Government policy hurting Kenyan DFI’s

This week I am attending a conference on Investment Analysis, Monitoring and Evaluation hosted by the company I work for and facilitated by The Association of African Development Financial institutions, AADFI which is the umbrella body for all Development Financial Institutions in Africa. 

Amidst the extended arguments initiated and debated upon by the brothers and sisters from West Africa, some valuable points have managed to come through from the discussions, case studies and chit chat in between breaks. Of note so far is Government Policy and Attitude towards Development Financial Institutions – DFI’s.

Across Africa and in particular West African and Southern African states, DFI’s have had a favourable consideration over years in terms of government support for their mandate, resource provision besides logistics and easing of bureaucracy to enable them achieve objectives with which they were established to. That is expected since the identities of such financial institutions just by name indicate their success and association with their governments are proving worthwhile for their citizens and development agenda. 

What has shocked me from today’s session so far is the kind of support that Ugandan and Tanzanian Governments are giving their DFI’s. Participants from the sessions have detailed the projects, funding and procedures that their Governments have put in place to ensure that their development agenda is realized with limited frustration. Such examples are Uganda Development Bank and Tanzania Investment Bank. Their support from their Governments and the commitment that their parent ministries such as Industry, Finance and Trade have enabled them realize extensive growth and as such resulted to a growing infrastructure for facilitating development, industries for their raw materials and thus returns to their citizens and employment and growth opportunities for their growing and younger generations. 

Why is this sounding like a rant? 

Development Financial Institutions are state owned capital investment funds. Their role in development cooperation is to invest in sustainable and profitable businesses in developing countries. 

In summary;

  • Development – Aims to bridge the gap between commercial investments and government development aid and thereby contribute to sustainable economic growth.
  • Finance – Role of an investor or co-investor who provides structured commercial financing to foreign or domestic companies and financial institutions.
  • Institution – Specialized investment fund, usually majority owned by the government, with close relations to the national development institutions, but with strong operational independence.

For any forward looking country, government and state; embracing the role of DFI’s enables them play an important role in reaching the development goals, and also act as important counter-cyclical forces in the economic downturn. These particular values add comes in three ways;

  • Investing in under-served project types and settings
  • Investing in undercapitalized sectors
  • Mobilizing other investors 

Internationally, counties that pride themselves of continued development have their foundations from DFI’s such as European Investment Bank and China Development Bank. In Africa, there is Industrial Development Corporation which has grown extensively and whose success in terms of infrastructure development and sectorial growth is unmatched compared to Kenya. 

The purpose of this post is to compare Kenya against the rest of the countries in terms of the support that it gives to its DFI’s. DFI’s are development vehicles that offer government a means to channel their agenda in a structured way and they reach clients in framework that commercial banks and microfinance institutions stay away from due to the Business Risks associated. The Government Policy needs to change towards funding and support for its DFI’s. Such institutions include Industrial Development Bank (IDB Capital)-IDB, Industrial and Commercial Development Corporation-ICDC, Development Bank of Kenya-DBK, Kenya Tourist Development Corporation-KTDC, and Kenya Industrial EstatedKIE among others. The kind of ignorance in terms of the role that these institutions can play is surprising actually.

To dwell on all the challenges that DFI’s in Kenya have in one post is impossible. Let the AADFI conference continue… who knows, more posts might come through. I hope Finance Minister Uhuru Kenyatta has something for DFI’s that are actually doing something for this country. As Prof. Njuguna Ndun’gu, Governor of the Central Bank, Kenya said at some conference a few months ago, DFI’s need to be given all the support desired to help regulate the ‘irresponsibility’ of commercial banks and to realize development in the country.

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