMBI MUTEGI

More than a fifth of Kenyan execu-

tives have admitted to the existence

of financial reports manipulation in

their firms, turning the spotlight on

the state of corporate governance in

East Africas largest economy.Ernst and Young (E&Y), a con-

sultancy, says in a newly-released

report that 23 per cent of Kenyan

managers believe irregular adjust-

ment of financial statements is prev-

alent in their firms, mainly driven

by pressure to meet ambitious tar-

gets in an increasingly competitive

environment.

The report, which was released

last week, also says 41 per cent of

Kenyan managers believe that

most companies report financial

performances that are better than

the actual figures, an admissionthat puts to question the integrity

of financial reporting in the country.

Kenyan managers polled by the au-

dit firm admitted to having knowl-

edge of at least one of three forms of

financial statement manipulation

happening in their firms over the

past 12 months, all driven by the

aim of meeting short-term finan-

cial targets.

The survey, which was conduct-

ed between December 2014 and Jan-

uary 2015 found that the manipu-

lation occurs through recording of

revenues before they are actuallyreceived, forcing customers to buy

unnecessary stock and underreport-

ing of costs incurred.

Our survey confirms that

some employees are willing to

misstate financial information,

E & Y says after REPORTS, Page4


2/32

2 BUSINESS DAILY| Tuesday June 9, 2015

BY EDWIN MUTAI

The vetting of Cabinet nominees Eu-

gene Wamalwa and Monica Juma is

expected to top the agenda of the Na-

tional Assembly, which reconvenes

today after a month-long recess.

President Uhuru Kenyatta in mid-

April nominated Mr Wamalwa as

Water and Irrigation secretaryand Dr Juma as secretary to the

Cabinet.

The selection committee, chaired

by National Assembly Speaker Jus-

tin Muturi, will meet this morning

to scrutinise the suitability or oth-

erwise of the appointment of Mr

Wamalwa.

If approved, he will

be making a return

to the Cabinet after

serving as Justice and

Constitutional Affairs

minister in the Grand

Coalition government

between former Presi-

dent Mwai Kibaki and

Prime Minister Raila

Odinga.

Mr Wamalwa did not

contest for any elective

seat in the March 4, 2013 General

Election.

The former MP, who resigned as

the New Ford Kenya party leader, will

face MPs for the vetting at County

Hall at 10am. The Constitution man-

dates Parliament to vet presidential

nominees to the Cabinet as well as

their principal secretaries.

Mr Wamalwas appointment

comes at a time when the Jubilee

administration is struggling to im-

plement the one million-acre irri-

gation scheme in Tana River. Presi-

dent Kenyatta, in 2013, launched the

ambitious Galana-Kulalu project in

which the government plans to put

the land under irrigation to boost

food security.

The project has, however, stalled

due to lack of funds. It has not re-

ceived any money after the Treasury

slashed Sh3 billion allocated to theNational Irrigation Board (NIB) for

other programmes during the 2013/

14 financial year. NIB received Sh12

billion during the 2013/14 budgetary

allocation, before the amount was

reduced to Sh9 billion.

The Administration and Na-

tional Security commit-

tee, chaired by Tiaty MP

Asman Kamama will also

vet Dr Juma who served

as principal secretary

in the Interior and Co-

ordination of National

Government ministry

before her appointment

to the Cabinet.

Dr Juma, a career

diplomat and former

university lecturer, re-

placed Francis Kimemia

who stepped aside to allow the Eth-

ics and Anti-Corruption Commis-

sion (EACC) to investigate corrup-

tion claims against him.

The Director of Public Prosecu-

tions Keriako Tobiko later dropped

the charges facing Mr Kimemia. The

DPP said the evidence provided by

EACC was not enough to prosecute

Mr Kimemia, even though he is still

being investigated over other cor-

ruption claims.

[email protected]

TOPNEWS

Wamalwa vettingtop on MPs agenda

afte 1-month ecessLEADERSHIPThe law mandates Parliament to

scrutinise nominees picked by President in April

If appoved, M

Wamalwa will be

making a etun to

the Cabinet afte

seving as Justice

ministe in theGand Coalition

govenment

Weekly Weather Forecast

East Africa

Nairobi

Kampala

Dar-es-Salaam

Kigali

Bujumbura

Monday Tuesday Wednesday Thursday Friday

Hi: 250C

Lo: 140CHi: 210C

Lo: 130C

Hi: 220C

Lo: 140C

Hi: 230C

Lo: 130C

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Hi: 260C

Lo: 150CHi: 250C

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Lo: 130C

Index to companiesThis index of businesses mentioned in todays issue of the Business Daily is intende

include all significant references to companies.www.businessdailyafrica.com

Follow your favourite

stories online, plus more on

markets, industry, policy and

agribusiness

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BD_Africa

E&Y.....................................1,4

CNN ...................................... 2

NIB........................................ 2

Mumias Sugar ......................3

Nema.....................................3

Butali Sugar..........................3

Dubai Bank ..........................4

Haco .................................... 4

CBK....................................... 5

NCPB.................................... 6

Green Pencil.......................15

Blue Strategy......................16

MKU ....................................16

BAT......................................19

NSE...................................

MBEA ...............................

Cytonn.............................

Kestrel .............................

Centum.............................

AfDB..................................

Deutsche Bank.................

Hi: 300C

Lo: 190CHi: 280C

Lo: 220C

Hi: 280C

Lo: 220C

Hi: 290C

Lo: 220C

Hi: 290C

Lo: 230C

Hi: 250C

Lo: 160CHi: 270C

Lo: 120C

Hi: 270C

Lo: 130C

Hi: 270C

Lo: 140C

Hi: 270C

Lo: 140C

Hi: 300C

Lo: 170C Hi: 31

0C

Lo: 150C

Hi: 310C

Lo: 140C

Hi: 310C

Lo: 140C Hi: 30

0C

Lo: 150C

BY BRIAN WASUNA

The High Court has ordered the re-

lease of businessman Tony Gachoka,

who was last Friday sentenced to six

months in civil jail by principal mag-

istrate Maisy Chesang for defyingher orders.

Justice Weldon Korir yesterday

ordered his release and stopped the

defamation case before Ms Chesang

until the matter before him is deter-

mined. The businessman and his

co-accused, Mr Jeff Koinange, filed a

suit before the High Court challeng-

ing the legality of a defamation suit

in the lower court.

The two have been sued by tycoon

Jimmi Wanjigi for linking him to the

multi-billion shilling Anglo-Leasing

scandal in an episode of the Jeff Koin-

ange Live talk-show.

Mr Gachoka spent the weekend in

jail after he failed to deposit a Sh2 mil-

lion fine Ms Chesang had slapped on

him, Mr Koinange and the Standard

Group secretary Carol Cheruiyot for

failing to attend one of the defamation

suit hearings in person.

I suspend the Sh2 million fine is-

sued to Mr Gachoka and order for his

immediate release. I also order for a

stay of the proceedings at the Chief

Magistrates court until this cas

heard and determined, Justice K

said.Mr Gachokas lawyers told

court that his application challe

ing the legality of the defamat

suit would be overtaken by eve

if he was left to serve the six-mojail term.

Ms Chesang first issued a warr

of arrest against Mr Gachoka and

Koinange on May 13 for disobey

a court order and failing to hon

court summons.

She slapped the two with a fr

fine after they failed to appear bef

her last week.

Mr Koinanges lawyers told

that the former CNN news anc

had travelled to Ivory Coast to

tend a conference.

Ms Chesang held that Mr K

ange should have attended to his le

matters affairs first before leaving

country for the conference.

High Cout odes Gachokas elease fom jai

Businessman Tony Gachoka when he

appeared in court in May .PAUL WAWERU


3/32

Tuesday June 9, 2015|BUSINESS DAILY

Kenyas sugar industry is unde-

niably reeling from a myriad of

problems that are now threat-

ening it with total collapse.

Most of the problems are deliber-

ately plotted and executed by a sec-

tion of the industry stakeholders, in-

cluding managers and owners. At the

centre of this gloom is rampant and

gross abuse of the regulations that are

meant to streamline the sub-sectorsoperations.

The end result is the sorry state of

the entire sub-sector even as a safe-

guards deadline by the Common Mar-

ket for Eastern and Southern Africa

(Comesa) rapidly approaches. Worse

still there is no clear end in sight for the

sub-sectors many challenges, raising

the question as to whether the govern-

ment will once again ask for another

extension of the safeguards.

Mumias Sugar, the countrys larg-

est miller, remains on the throes of an

existential threat, becoming the latest

epitome of what ails the sector. Keen

followers of the Mumias saga will by

now have realised although it had se-

rious management challenges, illegal

activities of some of its rivals bled the

company of billions of shillings in the

last four years speeding up its down-

ward slide.

Yet these companies are continuing

with the illegal activities to the detri-

ment of competitors and putting the

entire sugar industry in peril. Take

the rampant poaching of cane from

contracted farmers, for instance. In

the past four years this illegal activity

has continued to grow with impunity,

throwing the operations of many es-

tablished millers up in the air.

Mumias Sugar, whose consump-

tion of cane on a daily to annual basis

far outstrips that of any sugar miller

or all of them combined, has been

the biggest victim. Mumias is the

only miller with high-

tech, modern diffuser

technology capable of

efficiently processing

large chunks of cane.

Yet in the recent

past, Mumias, which is

located in Kakamega,

has been embroiled in

court battles with some

of its competitors, par-

ticularly the Kabras-

based West Kenya

Sugar Company whose

activities have extended

to neighbouring Busia.

Busia farmers have for the past

three decades been contracted to Mu-

mias, which is located 25 kilometres

away as opposed to West Kenya situ-

ated more than 100 kilometres away.

West Kenya, which has no contract-

ed farmers, has not spared neighbour-

ing Butali Sugar court battles accus-

ing it of setting up within the legal limit

of 40 square kilometers. Like Mumias,

Butali and Nzoia in the same neigh-

bourhoods have not

been spared the cane

poaching menace.

At the centre of

these battles is the fact

that some of the new

players commenced

operations without

contracted cane farm-

ers and have been

operating purely on

ad-hoc cane supplies

a practice that is in

total contravention of

the law.

The Sugar Act clearly stipulates

that every miller must be in an opera-

tional zone of 40 square kilometers

in which it must contract sugarcane

farmers to supply raw materials.

But on the contrary, a number of

sugar millers have never contracted

farmers to supply them with cane

and are therefore totally dependent

on poached cane.

In Kabras area of Kakamega, for

instance, the chaotic state of affairs

saw the entry of Butali Sugar in the

neighbourhood of West Kenya, and

immediately contracted farmers to

supply it with sugarcane.

The entry of Butali also raised ques-

tions as it did not adhere to the 40-km

radius rule. But that did not prevent

frustrated farmers from signing up to

supply the new miller who gave them

hope and support in sugar cane de-

velopment.

One could ask where the former

Kenya Sugar Board [now the Sugar Di-

rectorate] was as all this happened.

This is because despite numerous

court orders that Mumias obtained

restraining West Kenya from buying

sugarcane from contracted farmers,

the activity continues with impunity.

Ironically, West Kenya went to the

same law courts that overturned the

earlier orders. The company then went

ahead to establish a sugarcane buying

centre at Olepito area on the Busia-M

mias road and within Mumias 40-kmoperational zone.

That is not all. West Kenya is no

on course to constructing a sugar fa

tory in the same location without

license from the Agriculture, Fishe

ies, and Food Authority the sector

regulatory body.

A letter from former interim hea

of the Sugar Directorate Rose Mko

dated April 8, 2015 indicated that We

Kenya has not been licensed to buil

a sugar mill in Olepito.

The letter addressed to West Keny

Company managing director Tajve

S. Rai states that the sugar miller doe

not even have authorisation from th

National Environment Managemen

Authority (Nema) which is considerean important legal threshold.

Ms Mkok says the statutory requir

ments for the establishment of a sug

milling plant are well known to Mr R

as an existing player in the industr

The letter says that the directorate h

not at any time received an applicatio

from the miller for construction of

milling plant at the subject locatio

and neither is the directorate awar

of any approvals from Nema.

This state of affairs brings int

question the survival of sugar farm

ing as a business in the entire wes

ern Kenya. Besides the turf war

other risks abound including traffi

accidents with the increased numbe

of heavy trucks, tractors and lorrie

operating within the localities.

This state of affairs also brings t

the fore the incident in Owino Uhur

slums in Changamwe, Mombas

where hundreds of residents soug

medical help as a result of lead factor

poisoning.

It goes without saying that th

Comesa safeguards will be comin

to an end soon, which brings int

question the viability of Kenya

sugar sector.

Barasais a journalist and a med

consultant

[email protected]

R A D A R S C R E E N J O S E P H B A R A S A

Cane ush stis touble as suga secto tottesPROBLEMS Industry

wracked by manychallenges, puttingmany firms andlivelihoods at risk

TOPNEW

At the cente of

these battles is the

fact that some of

the new playescommenced

opeations

without contacted

cane fames

Tractors transport sugarcane at Kopere on the Eldoret-Chemelil Road in March. The sugar industry has been rocked by turf

wars as new companies lure contracted farmers away from established firms. FILE

Seventeen former and serving cab-

in crew are planning legal action

against British airlines saying they

have been poisoned by contaminat-

ed cabin air.

The cases are funded by the Unite

union which represents 20,000 flight

staff. Workers believe they have fallen

sick after breathing in fumes mixed

with engine oil and other toxic chemi-

cals.

The Civil Aviation Authority (CAA)

says incidents of smoke or fumes on

planes are rare and there is no evi-

dence of long-term health effects.

The Unite union, which is calling

for a public inquiry into contaminated

cabin air, has recently opened a dedi-

cated legal unit to record and process

claims from its membership.

Its lawyers are now working on 17

definite individual personal injury

claims against British airlines in the

civil courts, although these are still

at an early stage. Uncensored safety

reports submitted to the CAA, and

obtained by the Victoria Derbyshire

programme, show that between April

2014 and May 2015 there were 251 sep-

arate incidents of fumes or smoke in-

side a large passenger jet operated by

a British airline.

The BBC has, where possible, cho-

sen not to include cases which could

be blamed on an internal fault like a

broken toilet or air conditioning sys-

tem. The statistics do not include in-

ternational airlines, such as Lufthansa

and Ryanair, even when travelling in

British airspace.

An illness was reported in 104 of

the 251 cases, and on at least 28 of

those flights oxygen was adminis-

tered. The programme has also seen

first-hand testimony from a pilot

working for a major UK airline who

believes he was affected by toxic fumes

while landing at Birmingham Airport

in 2014. Almost instantly myself an

the captain became very unwell an

decided it was bad enough to plac

our oxygen masks on, he said.

We didnt declare a mayday

mostly due to not being able to thin

of the words needed to say - and ende

up auto-landing the plane and sim

ply briefing, Whoever is alive or con

scious, pull back the thrust levels afte

touchdown. It was that serious.

- BBC

Bitish ailines face multiple cabin ai pollution claims


4/32


companies such as Sa-

faricom, whose mobile banking product

M-Shwari that is offered in partnership

with Commercial Bank of Africa has

amassed 10 million customers.

Other lenders, including Co-op Bank

have developed own mobile banking

products such as MCo-op, which has

1.2 million customers, representing half

its 2.6 million customer base.

Technology has also become the

foundation of agency banking offered

by third parties for services

such as deposits and with-drawals that are seamlessly

reflected in customers ac-

counts.

In what amounts to a

stamp of confidence in tech-

nology-driven banking, the

CBK says Kenyas mobile,

Internet and agency bank-

ing is underpinned by sta-

ble and efficient operating

core banking systems that

the lenders have installed in

the past few years at a cost of billions

of shillings.

While technology has reduced cus-

tomers reliance on brick-and-mortar

branches, the CBK found that the

lenders remained focused on physical

expansion, especially in Kenya where

the establishment of county govern-

ments has expanded opportunities at

the grassroots.

A total of 28 out of 47 counties [in

Kenya] registered an increase in the

number of bank branches, indicat-

ing increased demand for financial

services, CBK says, adding that this

was partly occasioned by increased

economic activities in the regions fol-

lowing the introduction of devolved

government in 2013.

The CBK says the latest banking jobs

boom is partly driven by ongoing expan-

sion into new markets such as Tanza-

nia, Uganda and South Sudan where

Kenyan banks have set up

operations or acquired ex-isting institutions.

Subsidiaries of Kenyan

banks in Rwanda, Tanza-

nia and Southern Sudan

opened a total of 27 new

branches last year or more

than a quarter of the total

101 branches opened in

the year. A total of 74 new

branches were opened in

Kenya, including 40 in

Nairobi.

This raised the total number of bank

branches to 1,443, up from Sh1,342 in

2013.

The CBK report shows that physi-

cal expansion of banks through wider

branch networks mainly benefited sup-

port staff such as messengers, janitors,

receptionists and drivers whose ranks

grew by the largest margin of 31.8 per

cent to 2,336.

Those in supervisory roles, mainly

overseeing clerical and back office

work, were second with a 13.8 per cent

increase to 6,464.

Management, whose ranks grew

11.1 per cent to 9,584, also benefitted

underlining the expanded domain of

the highly skilled professionals.

Clerical and secretarial jobs, which

form the bulk of banking sector careers,

expanded at the slowest rate of 3.1 per

cent to 18,539, reflecting increased au-

tomation of their functions.

The report shows that banks hired

more risk managers as part of the plan

to deal with fraud associated with in-

creased use of technology-based bank-

ing channels.

There have been increased cases

of ICT-related frauds in the recent

years, the CBK says, warning that the

new banking models are vulnerable to

fraudsters.

Data on fraud reported to Banking

Fraud and Investigation Department

(BFID) indicates that cases relating to

computer, mobile and Internet banking

are on the rise, the report says.

The lenders have also lost money to

plastic cash fraudsters, who use com-

puter-based online transactions with-

out effective preventive and detective

controls to steal cash.

But banks arent giving up on tech-

nology-driven products. The CBK re-

port says most banks are keen to over-

come the challenges associated with

technology-based services seen as the

surest way to reduce overall wage bills

in the long term.

Automation has also helped banks

increase their workers productivi

trend that is expected to deepen w

improved margins as the ultimate

jective.

One worker served an average of

customers last year, up from 642 c

tomers in 2013 as the growth in dep

accounts surpassed the new hiring

The industry has steadily impro

its efficiency since 2007 when prod

tivity was at a new low, with an emp

ee serving an average of 190 custom

at the time.

The efficiency gains have helped

banks post significant profit gro

over the years, with their combi

pre-tax earnings rising 12.2 per c

last year to Sh141.1 billion.

[email protected]

Mobile bankingdives accounts

suge fo lendesFrom Page 1

KCB staff attend to clients at the banks call centre at the Moi Avenue branch in Nairobi. FILE

TOPNEWS

Thee have been

inceased cases

of ICT-elated

fauds in the

ecent yeas

CENTRAL BANK OF KENYA

REPORT

polling managers from

36 countries.

Over 150 respondents said that

misstating financial performance can

be justified. Even more appear willing

to take actions that could result in finan-cial statement manipulation, the report

says, capturing the global footprint of

the problem.

This means Kenya was in good

company as far as financial miscon-

duct goes.

Globally, E & Y found manipulation

most rampant in Oman where 99 per

cent of executives admitted to one of

the three forms of financial alterations

happening in their companies in the

past year.

India came in second with an affirma-

tive response rate of 62 per cent, Saudi

Arabia (43 per cent), United Arab Emir-

ates (40 per cent) while Turkey completed

the list of top five with 34 per cent.

Egypt, placed sixth, was the first

African country on the list with a score

of 32 per cent while Kenya ranked 11th

with 23 per cent ahead of South Africa

which polled at 22 per cent to take the

13th position in the list of 38 countries

surveyed. More than one in five senior

management respondents were aware

of early recognition of revenue in their

company, was the reports verdict on the

global scale of the problem.

The same proportion had heard of

underreporting of costs in their company

within the past 12 months.

Besides admitting the existence of

profit manipulation, 90 per cent of Ken-

yan executives reported that bribery and

corrupt practices are prevalent in their

companies. A fifth found offering gifts to

win business justifiable while another 15

per cent said offering cash payments to

win business is reasonable and critical

to the survival of their firms.These damning conclusions have

come in the wake of a series of finan-

cial scandals in some of Kenyas largest

companies.

Nairobi-based Haco Tiger Brands was

last month accused by South Africas Ti-

ger Brands, the majority shareholder, of

profit manipulation and pre-invoicing,

which inflated the companys earnings

by Sh879.1 million.

Five top managers of the firm, which

is 49 per cent owned by businessman

Chris Kirubi, are said to have moved

stock to third party warehouses to make

it appear as if full year performance tar-

gets had been achieved.

The case has underlined the extent

to which some managers are willing to

go to earn their bonuses.

Three years ago, an audit into

tor vehicle dealer CMC exposed h

the firms management and direc

signed misleading financial stateme

and allowed the company to adopt rbusiness models that partly facilita

the funneling of funds into off-sh

accounts, causing shareholders h

losses.

Cement maker, East African Portl

Companys (EAPCC) majority shareh

ers the Treasury and the National

cial Security Fund, in 2013 claimed

the firms financial statements had b

doctored, sparking a bare-knuckle fi

in the board.

More recently, financial manipula

has been alleged at sugar miller Mu

as, Dubai Bank and family owned re

chain Tuskys Supermarkets, painti

gloomy picture of the state of corpo

governance in Kenya.

[email protected]

Suvey eveals manipulation of financial epots in KenyaFrom Page 1

Companies manipulating results. Which, if any, of thefollowing have you heard of happening at your company in the last year.

SOURCE:EYFRAUDA

NDC

ORRUPTIONR

EPORT


5/32


The shilling weakened yesterday

before the central bank holds its

etary Policy Committee (MPC) me

with the market expecting an in

rate hike aimed at supporting t

cal currency.

The shilling was trading at 9

65 to the dollar, compared with 9

20 at Fridays close. The local cur

has lost 7.8 per cent to the doll

far this year.

John Njenga, a trader at Com

cial Bank of Africa, said the shillin

ground due to a major telecomm

cations firm buying dollars earlthe day. (It was) buying dollars

big size, so thats the main reason

pushed it up (weaker), he said.

The central bank is expected to

rates for the first time in two ye

Reuters poll of analysts showed

expect rates to be hiked by 100

points.

Renaissance Capital said in a

ket note the shilling is likely to re

under pressure even if the rates ri

basis points, with weak dollar in

and poor exports weighing on th

cal currency.

The shilling has been under pr

from the global strength of the d

a growing current account defic

sliding foreign exchange earnings

tourism as visitors have stayed

due to a series of Islamist attack

central bank sought to mop up Sh

lion in excess liquidity from the m

yesterday.

Draining liquidity makes it

costly for traders to bet agains

shilling.

-REUTERS

Shilling loses

ahead of todayMPC meetin

ECONOMY &POLITICSNEWS I REVIEWS I ANALYSIS

BY KIARIE NJOROGE

The average size of mortgages in-

creased to Sh7.5 million, making it

difficult for a majority of Kenyans to

own homes financed by commercialbanks.

The Central Bank of Kenya (CBK)

data shows that the average home

loan rose from Sh6.9 million in 2013

and Sh6.4 million in 2012, a jump

blamed on high interest

rates, expensive homes

and upfront fees.

Mortgage lending

increased last year by

nearly a fifth to Sh164

billion held in 22,013 ac-

counts, up from 19,879 a

year earlier and 18,587

in 2012.

Banks identified

high cost of housing/

properties, high inter-

est rates, and high cost of incidental

cost as the major impediments to the

growth of their mortgage portfolios,

noted the CBK.

The average mortgage interest rate

stood at 15.8 per cent last year, down

from 16.37 per cent in 2013.

At 15.8 per cent, those borrowing

Sh7.5 million for 10 years will need

to pay Sh124,701 per month and

Sh109,108 if the mortgage runs for 15

years. This makes it difficult for those

earning less than Sh300,000 monthly

to qualify for the average home loans,

given that banks demand that borrow-ers retain a third of the pay after all

deductions.

A CBK mortgage market survey in

December revealed that 22 per cent

of the bankers interviewed cited the

high cost of houses as

the major impediment to

mortgage uptake, with 21

per cent of them blaming

high interest rates.

Upfront costs such as

legal fees, valuation fees

and stamp duty were cit-

ed by 15 per cent of the

bankers as hurdles to ac-

cessing mortgage.

The cost of mortgage

has defied a new formu-

la introduced last June for banks to

use in pricing loans, seeking to bring

down high interest rates that have sti-

fled lending to businesses and home

buyers.

Kenyan banks say their operating

costs are higher than those in more

advanced markets and that they lack

a developed credit rating system for

screening customers.

Consumers accuse banks of tak-

ing too much profit by charging high

lending rates while offering lower de-

posit rates.

Under the new system, bank lend-

ing rates are linked to the Kenya Banks

Reference Rate (KBBR), which is based

on averages of the monetary policy rate

and the 91-day Treasury bill yield over

six months.

They are allowed to add a premi-

um based on business costs, such as

electricity, and the borrowers credit

profile.

Most of the banks continue to fi-

nance only 90 per cent of the proper-

tys cost. Some like Housing Finance

and KCB, however, introduced a 105

per cent financing offer to help meet

the upfront costs.

The CBK report adds that the

amount in default stood at Sh10.8 bil-

lion as at December 2014 compared to

Sh8.5 billion in 2013. Kenyas mortgage

debt to gross domestic product (GDP)

ratio stands at 3.5 per cent which ismuch lower than in developing coun-

try peers such as South Africa (33 per

cent), India (six per cent) and Colombia

at seven per cent.

In Europe, the figure stands at

around 50 per cent, and it is over 70

per cent in Britain and the United

States.

The lack of affordable mortgage

products has seen most people opt to

pay cash for a house or buy land and

build homes over a period of time.

CBK has urged for a re-think of poli-

cies among them subsidising stamp

duty for first-time home buyers and

development of infrastructure outside

the main urban centres.

Housing Finance continues to

be the biggest lender in the mort-

gages market with 5,840 accounts

worth Sh45.2 billion in outstanding

amounts.

KCB is second with a loan portfolio

of Sh41.3 billion despite having more

customers in its books5,914 than

Housing Finance.

[email protected]

Aveage home loan

soas to Sh7.5m,locking out many

REAL ESTATE Sh124,701 repayment per

month for 10 years beyond the reach of many Houses in Kiserian, Nairobi. High costof houses has been cited as a major

impediment to mortgage uptake. FILE

Banks identified

high cost of

housing, high

inteest ates,

and high cost of

incidental cost

CBK REPORT

Mortgage size (Sh m)

2010 4.1

2011 5.7

2012 6.4

2013 6.9

2014 7.5

SOURCE:CBK


6/32


BY SANDRA CHAO-BLASTO

The National Assembly has told Ab

Namwamba to forget his old job as P

lic Accounts Committee (PAC) chairm

which he lost following graft allegati

The Clerk of Parliament, through l

yer Wangechi Thanji, said in court do

ments yesterday that Mr Namwambas

plication ...has been overtaken by eve

as a new chair of PAC has already b

nominated and taken up his duties

as such this court will be engaging in

academic exercise.

The Budalangi MP had on Apri

gone to court, seeking orders to rev

the reconstitution of the dissolved cmittee.

Accused

He sued the Committee on Privileges,

Clerk of the National Assembly and

Attorney-General on grounds that

committee did not have power to reco

mend the dissolution of another comm

tee of Parliament or bar someone seek

re-nomination.

Members of the watchdog commi

were replaced a day after Mr Namwam

filled his case at the High Court.

Rarieda MP Nicholas Gumbo

placed Mr Namwamba as the new P

chairman.

Mr Namwamba was accused of rec

ing bribes from the then Interior and

tional Co-ordination PS Mutea Iring

alter recommendations of the commi

on a probe into Sh2.8 billion expendit

during the 2013/14 financial year.

Powers

Mr Namwamba maintained his in

cence and dared any member with pr

to tender the same before the Ethics

Anti-Corruption Commission (EA

for action.

The membership of committee

Parliament is a political question to

determined by political parties and

National Assembly in accordance w

House rules, this honourable court is

the proper forum to determine such qtions, Ms Thanji said.

She argued that the case violates

principle of separation of powers wit

the three arms of government by asking

court to interfere in the internal mana

ment of Parliament and its committe

She said that the court could only

tervene in parliamentary matters if th

had been a constitutional violation ju

diction.

The application seeks this cour

delve into the merits of the decisio

the Committee of Privileges of the

tional Assembly and therefore this co

ought to decline from sitting as an ap

late court on the decision of a commi

of the National Assembly, she said.

Foget PACchaiman post,House Clek

tells Namwamb

Vimal Shah has been appointed the

chancellor of the Jaramogi Oginga

Odinga University, adding to the

list of the corporate leaders being

tapped to the world of academia.

President Uhuru Kenyatta ap-

pointed Mr Shah, the chief execu-

tive of Bidco, through the latest

gazette notice for a period of five

years from May 19.

...Vimal Shah to be the Chan-

cellor of Jaramogi Oginga Odinga

University of Science and Technol-

ogy for a period of five years, read

the notice.

The move is seen as an effort to

tap brains from the corporate world

to boost standards in Kenyas pub-

lic universities that have been criti-

cised for churning graduates that do

not meet employers needs.

A research conducted by an

American think-tank in 2013 re-

vealed that graduates from Ken-

yan universities are less competi-

tive in the job market, due to gaps

between their training and the skills

employers want.

Mr Shah, a renowned industri-

alists, joins other corporate gurus

such as the former Safaricom chief

executive officer Michael Joseph in

the academia.

Mr Kenyatta appointed Mr

Joseph as the chancellor of Mase-

no University last year.

Mr Shah, 54, will offer advice to

Jaramogi Oginga Odinga Univer-

sity, which was made an independ-

ent university in 2009.

He replaces Prof Jonathan ole

Karei who passed on last July.

Mr Shah is credited with turning

Bidco into a top player in manufac-

turer of household products such as

detergents, soaps and cooking oils

across East Africa.

The company turned over $500

million (Sh48 billion) in 2013.

Forbes placed the wealth of Bid-

co Oils Bhimji Depar ShahatVi-

mal Shahs father at Sh67.2 billion

($700 million) last year.

-GERALD ANDAE

Vimal Shah appointed

univesity chancello

Bidco chief executive Vimal Shah. FILE


7/32


CORPORATENEWSNEWS I REVIEWS I ANALYSIS

BY OKUTTAH MARK

Tanzania has turned out to be a rich

hunting ground for Kenyan banks with

subsidiaries in the neighbouring coun-try outperforming South Sudan whose

profit contribution to local lenders has

been hit by political instability in the

young nation.

The Central Bank of Kenyas (CBK)

annual supervisory report

for 2014 shows that Tanza-

nian subsidiaries outper-

formed operations in all

other regional countries

such as Uganda, Rwanda

and South Sudan in terms

of profitability, value of as-

sets, total loans disbursed

and net value of deposits.

The subsidiaries reg-

istered combined profit

before tax of Sh5.5 billion

compared to Sh5.2 billion

the previous year, with Tan-

zania accounting for 32 per cent of the

total earnings.

The (South Sudan) crisis led to a

hard currency shortage with wide dis-

crepancies between official exchange

rates and black market exchange rates.

Subsequently, this affected Kenyan cus-

tomers of subsidiaries in South Sudan

as they were not able to fully draw on

their South Sudan Pound-denomi-

nated accounts after fleeing back to

Kenya at the height of the crisis, says

the CBK report.Eleven Kenyan banks have sub-

sidiaries in the East African Commu-

nity (EAC) member states and South

Sudan.

They are KCB, DTB, Commercial

Bank of Africa (CBA),

Bank of Africa (BOAK),

Guaranty Trust Bank,

Equity Bank, I&M

Bank, Imperial Bank,

ABC, NIC Bank and the

Co-op Bank.

Subsidiaries oper-

ating in South Sudan

accounted for 26.3

per cent of the total

profits, although only

three banks, KCB, Eq-

uity and Co-op have

operations there.

Uganda units accounted for 21.4 per

cent of the total profits. The number

of subsidiaries that registered losses

reduced to four from the previous

eight.

Two of the subsidiaries that regis-

tered losses before tax were operating

in Uganda, indicating stiff competition

though one of them had the subsidiary

set up in year 2013 and is, therefore,

still new to the market. The rest are

subsidiaries in Tanzania (one) and

Rwanda (one), says the CBK report.

The political crisis in South Sudan

began on December 15, 2013 with disa-

greements between two factions in the

ruling party that subsequently degen-

erated into an armed conflict spread-

ing to other parts of the country, espe-

cially the Northern states.

CBK says that as a mitigating meas-

ure, banks put up service desks in their

Nairobi branches of the parent insti-

tutions for the customers who were

evacuated from South Sudan as well

as in all the branches in the troubled

country for those who remained.

Despite the instability caused by

the strife, the operations of the banks

subsidiaries are ongoing. The only

exceptions are in Bor, Bentiu and

Malakal where the banks have closed

branches.

The subsidiaries had in their

books gross loans worth Sh189.3 bil-

lion against Sh149.6 billion the previ-

ous year. Tanzania accounted for 45.2

per cent of the total loans, Uganda

28.2 per cent while operations in

Rwanda accounted for 17.2 per cent

of the lending.

The subsidiaries had gross depos-

its worth Sh319.7 billion compared to

Sh236.5 billion in the previous year.

The lenders with operations in

Tanzania had the highest deposit

concentration and accounted for 33.7

per cent of the total deposits, South Su-

dans stood at 27.7 per cent while those

in Uganda accounted for 23.1 per cent

of the total deposits.

The subsidiaries had a total of

5,759 employees compared to 5,219

the previous year. Uganda had the

highest number of employees at 38.5

per cent in tandem with the number

of branches of the subsidiaries located

there.

[email protected]

Tanzania dives

Kenyan banks pofitas S.Sudan faltes

REPORTRegional units make combined

Sh5.5bn in net profit from Sh5.2bn in 2013

A KCB branch in Rwanda: South Sudan follows Tanzania closely in profits despitethe political instability that has hit the country since December 2013. FILE

South Sudan

cisis led to a had

cuency shotage

with discepancies

between official

exchange ates and

black maket ates

CENTRAL BANK

No of branches outsideKenyaBanks No of

bran-

ches

Equity 62

Diamond Trust Bank 59

KCB 58

Bank of Africa 56

I&M 25

Guaranty Trust Bank 25

Commercial Bank of Africa 12

NIC 7

Imperial 4

Coop Bank 2

TOTAL 315

SOURCE: CBK REPORT.

BY CHARLES MWANIKI

CfC Stanbic Bank has been downgraded

to the middle-tier group after dropping

its market share by 0.5 percentage points

to 4.92 per cent.

The bank, majority held by South Afri-

can lender Standard Bank, is now ranked

seventh after swapping places with Com-

mercial Bank of Africa which gained 0.72

percentage points to 5.12 per cent in a

year when it recorded rapid growth of

its retail customer base helped by the

M-Shwari platform.

These were the only two banks that

shifted between tiers in 2014 from their

positions in 2013.

Commercial Bank of Africa moved

to the large peer group from the medi-

um peer group while CfC Stanbic Bank

moved to the medium peer group from

the large peer group, said CBK in the re-

port. The changes in the market share

were mainly occasioned by growth in cus-

tomer deposits as banks deployed various

strategies for deposits mobilisation.

Kenyan banks are classified into three

tiers based on a weighted composite in-

dex of their net assets, capital and re-

serves, customer deposits, number of

loans and deposit accounts.

According to the Central Bank of

Kenya, there were six large banks con-

trolling a market share of 49.9 per cent, 16

medium lenders commanding a market

share of 41.7 per cent and 21 small banks

with a market share of 8.4 per cent to the

period ended December 2014. Top tier

banks have a weighted index of five per

cent and above, while middle-tier lend-

ers have an index of between one and

five per cent.

Those with less than one per cent are

classified as small-tier lenders. Banks in

the medium peer group increased their

combined market share from 37.95 per

cent in December 2013, coming at a time

when many of them raised additional

capital to meet new CBK requirements

as well as aggressively expanding their

operations.

The market share of banks in the large

and small tiers declined last year h

stood at 52.4 per cent and 9.66 pe

respectively in December 2013. KC

mained at the top of the ranking w

share of 12.69 per cent, followed b

operative Bank with 8.91 per cen

Equity Bank with 8.7 per cent.

Cooperative overtook Equity, h

been third in 2013, courtesy of a g

0.3 percentage points while Equity

1.09 percentage points in the inde

The top tier banks hold 48.8 pe

of the industrys total assets of Sh3.

lion, 49.6 per cent of the total cust

deposits of Sh2.29 trillion, 50.2 pe

of the industrys capital and reser

Sh501.7 billion and accounted for

cent of pre-tax profits of Sh141 b

recorded last year.

CfC Stanbic loses top-tie bank classification to CBAThe CFC Stanbic

Bank branch along

Kimathi Street in

Nairobi. The bank

is now ranked sev-

enth after swap-

ping places with

Commercial Bank

of Africa. FILE

Fim wants

RVR woundup ove debtBY SANDRA CHAO-BLASTO

A security risk consultancy has fi

application at the High Court se

to wind up Rift Valley Railways

CRS Risk Management Se

Limited has sued Rift Valley

ways over a debt arising from

leged breach of contract.

The company is indebted to t

titioner in the sum of Sh10.9 mill

at January 6, with additional in

being the amount due by the com

in respect of breach of contrac

consultancy says in court filingThe railway operator has n

responded to the suit. Justice Fr

Gikonyo ordered the firm to serv

for a mention of the case on Jun

RVR announced it had pos

Sh1 billion loss in the year ende

cember. It made the loss despit

ing reported a 14 per cent incre

revenue to Sh8 billion, indicatin

costs rose faster than turnover in

lute terms. The railway operato

it was forced to reduce its ch

last year due to increased cap

and competition from trucker

took advantage of lower fuel pri

drop their prices. According to

documents, RVR appointed th

as its security risk managemen

sultant in March 2013.

The firm was to offer securit

management, process analysis a

curity manning services for one

The firm charged RVR a month

exclusive of VAT of Sh550,00

the security risk managemen

Sh250,000 every month for the

ysis in addition to separate charg

other services,


8/32


BY OKUTTAH MARK

Internet traffic to Mombasa and parts

of Tanzania will be routed through

Nairobi after the Amsterdam Inter-

net Exchange (AMS-IX) and a Kenyan

telecoms lobby group closed Kenyas

second Internet Exchange Point (IXP)

that was based in Mombasa.

AMS-IX in a statement said the de-

cision was made after the Mombasa-

based Internet exchange point failedto attract enough users.

The second IXP in the country

was launched in 2010 to help route

all the regions traffic locally. This was

expected to improve Internet users

experience, save operators the expense

of passing regional traffic through Nai-

robi and reduce the costs associated

with traffic exchange between Inter-

net service providers (ISPs).

In its absence it means that region-

al operators will now have to pass their

traffic via Nairobi. To date there have

been only four parties who have con-

nected to the platform, said the AMS-

IX statement.

Minimise loss

The exchange point had attracted

international tech giant Google and

three local ISPs, but AMS-IX said it

is not economically viable to con-

tinue running the system with thefew clients.

In a statement on its website, AMS-

IX said it will re-use the equipment

which has been deployed in Kenya

for other purposes to minimise loss

of investment.

We (AMS-IX and Telecommunica-

tion Service Providers Association of

Kenya) believed strongly in the need

for a regional IX. However, since the

exchange point went live in mid-2014

it has proved difficult to attract par-

ties to participate in the exchange.

This has led to the difficult decision

to close the East Africa Exchange Point

as of June 1st.

AMS, however, said the decision

shouldnt stall development of Inter-

net infrastructure in East Africa.It noted that there is a project

underway supported by the Afri-

can Union to create an East Africa

exchange point. It is supported by

seven countries.

AMS-IX believes that this initia-

tive is the best for the African market,

especially given that it will be owned

and driven entirely by African-based

parties enabling the community to

demonstrate that it is ready and ca-

pable to take the next steps in inde-

pendently developing its own Internet

infrastructure, said the statement.

AMS-IX said it will continue to sup-

port the development of the Internet

infrastructure in Africa via initiatives

such as the African Peering and In-

terconnection Forum, sharing theirknowledge and experience, and the

provisioning of equipment to devel-

oping Internet exchanges.

Mombasa is the landing point for

all undersea fibre cables to Kenya and

other landlocked countries in East Af-

rica, a factor that made it an attractive

location for international carriers to

inter-connect with the region.

[email protected]

Mombasa Intenet

taffic e-outedto Naiobi hub

TECHNOLOGY Second exchange closed as it fails to attract users five years after launch

Internet traffic to Mombasa and parts of Tanzania will be routed through Nairobi.

FILE

COUNTYBUSINESSCORPORATENEWS

BY WAINAINA WAMBU

The Chase Bank corporate

bond has attracted over Sh6

billion worth of subscriptions,

more than doubling the target

set for the first tranche.

Chief executive Paul Njaga

yesterday said the bank will

take Sh4.5 billion and no

more subscriptions would

be accepted for the first

tranche.

We were looking for Sh3

billion (for the first tranche),the bond was oversubscribed

and we got offers in excess of

Sh6 billion, said Mr Njaga in

an interview.

We cant accept any

more money, the plan is to

deploy what weve raised,

he added.

A clause in the corporate

bonds underwriting agree-

ment allowed the bank as the

issuer to take up an additional

Sh2 billion if the initial Sh3

billion is oversubscribed.

The Sh10 billion corpo-

rate bond has a seven-year

tenure and is aimed at help-

ing strengthen the banks

capital base and financing

its expansion.

Mr Njaga was speaking

after the signing of a pub-

lic private partnership be-

tween Chase Bank, Rabo In-

ternational Advisory Services

(RIAS) and the Netherlands

Ministry of Foreign Affairs.

The partnership will equip

Chase Bank staff with techni-

cal assistance to serve SMEs,

youth and women, agri-busi-

ness and innovation.

Mr Njaga said the tech-

nical assistance would h

Chase bank achieve so

of the targets outlined

the public-private-partn

ship deal.

Head of banking for R

International Advisory S

ices (RIAS) David Gerbra

said the two-year partners

would ensure the transfe

knowledge, innovat

agri-business and aim

lowering the cost of bank

in Kenya.

The Chase Bank bond pay investors returns at a r

of 13.1 per cent, the high

yielding of several corpo

bonds issued over the p

two years.

The recent past has s

an oversubscription of off

for corporate bonds follow

heavy demand.

The East African Brew

ies Limited (EABL) bond

tracted over Sh9 billion,

ceeding the Sh5 billion ta

for the first tranche.

UAP, CIC, Britam,

and CBA are other firms t

have successfully raised fu

through the bond marke

Chase Bank takes up Sh4.5bnof ovesubscibed bond issue

What it will take Chief executive Paul Njaga

yesterday said the bank will take

Sh4.5 billion

Ecobank picksCitibank bossas goup CEOBY EDWIN MBUTHIA

Pan-African lender Ecobank has

pointed a new group chief execut

The bank with operations in

countries across the continent incl

ing Kenya, announced the appo

ment of Mr Ade Ayeyemi yester

effective from September 1.

Mr Albert Essien has been ho

ing the position for about a year a

the former CEO was sacked follow

leadership wrangles at the bank.

Mr Essien, who retires on June

has been with the bank for 25 ye

and was appointed Group CEO fr

his position as the deputy CEO wh

he held for two years.

Ecobank Group Chairman E

manuel Ikazoboh said the recrment involved a thorough and ext

sive search throughout Africa.

Ade is a truly outstanding indi

ual with deep knowledge of bank

across Africa, and we welcome him

the board, said Mr Ikazoboh.

Mr Ayeyemi has had a long car

with Citigroup, where he is curre

chief executive officer of the lend

sub-Saharan Africa division base

Johannesburg.


9/32


BY JAAFFER ABDULKADIR

With the ever increasing challenges of

inequality, unsustainable exploitation

of natural resources and unstable mac-

roeconomic economic environment,

there is need to employ creativity and

innovation to address some of these

challenges. It is obvious that yester-

days solutions may not effectively ad-dress todays problems neither shall

todays solutions solve all of tomor-

rows challenges.

For humanity to be in harmonious

co-existence and limit the vulnerabil-

ity to inequality, crime and insecurity,

there is need to enhance access to op-

portunities and facilitate the empow-

erment of the economic growth for the

majority. There is no significance in

registering economic growth that does

not translate into the improvement

of quality of lives and the sharing of

prosperity.

Inequality kills dreams and ad-

versely undermines the realisation

of the full potential of human beings.

How many potential engineers, doc-

tors, architects, teachers, bankers and

business people have we lost and we

are still losing in their infancy or in

their prime age due to lack of oppor-

tunities for them?

Human greed over time has con-

tributed to the accumulation of wealth

that does not help advance human de-

velopment. It is the human greed that

also contributes to the creation of the

unstable macroeconomic environ-

ment which in turn erodes wealth

and destroys value through reces-

sion, inflation and unpredictable ex-

change rates.

As a result of the above, there is

need to relook at our economic growthand poverty reduction strategies in a

bid to refine the same to reflect the

emerging realities of life and bor-

row global best practices economic

models .

The Islamic financial and banking

practices which has a strong emphasis

and focus on real economic activities

and creation of values on the basis of

transparency , fairness and justice

is getting appreciated as a workable

solution to addressing some of the

omissions of economic and financial

models in practice.

The functions and goals of the Is-

lamic financial and banking system

are similar to the systems under the

capitalistic structures with the only

difference being in the qualitative ap-

proaches stemming from the spiritual

values, socio-economic justice and hu-

man brotherhood.

The Islamic financing approach

that operates on the principles of

social justice, inclusion and sharing

of resources between the rich and the

poor is fast gaining ground globally. It

does not condone investment practices

that hurt the societies.

Indeed, as per the Islamic princi-

ples, profits are not deserved

unless value is derived from

the economic activity for thebenefit of larger society. We

do not have to make more

money because someone

else is losing the same but

everyone gains something

in the process.

The efforts of individu-

als to undertake activities

geared towards their per-

sonal economic wellbeing

are encouraged as long as

it is done within the framework of

Islamic principles and the culture of

exploitation and fraudulent activities

is not encouraged.

Investments in activities such as

arms trade, human trafficking, drugs,

alcohol and any other form of busi-

ness that is detrimental to the overall

wellbeing of the society is also prohib-

ited. The concerns for social and en-

vironmental stability supersede any

considerations for economic returns

in all its dealings.

The institution ofRiba(interest)

is totally outlawed and instead what

is acceptable are productive activities

that generate cash flows and create

wealth such as returns from trading

processes or from the transfer of usu-

fruct that entails the

right to use an asset

for production witha provision for rent-

als due to the asset

owner.

The Islamic fi-

nancial system

is based on a risk

and profit and loss

sharing principles.

The Islamic trans-

actions are indeed

similar to the eq-

uity-based transactions in rewarding

performance with strong emphasis on

rewarding effort rather than merely

the ownership of capital.

Islamic commercial jurisprudence

spells out rules and principles that

places the Islamic law of contracts in

the heart of any exchanges and trans-

actional processes .One key considera-

tion in this principle is the contractual

certainty that limits ambiguities that

could breed disputes and bad blood

between parties concerned.

The Islamic financial institutions

operate on the basis of robust govern-

ance framework that involves an extra

layer of oversight involving the Shariah

scholars who ensure that the shariah

tenets are adhered to.

The phenomenal growth of Islamic

financial industry is attributed to its

ethical and moral considerations forhumanity. According to Ernst and

Young, the Islamic banking assets

have surpassed $778 billion in 2014

and projected to reach U$1.8 trillion

by 2019. Globally the Islamic banking

assets have grown at the annual rate of

17 per cent from 2009 to 2013.

Islamic banks have focused on busi-

nesses that are connected to the real

economy and partnerships that con-

tribute to value creation. The growing

interest in Islamic financial systems

and banking in general stems from

the need for financial structures and

practices that offer an alternative to

conventional lending.

The writer is the head of Islamic bank-

ing at KCB.

IDEAS& DEBATEOPINIONS I REVIEWS I AN ALYSIS

KCB Group chief executive officer Joshua Oigara speaks during the launch of the banks Islamic unit at the Hilton Hotel

in Nairobi in April. SALATON NJAU

Islamic finance gains gound with itspinciples of inclusion, esouce-shaing

Inequality kills

deams and

undemines

the ealisation

of the full

potential of

human beings

OPPORTUNITIES Banking system does not condone investment practices that hurt societies

Irene Muloni

Uganda Energy minister

Other Voices

Paul Bagabo(New Vision)

Ugandas Ministry of Energy and M

Development has extended the de

for firms to submit bids in its first-e

round of licensing for six oil blocks

the Albertine Graben. This is intend

encourage companies to apply, aft

ministry received a disappointing c

lection of bids in the first go-round

struggle to find appropriate invest

the latest consequence for the cou

of the sharp fall in global oil prices.

Hugo Dixon (Reuters)

Athens creditors havent quite de-

livered an ultimatum. But the lates

bout of high-stakes diplomacy has

Greece will little wiggle room if it w

to avoid a messy default that unle

economic and political chaos. Alex

Tsipras, the prime minister, has the

chance to go through one more roof negotiations. If he plays his card

well, he can secure less austerity

the euro zone and the Internationa

Monetary Fund, as well as an indic

that the countrys debt burden wil

relieved so long as it plays ball.

Alexis Tsipras

Greece Prime Minister

Keith Kahn-Harris (Guardian)

The announcement that Tony Blair

join the European council on tolera

and reconciliation as chairman see

like an open invitation for satire . A

having reconciled Iraqis, Israelis an

Palestinians, Blair will now bring p

to Europe. There is much about Bl

post-prime ministerial career that

jaw-dropping in its shameless self

lusion: he believes he can bring peo

together in peace just as he believe

can facilitate the spread of democ

even as he works as a shill to dictat

Tony Blair

Former UK Prime Minister


10/32


It is budget season in the East AfricanCommunity and it is at this time that

each of the partner state governments

table their estimated expenditure for the

coming fiscal year and, more importantly,

the tax measures that they propose to in-

troduce to generate revenue to help fund

the envisaged expenditure.

Last week, Parliament approved the

governments Sh2.1 trillion spending plan

for the year 2015/2016. With citizens com-

plaining about a heavy tax burden, the

EAC governments find themselves be-

tween a rock and a hard place how to

increase tax revenue without negatively

impacting the ordinary citizen.

This therefore means that the head

honchos at the ministry of Finance have

to think outside the box and come up with

efficient and innovative ways of improv-

ing tax administration and increasing tax

revenue. Thus I thought to myself; if I had

an opportunity to give Treasury secretary

Henry Rotich the proverbial five-minute

elevator speech, what would be the five

things I would tell him?

First, do not kill the goose that lays the

golden egg. In the past couple of years,

the telecommunication industry, the

alcoholic and tobacco industry and re-

cently the financial sector have been on

the receiving end of legislative changes

aimed at increasing tax revenue. While the

intention might have been to increase tax

revenue, some of these changes have been

counterproductive and have resulted inloss of business and, consequently, loss

of revenue.

Some of these changes appear to have

been introduced without adequate con-

sideration of their impact on businesses

and consumers, and the government has

had to revise its position after the negative

impact has been felt.

Secondly, there is need to come up with

new and innovative measures of generat-

ing tax revenue which do not necessarily

target these low-hanging fruits. Consider

introducing anti-deferral rules to widen

the tax bracket. The tax law of many coun-

tries does not tax shareholders until theyhave dividend distribution. It is therefore

common for companies to form foreign

subsidiaries in jurisdictions with lower tax

rates and defer portable income.

Local tax on this income is avoided

until the lower tax jurisdiction pays a

dividend to its shareholder. This income

could be avoided indefinitely by loaning

the earnings to the shareholder without

actually declaring a dividend. The anti-

deferral rules would seek to prevent (or

negate the tax advantage from) deferring

income in jurisdictions that have a prefer-

ential tax regime for passive income and

income that is split off from the activi-

ties that produced the value in the goods

or services generating the income. The

rules would require a Kenyan entity to

include in his Kenyan income as invest-

ment income and passive income as well

as sales and services income in those ju-

risdictions.

Thirdly, consider reviewing the newly

introduced anti-treaty shopping rules. In

Kenya, the Income Tax Act was amended

to restrict the application of benefits of a

double tax treaty where 50 per cent of the

underlying ownership of the entity resi-

dent in the offshore country is owned by

shareholders who are not resident in the

offshore state.

While the objective appeared to be

a move to prevent treaty shopping, the

result is a purported unilateral amend-

ment by Kenya of all its double tax trea-ties, which ironically comes at a time

when Kenya has concluded and ratified

a couple of treaties, and it does not take

into account the impossible task of de-

termining the underlying shareholders

of the offshore entity. To avoid taxpay

tripping over these rules or potentia

gation, these rules should refined.

Fourthly, thank you for the Tax App

Tribunal. Even though it took a cou

of years, the tribunal is now constitu

and should be up and running soon.

commendable thing is its constitut

the Treasury secretary was able to ide

and appoint a good mix of people frdifferent career backgrounds in law, b

ness, finance, economics and insura

to the tribunal.

It is the taxpayers hope that the

bunals members invaluable experie

from working in consultancies and at

KRA will be a valuable asset when

they are seized with a litigious tax m

ter for adjudication. However, one wo

hope that the tribunal would have its o

budget and secretariat to ensure efficie

and independence.

Finally, employ a consultative

proach to tax administration measu

The government anticipated to collect

billion between January 2015 and J

2015 from capital gains tax. Howe

with about Sh300 million in the po

so far and with a case still working its

through the court system, the fore

does not look promising.

At the moment everyone is losing

cept maybe the lawyers) and with a Sh

billion hole to plug, it is looking espec

bad for KRA who seem to have harde

their position. If KRA hopes to employ

my-way-or-the-highway approach for

anticipated new income tax legislat

then the taxman will be preoccupie

the court corridors instead of collec

much need revenue. Compliance is hig

when taxpayers attitude is positive a

posed to when they feel they are shoul

ing an unnecessary burden.

Mr Thogo works with Delo

East Africa and can be reached

[email protected]. The views

pressed above are his own do not

essarily represent those of the firm

Five things that ae in my Budget wish lis

JOSEPH THOGO

BUDGET

Step up cancer screeningOn Sunday Rwanda observed the annual National

Cancer Survivors Day. Breast cancer is one of the

most common cancers diagnosed in Rwanda, and

it has been reported

that most sufferers seek

medical attention when its late. Make available

equal access to detection services, treatment, and

care, including palliative care.

Securities agency on right trackMary JO White, the chair the Securities and

Exchange Commission, is a rarity in Washington.

Its work is bound to displease at least someone.

What we can expect

from the agency is a

genuinely independent process as Ms White said.

We see no evidence that she has failed to deliver

and much evidence she was right to declare it.

Resuscitate health sectorUgandas health sector has challenges, includin

difficulty in accessing health care, and rundow

facilities. While specific steps have been taken

to address some of

the issues, such as th

national crackdown on fake clinics/drug stores

bigger outlook is far from satisfactory. Address

issues like insufficient health infrastructure.

WASHINGTON POST

WASHINGTON DC

VIEWS FROM ABROAD Opinions fom aound the wold

DAILY MONITOR

KAMPALA

THE NEW TIMES

KIGALI


11/32



12/32


BY ILYAS KHAN

It is often said that nothing is certain, butdeath and taxes. Ironically though, taxation

is not always that certain. If you ask any inves-

tors, for the top things they look for when it

comes to taxes, certainty (whether they will

have to pay tax and if so, how much) is bound

to be on the list.

Taxation is necessary because it is often the

primary means through which the govern-

ment collects resources needed to run pro-

grammes that benefit the population.

Services, such as national defence and

public administration, cannot easily be sold

to individuals.

This is because if these services are pro-

vided, the benefits are available to all, irre-

spective of whether or not they pay taxes,

and one persons enjoyment of them does

not diminish the benefits available to oth-

ers. Similarly, it would not be acceptable to

provide certain services, such as healthcare,education and police protection only to those

who are able to pay full costs because, then,

it would deprive the poor of basic socio-eco-

nomic rights, which are now enshrined in

our Constitution.

The reason why there should be certainty

in taxation is two-fold. First, uncertainty may

result into unfair or unintended burden being

placed on the taxpayers by KRA, based on its

interpretation of unclear provisions.

Secondly, uncertainty fuels tax evasion.

The time, the manner of payment and the

amount to be paid must be clear to the tax-

payer. Thus, tax legislation should not be

ambiguous in relation to ascertaining what,

when and where tax is to be paid.

Kenyans have become litigious over the

Will evised income tax

stuctue be convenient?

Models on a

queue alon

basa Road d

strate the f

of queuing w

ing tax retu

KRA is push

linetax filin

SALATON NAJU


13/32


st decade or so. The number of tax disputes

s well as the complexity of issues and amounts

t stake continue to increase. There are many

asons for this, including challenging interpre-

ations of tax laws; inconsistencies in the text

f legal and procedural guidelines; absence (or

mited instances) of correlation between court

ulings and actions of tax authorities etc.

The structure of the current taxes become

ifficult for taxpayers due to frequent chang-

s in tax legislation, some of which are not

n harmony with other provisions, as well as

hanges in nature of transactions that may

ot have been anticipated at the time the tax

legislation was put in place. The government

is attempting to simplify the tax regime, begin-

ning with the new value added tax (VAT) Act

in October 2013. The Treasury Secretary in his

Budget speeches for 2013 and 2014 expressed

the intention to have the other tax legislations;

the Income Tax and Custom & Excise legisla-

tion, reviewed.

Kenyas Income Tax Act is almost 40 yearsold and has been amended countless times to

keep it abreast of developments in commerce,

to create new mechanisms for increasing the

tax base and to close loopholes. Inevitably, this

has become more complex thus increasing un-

certainty for the taxpayer.

The Income Tax Act should be given a fresh

rewrite, as has been done with the VAT Act.

Whilst revised and clearer legislation will be

welcomed by all, it is however, inescapable that

there will always be areas of tax law that are

subject to different interpretations.

However, if the major objectives of taxa-

tion are to be achieved, the writers of the

new/revised tax legislation should ensure they

achieve simplicity, convenience and equality.

This is important as it helps to ensure taxpayers

fully understand their obligations and minimis-

es the risk of default as well as possible unfair

enforcement by the revenue authority.

The criteria of convenience stresses that

both time and manner in which payments are

executed should be convenient to the taxpayer.

For instance, the payment of VAT and excise

duty by the shopper is very convenient because

one pays the tax when he buys the commodi-ties, at the time when he has the means to buy

the product.

Taxes should be allocated among individu-

als fairly and reasonably (and thus equitably).

Every person should pay tax according to his

ability which is dictated by the income levels.

This means that a taxpayer should not pay tax at

the same rate; but rather every taxpayer should

pay the tax proportionate to his income.

Following the promises of 2013 and 2014, we

are hopeful that we will see the actual tabling

of a revised Income Tax Act during the Budget

Speech of 2015 and it is hoped that any such

revised legislation will conform to the basic

criteria mention above.

Khanis a senior manager, Deloitte East

Africa . E-mail: [email protected]

BY ROBERT WARUIRU

So, we all know that death and taxes are the two ce

tain things. As to which you prefer, I am not sur

What I am sure of is that tax is the price that we pa

for living in a civilised society.

It is through our taxes that we as citizens financ

the government and the social amenities it provide

its citizens. Tax, therefore, goes to the very existenc

of a state and it is no wonder that most countrie

Kenya included, are now including specific tax o

taxing provisions in their constitutions.

In medieval England, taxes were levied and co

lected in the name of the King or Queen as the sov

ereign. Customs, which we know today as the ta

or duty that we pay when we import taxable good

was levied by the King on the produce that the cit

zens reaped from tilling land.At the time, the nobility owned all land and th

tenants were required to not only pay the landlord

for use of the land, but also pay the King a portio

of the produce as was customary.

It, therefore, became the duty of every person t

pay the King a portion of what one produced. Wha

we pay today is still customs as a duty to the Stat

hence the name customs duty.

Value added tax, which is increasingly becomin

the method of choice for governments world over t

raise tax revenues is predicated on the principle o

value addition. For example, if I bought wheat from

farmer and baked bread to sell, I have, by processin

the wheat to bread, added value to the wheat and th

value ought to be taxed. The tax so levied is referre

to as value added tax. However, in todays comme

cial setting, it is difficult to identify the value added

especially for services such as Internet.

Excise duty, which is perhaps better known as si

tax is drawn from the act of excising or cutting awa

something that is not useful. In the olden days, excis

duty was levied to remove harmful goods away from

the public, making these goods much more expensiv

for the public to purchase or consume. Excise dut

was used to curtail sinful consumption by levyin

excise duty on these goods. The main culprits of ex

cise duty today are alcohol and cigarettes.

Despite the noble origins of excise duty, most gov

ernments have identified excise duty as an avenue o

raising additional taxes in a cost-efficient manne

This has seen governments levying excise duty o

motor vehicles, possibly to limit the congestion an

environmental pollution; processed drinks to safe

guard public health; perfumes and cosmetics to ta

these luxuries which are considered vain; and, quitinterestingly, airtime and now services provided b

banks and insurance companies.

Income tax is tax levied on ones income. Income

the proceeds that one makes from an activity, wheth

er legal or not. The government seeks to share in you

profit on the basis that in the absence of order, yo

would not have earned that profit.

One of the reasons why income tax has become

focus area for most businesses is that the governmen

earns 30 per cent tax on the profit, making incom

tax one of the single biggest expenses for businesse

To put it in perspective, Safaricoms 2015 tax liabilit

for example, is slightly under 10 per cent of its tot

turnover of Sh163.37 billion.

Mr Waruiruis a senior tax manager with KPM

Kenya

E-mail: [email protected].

The oiginsof tax tems

that we use


14/32


Tanzanias current natural gas re-

serves are at about 55 trillion

cubic feet (tcf) following new

deep sea discoveries off its southern

coast, the east African nations energy

minister said. East Africa is a new

hotspot in hydrocarbon exploration

after substantial deposits of crude oil

were found in Uganda and major gas

reserves discovered in Tanzania and

Mozambique.

As a result of ongoing exploration

activity, natural gas resources discov-

ered in the country rose from 46.5 tcf

in June 2014 to 55.08 tcf in April 2015,

equivalent to an increase of 18 per

cent, George Simbachawene, Tan-

zanias energy and minerals minister,

said in a presentation to Parliament on

Saturday. Tanzania in October raised

its estimate of recoverable natural gas

resources to up to 53.2 tcf.

He said the government had lifted

the natural gas resources estimate

following new discoveries by Statoil,

Exxon Mobil , BG Group and Ophir

Energy. Simbachawene said a pipeline

connecting offshore natural gas fields

to Tanzanias commercial capital Dar es

Salaam would be commissioned in Sep-

tember, ahead of the energy ministrys

previous estimates of November.

The commercial operational date

of gas processing plants and the pipe-

line has now been set at September

2015, he said.

The 532-km (330-mile) pipeline

and gas processing plants, financed

by a $1.225 billion Chinese loan, were

initially expected to be completed last

year but were delayed from going on-

line due to technical setbacks.

The government said the pipeline

would enable the country to switch to

gas-fired power plants and reduce oil

imports, hence leading to annual sav-

ings of over $1 billion.

Simbachawene

said the government

would invest in new

gas-fired power

plants to boost elec-

tricity supply in east

Africas second-big-

gest economy, which

has frequently been

hit by chronic energy

shortages.

During 2015/16

the government will

start implementing

the construction of a

240-megawatt pow-

er plant that is expected to cost $344

million, he said. The minister said the

government would also start work in

2015/16 on the construction of 1,148

km of a new 400 kV power line at a

cost of $664 million in the north-west

power grid. Another project involving

the construction of a power transmis-

sion line in the north-east grid will be

financed by a $693 million loan from

Chinas Exim Bank, he said. Tanzaniaput on hold a much-awaited natural

gas Bill that was expected to be passed

by parliament in March, further delay-

ing a law to govern its hydrocarbons

industry.

Parliament and government offi-

cials had said the east African nation

planned to debate the Bill in parlia-

ment in March month

to guide the develop-

ment of its nascent gas

industry.

Tanzania and its

southern neighbour, Mo-

zambique, are locked in a

race to be first to export

gas from Africas eastern

seaboard after huge dis-

coveries offshore that

could transform their

struggling economies.

The country has already

published three separate

policies on natural gas,

including a draft energy policy that

gives priority to domestic use of its

hydrocarbons resources over lique-

fied natural gas exports. The gas finds

had sparked a debate on how much gas

should be used locally and how much

can be exported. -REUTERS

EXPLORATION Reserves up from 46.5 trillion

cubic feet in June 2014 to 55.08 tcf in April 2015

REGIONAL NEWS

Tanzania aises estimateof its natual gas eseves

Oil and gas

exploration in East

Africa. The region

is a new hotspot

in hydrocarbon

exploration

after substantial

deposits of crude

oil were found

in Uganda andmajor gas reserves

discovered in

Tanzania and

Mozambique. FILE

The commecial

opeational date of gas

pocessing plants and

the pipeline has now

been set at Septembe2015

GEORGE SIMBACHAWENE

ENERGY MINISTER

Mauritius year-on-yearinflation falls to 0.5pc in Ma

PORT LOUIS

BRIEFING

United Arab Emirates telecom operator

Etisalat has agreed to sell its 85 per censtake in Zanzibar Telecom Limited (Zant

to Swedens Millicom, it said on Friday.

Zantel,

Documents

Jun 9th 2015 BUSINESS