Financial Services

An Expert's View about Banking and Finance in Kenya

Posted on: 19 Jan 2012

Kenya has one of the largest Financial Services Sectors in Africa and the largest in Eastern Africa.

Financial Services in Kenya Kenya has one of the largest Financial Services Sectors in Africa and the largest in Eastern Africa. Foreign investors in the equity market rose from 0% in 2004 to 28% in December 2010 and 42% in January 2011. Market overview The Kenyan banking sector comprises of 43 commercial banks, 1 mortgage finance company, 6 deposit taking microfinance institution and 3 representative offices of foreign banks, 121 foreign exchange bureaus and 2 credit reference bureaus. At the end of the 3rd quarter of 2011, the size of assets in the banking sector stood at Ksh 2 trillion, loans & advances were Ksh 1.2 trillion while deposits Ksh 1.5 trillion. The profit before tax was Ksh 65.5 billion. About a fifth of the population currently have access to formal banking services. However, this gap will be bridged by the expansion of microfinance institutions and introduction of innovative services such as mobile and agency banking. In 2010, substantive progress was made in the integration process of the East African Community (EAC) Common Market. The EAC Monetary Policy Committee, which includes the EAC Central Banks, also commenced work on the interlinking of the EAC payment systems. Connecting EAC payment systems will make it easier to invest and trade in securities listed on the exchanges across the region. The Nairobi Securities Exchange (NSE) witnessed significant growth since 2003/4 when confidence started to build in the Kenyan market as a result of political change. The value of shares traded on the NSE increased 189% to Ksh110 Billion in 2010, from Ksh38 Billion in 2009. Equity market liquidity was 9.5% in 2010 compared to 7.9% in 2005. Market capitalization increased from Ksh463 Billion in 2005 to Ksh1,194 billion in Feb 2011, an increase of 158%. In the same period, Bond market liquidity was 96.6% compared to 6.5% in 2005. The face value of bonds listed on the NSE increased from Ksh 209 Billion in 2005 to Ksh 500 Billion in Feb 2011, an increase of 139.0%. Key opportunities ξ The World Bank (WB) has committed USD$ 70 million towards supporting integration efforts in the EAC region. A key pillar of the WB focus is with regard to supporting capacity building and financial market infrastructure projects. In order to position the markets alongside these efforts, this year East African Securities Exchanges Association (EASEA) members will be preparing the EASEA Strategic Plan (2011 -2013). As a result, opportunities exist for companies to provide a number of products and services from advisory and capacity building to technical support. ξ The NSE has entered into a partnership with FTSE International to introduce FTSE/NSE branded equity and bond indexes. The FTSE International partnership will compliment the NSE’s push to boost its brand amongst international investors. In addition, this provides an opportunity for London Financial Services Sector players to create a platform for greater linkages across various services. ξ Other opportunities include global depository receipts, trading and settlement infrastructure, registrar services and bond market development. ξ Payment over the mobile platform is significant growth sector in Kenya and innovation around this area yields significant opportunities for various mobile applications and software development. Latest export opportunities – Financial & Professional Services Latest export opportunities - Kenya Getting into the market The principal types of business enterprises in Kenya are: 1. Registered Companies (Private and Public) 2. Branch offices of companies registered outside Kenya 3. Partnerships 4. Sole Proprietorships 5. Co-operatives Companies are registered as limited liability companies as in 1 and 2 above, and regulated by the Companies Act (Cap 486). Kenya's legal system is based on English law and practice. A wide range of legal services are locally available. It is advisable to quote amounts in Kenya Shillings so as to avoid losses that may occur through exchange rate fluctuations. Providing quotes in dollars for foreign products is used but to a limited extent. Credit is an important feature of the market and all common forms of arranging payment are in use in Kenya. The most common payment cycle is 90 or 120 days. Extended credit terms for large items of capital equipment are often critical to the success of a project. The best method of payment is a confirmed irrevocable letter of credit drawn on a reputable bank. Companies need a number of documents to set up in Kenya, including: Certificate of Registration; Company PIN Number; VAT Number. UKTI Kenya can advise on this. It is also essential to obtain/issue receipts and invoices whenever transacting to avoid potential disputes. There is no restriction on repatriation of funds/profits under Foreign Investment Protection Act. In addition, there are no foreign currency restrictions and the exchange rate is driven by market forces. More about doing business in Kenya Contacts Market intelligence is critical when doing business overseas, and UKTI can provide bespoke market research and support during overseas visits though our chargeable Overseas Market Introduction Service (OMIS). To commission research or for general advice about the market, get in touch with our specialists in country - or contact your local international trade team. ξ Greg Gibson, British High Commission, Nairobi. Tel: +254 (0)20 2844 291 or email: Greg.Gibson@fco.gov.uk ξ Dennis Keya, British High Commission, Nairobi. Tel: +254 (0)20 2844 289 or email: Dennis.Keya@fco.gov.uk Contact your local international trade team Major Events AITEC Banking & Mobile Money COMESA 2012 Date: 7 – 8 March 2012 Website address: http://aitecafrica.com Africa Mobile Money Research (AMMREC) 2012 5 – 6 April 2012 Website address: http://conferences.uonbi.ac.ke/index.php/ammrec/index/schedConfs/current UKTI Events UKTI runs a range of events for exporters, including seminars in the UK, trade missions to overseas markets and support for attendance at overseas trade shows. Latest events – Financial & Professional Services Latest events – Kenya Useful links More about OMIS and other UKTI services for exporters
Posted: 19 January 2012

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