Financial Services Opportunities in Kenya

An Expert's View about Finance in Kenya

Last updated: 14 Mar 2011

Kenya has one of the largest Financial Services sectors in Africa, hosting several Multinationals with extensive operations and presence.

Sector briefing Financial Services Opportunities in Kenya Why Kenya? Kenya has one of the largest Financial Services sectors in Africa, hosting several Multinationals with extensive operations and presence. The country is well placed as a regional hub for economic activity within the newly launched East Africa Community. The Nairobi Stock Exchange (NSE) was Africa?s st best performing bourse in the 1 quarter of th 2010 with a 25% return and ranked 5 worldwide. There are 52 listed companies at the NSE with a market capitalisation of Ksh983 billion at the end of March 2010. Economic graph Kenya?s GDP growth is projected to hit 4.5% from a rate of 2.5% in 2009/10. Improved ?The 45 commercial banks weather conditions, increased government in Kenya demonstrated spending under a Ksh22 billion fiscal stimulus package and increased lending by banks also their resilience by posting a contributed to the revival of the economy. commendable combined Inflation eased to 4.0% in March 2010 from pre-tax profit growth of highs of 25.8% a year ago. 13% in 2009 despite the Find general information on the Kenyan market global financial crisis.? conditions on UKTI?s website. The Doing Business Guide for Kenya gives an overview of Kenya?s economy, business culture, potential opportunities and an introduction to other relevant issues. UK Trade & Investment Sector Briefing: Financial Services Opportunities in Kenya CBK has licensed one CRB, Credit Reference Opportunities Bureau Africa Limited while three others are at various processing stages. The Financial Services Sector, which is widely recognized as being safe, sound and Nairobi Stock Exchange transparent, generated about 5% of GDP. The Demutualisation of the NSE was approved by sector is scheduled to grow as services are 20 brokers who control it and will lead to the extended to a wide client base. Only a fifth of government taking up 20% ownership through the population currently have access to formal Treasury (10%) and Investor Compensation banking services. This gap will be bridged by Fund (10%). The brokers will equally share the the expansion of microfinance institutions and remaining 80% in readiness for an IPO that introduction of innovative services such as should result in each broker ceding at least half Islamic banking. Growth in this sector has also of their stake. As a result, the bourse is seen new entrants such as HSBC which has expected to gain value over time and before opened a representative office. Pan African the IPO. This will also see its name change to Banks Ecobank and UBA are also amongst the Nairobi Securities Exchange Limited with an latest entrants. authorised share capital of Ksh1 billion. Automation of equity and bond trading has The Equity Market Capitalisation increased driven up activity within the stock market and from Ksh837 billion in January 2010 to Ksh1.02 increased liquidity. This has raised the trillion in March 2010. 47 of the 52 equity opportunity for raising funds by market players counters at the NSE recorded share gains in through rights and bond issues such as the the first quarter of 2010. This improvement Kenya Electricity Generating Company was attributed to robust earnings posted by (KenGen) bond and Kenya Commercial Bank majority of the companies, increased business (KCB) Ksh15 billion rights issue. confidence, return of local investors to the market and active foreign investor participation Banking that added to liquidity. The Banking system comprises 45 commercial banks, 1 mortgage finance company, 2 deposit Year Equity Foreign Bond taking microfinance companies and 130 foreign exchange bureaus. Total assets grew 21.4% Turnover Investor Turnover from April 2009 to April 2010 to stand at Ksh Billion % of Ksh Billion Ksh1.5 trillion while deposits were Ksh1.2 Equity trillion. The level of non-performing loans declined from 25% in 2005 to 8% in April 2005 36.52 9.7% 13.59 2010. Pre-tax profit increased by 33% from 2006 94.95 9.1% 48.58 Ksh12.8 billion in the first quarter of 2009 to 2007 88.62 19.8% 84.88 Ksh17.0 billion in the first quarter of 2010. 2008 97.52 42.4% 94.85 Mobile Banking 2009 42.79 57.1% 110.05 Kenya is a world leader in mobile banking. Its 2010 Q1 18.81 52.4% 119.06 landmark M-Pesa platform, a service offered by Source: NSE mobile service provider - Safaricom, allows a range of money transfer, utility payments, Rights and Bond Issues cash-flow management and banking options Automation increased bond trading activities through mobile phones. This service has over 9 resulting in weekly corporate bond turnover million subscribers. increasing by 1,837% in 2009 from Ksh3.91 million to Ksh75.76 million in 2010. The weekly Credit Reference Bureau Treasury bond turnover also increased 29.5% The Banking (Credit Reference Bureau) from Ksh2.02 billion to Ksh2.62 billion in 2009. Regulations came into operation in February The rapid increase in corporate bond turnover 2009 and provides for licensing and supervision is largely attributed to the fact that corporate of Credit Reference Bureaus (CRBs) by the bonds have previously been illiquid more so in Central Bank of Kenya (CBK). This creates a a manual trading environment. This has helped closed user group for credit information sharing in unlocking the bond market?s liquidity, for institutions licensed under the Banking Act. increasing its efficiency and adding convenience in bond trading. In November 2009, KenGen, the largest power generator in UK Trade & Investment Sector Briefing: Financial Services Opportunities in Kenya Kenya raised Ksh26 billion through a public business. The other 13 companies have a total infrastructure bond with its bond becoming the market share of 27% which is slightly less than first and only corporate bond to trade on the the market share held jointly by the top 2 Automated Trading System (ATS). The companies. These are CFC Life and British government followed suit later that month by American. This implies that there is strong uploading Treasury bonds into the system. competition among the smaller firms. Life penetration as a percentage of GDP in Kenya remains low at 0.78% partially attributed to Among the corporate bonds currently listed lower income per capita and ignorance of the include, Safaricom, Barclays Bank of Kenya, existence of insurance products. Athi River Mining, Sasini, KenGen, CFC Stanbic, which are all listed in the equity segment. Others include PTA Bank, Shelter Afrique, The insurance market is saturated, highly Mabati Rolling Mill (MRM), East Africa segmented and has a limited core of Development Bank (EADB), which are all companies with adequate retention capacity regional organizations apart from MRM, which and underwriting policies. The 2006 Insurance is a roofing sheet manufacturer but with a Amendment Act led to the establishment of an global supply chain. Independent Insurance Regulatory Authority in April 2008, which is expected to improve insurance penetration. Automation is expected to make it easier for smaller issuers to come on board and may lead to a decrease in the premium charged for lack Sub-Sectors No. of of liquidity as investors look to corporate bonds Companies for higher yields following the steady gradual Registered decline in interest rates. Re-insurers 4 The International Finance Corporation (IFC) is General Business Insurers 40 set to raise Ksh3 billion in short term notes Long Term Insurers (Life) 6 from the Kenya capital markets. The Kenya shilling dominated offer will mature in Composite Insurers 15 th September 2015. IFC is the 4 development Insurance Brokers 190 financier to seek safety from foreign exchange Loss Assessors 204 risks by tapping into the local market after EADB, PTA Bank and Shelter Afrique. Insurance Surveyors 30 Loss Adjusters 18 Infrastructure Bonds Claims Settling Agents 2 The Government issued a Ksh31.6 billion Risk Mangers 7 (US$386 million) infrastructure bond for the 2010/11 financial year. This bond has a coupon Insurance Agents 1,534 of 6% redeemable over six, seven and nine Source: Commissioner of Insurance report years. This will be Kenya?s fourth infrastructure 2003-5 bond with the previous issue in February 2010 worth 14.5 billion and the inaugural one in Opportunities exist within the low-income early 2009 worth Ksh18.5 billion. segment of the insurance market that has effectively used social systems to remain out of Kenya Insurance Industry the reach of the insurance system. However, The insurance industry is divided into two various companies have modified their broad sub sectors namely; General and Life products to capture this segment. The private insurance. General insurance penetration as a sector is now partnering with the government percentage of GDP is 1.79%. There are 11 to offer insurance services to this segment main classes of general insurance business resulting in a joint initiative between the Co- namely; Aviation, Liability, Personal Accident, operative Insurance Company (CIC), the Engineering, Marine, Theft, Fire Domestic, National Health Insurance Fund (NHIF) and the Motor Private, Fire Industrial and Motor Kenya Women Finance Trust. Commercial. The first five classes account for over 77% of the total general insurance Diaspora Remittances business. Life insurance has 21 companies nd Kenya is ranked 2 in Africa in terms of the which carry out long term insurance business value of remittances after Nigeria. Kenyans (these excludes deposit administration). The sent a total of $300.2 million in the six months top 8 companies control about 72% of the life UK Trade & Investment Sector Briefing: Financial Services Opportunities in Kenya to June 2010, up from $291.8 million in the strengthen its regulatory oversight. The same period in 2009. These remittances amendment facilitates demutualisation of through June 2010 continue to track the long the NSE, by separating ownership and run average of $50 million per month. The trading rights within 3 years of its passage. source markets for remittances are North The NSE will be required to convert to a America contributing 58% and Europe 26% of limited liability company, and total remittances to Kenya in June 2010. The reconstitution of its board of directors. bulk of this money goes into household These proposed adjustments in the expenditure and supporting investments such 2010/11 budget speech were aimed at as stocks and real estate. The World Bank supporting growth of the capital markets. estimates put total remittances that come through the banking system and unofficial Investment Pacts channels such as personal deliveries at over Kenya is a signatory to and Member of the one billion dollars per annum. This has also Multilateral Investment Guarantee Agency opened up opportunity areas to channel and (MIGA) an affiliate of the World Bank that manage funds conveniently such as money guarantees investors against loss of transfer services and investment funds. Investment to political problems in host countries. Kenya is also a signatory to the InvestorQ Capital Limited is an initiative International centre for Settlement of launched by Kenyans in the diaspora to Investment Disputes which is a channel for channel their remittances into development settling disputes between foreign investors projects without fear of misappropriation. A and host governments. partnership was entered with two local banks to create a Diaspora Unity Fund supported by Taxes Levied an ICT platform that investors can track their Income Tax portfolio either in property or money markets. ? Corporate tax - 30% for local companies 37.5% for branch of foreign companies. ? Withholding tax - 5% Promoting Financial Services in Kenya ? Pay-As-You-Earn: graduated up to a ? The Capital Markets Authority (CMA) maximum of 30% of income. currently allows up to 75% of a listed company to be owned by foreign investors. Customs Duty ? The Banking Act was amended through the ? 4 bands from 0 ? 35% Finance Act 2009 to permit banks to use third parties (Agent Banking) to provide Duty Remissions certain banking services on their behalf. This ? Business must recover previous losses model will assist banks to lower cost of before paying corporate tax. services and improve their earnings as more ? Duties paid for capital expenditure in clients access financial services. excess of US$ 70,000 can be recovered ? The basket of goods used to calculate from corporate tax. inflation was revised in February 2010, lowering the food weight from 50% to 30%. Excise This was the second overhauled on inflation ? Tax applicable to cigarettes, alcohol, computation methodology. In October 2009, petroleum and confectioneries. Kenya National Bureau of Statistics (KNBS) ? VAT - 16% Standard Rate. switched to the geometric mean, global best practice, from arithmetic, which caused the If you have any questions on the opportunities inflation rate to plunge into single digits. above, contact the UKTI contact named in this ? report. Business opportunities aimed Interest rates have been favourable at 6% and the average 91-day Treasury bills rate specifically at UK companies are added daily to wh UKTI?s website. These leads are sourced by our ich was 7.29% a year ago falling to 5.75% in March 2010. The lower yield curve staff overseas in British Embassies, High has led to greater willingness by commercia Commissions and Consulates, across all sectors l banks and in over 100 markets. to extend credit with some of the money finding its way to the stock market. You can be alerted to business opportunities on ? The CMA Act Cap 485 was modified to a regular basis by registering on the UKTI allow the Authority to share information website. Find out more on UKTI?s business with other regulators in order to opportunities service on the UKTI website UK Trade & Investment Sector Briefing: Financial Services Opportunities in Kenya Major events and activities UKTI contact East Africa ? West Midlands Business Dennis Keya Opportunities Conference & Workshop Trade Development Manager Contact: Jonathan Webber British High Commission, Nairobi Email: Tel: (+254 20) 2844 289 Email: th Date: 4 November 2010 Venue: Birmingham, West Midlands Aid Funded Business Service Mission to Kenya Contact: Claire Gamage Email: Date: January 2011 Venue: Nairobi, Kenya AITEC Banking and Mobile Money COMESA Contact: Sholto Moroney Email: nd rd Date: 2 & 3 March 2011 Venue: KICC, Nairobi, Kenya London Chamber of Commerce & Industry Trade Mission to East Africa Contact: Ruma Deb Email: st th Date: 21 ? 30 March 2011 Venue: Kenya, Uganda & Ethiopia Birmingham Chamber of Commerce & Industry Trade Mission to East Africa Contact: Misbah Mughal Email: Date: June 2011 Venue: Kenya, Uganda, Tanzania & Ethiopia Find full details of all events in this country and sector on the UKTI website. New export events are added daily to the site and you can register to be alerted to them on a daily, weekly or monthly basis UKTI?s Tradeshow Access Programme (TAP) provides grant support for eligible Small & Medium Sized Enterprises (SME's) to attend trade shows overseas. Find out more about UKTI support for attendance at overseas events UK Trade & Investment Sector Briefing: Financial Services Opportunities in Kenya Next steps - How UKTI can help ? Arranging appointments British companies wishing to develop their ? Organise seminars or other events for business in the Kenyan market are advised to you to meet contacts and promote your undertake as much market research and company in the Kenyan market planning as possible in the UK. UKTI?s team in Kenya, with its wide local knowledge and This work is available via our Overseas Market experience, can provide a range of services to Introduction Service (OMIS) a chargeable British-based companies wishing to grow their service which assists British-based companies business in global markets. wishing to enter or expand their business in overseas markets. This can include: ? Provision of market information To find out more about commissioning this ? Validated lists of agents/distributors work, or accessing other UKTI services and ? Key market players or potential specialist advice, please visit the UKTI website customers in the Kenyan market to find contact details for your local UKTI ? Establishment of interest of such office. contacts in working with you Whereas every effort has been made to ensure that the information given in this document is accurate, neither UK Trade & Investment nor its parent Departments (the Department for Business, Innovation & Skills, and the Foreign & Commonwealth Office), accept liability for any errors, omissions or misleading statements, and no warranty is given or responsibility accepted as to the standing of any individual, firm, company or other organisation mentioned. Published 2010 by UK Trade & Investment Crown Copyright © UK Trade & Investment Sector Briefing: Financial Services Opportunities in Kenya
Posted: 29 September 2010, last updated 14 March 2011