Michael Mundia Kamau

P.O. Box 17510 00500 Enterprise Road

Nairobi Kenya 21st

April 2002

THE CENTRAL BANK OF KENYA (AMENDMENT) ACT 2000

The High Court of Kenya ruling last week in favour of the Central Bank of Kenya (Amendment) Act on interest rate controls, adds another episode to the desperate quest for economic revival in Kenya. The Donde Bill, as the Act is otherwise popularly known, is now set to be re-tabled in parlament for a vote on it's commencement date. The bruising battle is however not over and the Banking sector will most certainly respond with a counter offensive. Interestingly, the Donde Bill has lacked all along in critical public support and lobbying, yet it is designed to benefit the general public and hypothetically spur economic growth. It is on this basis that we need to question the real extent to which the Bill actually has a bearing on the public.

 No doubt, cheap and readily accessible credit is as much a factor in deflation and economic growth, as it is in inflation and economic recession. The major reason that the Donde Bill lacks in public support is simply and plainly, poverty. The majority of Kenyans live below the poverty line. Different estimates put it at between 60% and 70%. The figure in real terms could be as high as 80%. Retail banking in this country therefore remains severely underdeveloped and continues to be marginalised as years pass by.

 A People's bank like the Kenya Commercial Bank requires savers to maintain a minimum balance of 1,000 Kenya shillings at all times, a figure is set to rise to 3,000 Kenya shiilings in June 2002. Just about the whole country is hard pressed and in debt, and can simply not afford the luxury of an idle 1,000 Kenya shillings lying somewhere, let alone 3,000 shillings. Functions for most account holders have been reduced to mainly withdrawals. Banks are mainly making their money from corporate clients and huge government deposits.

The issue in as much as it is high interest rates, is also the gross undevelopment of vibrant financial markets. The Donde Bill thus requires expanded outlook and incorporation. Many Kenyans are marginalised from retail banking and have developed alternative avenues of finance and investment. These are co-operatives, land buying companies and welfare organisations. The latter is where highest activity and following is. Members pay small monthly contributions and fall back on welfare contributions every so often. Welfare organisations are an invaluable mode for small savings, providing relief all across the country. Co-operatives and land buying companies on the other hand are riddled in perennial controversies and clashes, and appear to have a bleak future.

 Another powerful interest group consists of small scale businessmen and women variously referred to as the "Mama Mbogas". Their influence and wealth is taken for granted, but it is formidable. Many of us so called progessive types for instance, stay on rental properties constructed and owned by "Mama Mbogas". These are people who can quite easily raise sums of 200,000 Kenya shillings (approx. US $ 2,500), at short notice, even in these difficult economic times. These are individuals whose finances are not however active in the wider financial market due to reasons of either mistrust or lack of proper inducement.

The Donde Bill by extension, should be revised to enforce state and private sector support and development of welfare organisations and "Mama Mbogas" as this is where the economic mainstay of this country lies. Sound economic policy papers are not lacking. State sponsored intiatives like Sessional Paper No. 10 of 1965 on African Socialism and Sessional Paper No. 1 of 1986 on District Focus on Rural Development are in existence, but dormant and neglected. What's to say that the Donde Bill will be any different ? Donde Bill or no Donde Bill, the revival and growth of this economy ultimately lies with the people.

 It is decisions that we make or do not make that will determine our destiny. Arising out of technical problems for instance, mobile phone provider, Safaricom, recently revealed that it had a base of 440,000 subscribers. This would put the subscriber base of the other mobile phone provider, Kencell, at about 300,000. The cheapest calling card on the market costs 250 Kenya shillings, which means that at any one moment (roughly, three times a month), 555,000,000 Kenya shillings (approx. US $ 6,937,500), is being spent on conversations we can do without. Add to this the time and resources that are are spent on fundraisings for weddings and sending our children abroad inter alia, and it emerges that we do not need the Donde Bill in as much as we need to change our economic ways.

So many Kenyans are unnecessarily in financial debt and crisis. Economic change must also extend to the management of our resources. Money seems to have lost all sense of value in Kenya over the past several years. Prior to the 1997 general election, the deputy leader of government business sought parliamentary allocation of two billion Kenya shillings ( approx. US $ 25,000,000). There is absolutely no way that a Kenyan election of whatever scale can cost that much. In November 1999, A.I.D.S. was officially declared a National disaster at a weekend parliamentary symposium in Kenya 's coastal city of Mombasa that cost 300,000,000 Kenya shillings (approx. US $ 3,750,000). It was amazing to see certain wealthy parliamentarians with distinguished career track records and sound investments, scrumbling for state sponsored flights to Mombasa that they should have been able to pay for themselves. In November last year, the Presidential entourage to America was involved in an accident when the British Airways carrier that they were in, knocked down two flag poles each reportedly costing ten million Kenya shillings (approx. US $ 125,000 each).

 That we do not seriously question and follow up on such issues is an indictment on our sincerity and integrity in bringing about change to this country. The Donde Bill therefore is not the single redeeming solution to this country's economic problems. Our situation is more complex and requires much more than the statutory regulation of interest rates. In as much as the Kenya Government has sought and gotten debt relief from the Paris Club, so also should the Donde Bill seek out to facilitate in the short run, as long term solutions are sought. Michael Mundia Kamau