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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
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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.
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
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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.................
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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
7/23/2019 Jun 9th 2015 BUSINESS
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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
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
7/23/2019 Jun 9th 2015 BUSINESS
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4 BUSINESS DAILY| Tuesday June 9, 2015
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.
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.
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
7/23/2019 Jun 9th 2015 BUSINESS
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Tuesday June 9, 2015|BUSINESS DAILY
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.
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
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6 BUSINESS DAILY| Tuesday June 9, 2015
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
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Tuesday June 9, 2015|BUSINESS DAILY
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.
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,
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8 BUSINESS DAILY| Tuesday June 9, 2015
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.
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.
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Tuesday June 9, 2015|BUSINESS DAILY
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
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10 BUSINESS DAILY| Tuesday June 9, 2015
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
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12 BUSINESS DAILY| Tuesday June 9, 2015
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
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Tuesday June 9, 2015|BUSINESS DAILY
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
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14 BUSINESS DAILY| Tuesday June 9, 2015
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,