A few days ago, president Uhuru Kenyatta said that he would require banks to emulate KCB Group’s corporate social responsibility (CSR) programme and set aside funds for youth empowerment programmes. Kenya’s 40-plus banks would also be required to reach a consensus on social development contribution and make low-priced loans available to youth to help them start businesses.
I am not quite sure where the legal or regulatory basis is to force banks into uniform CSR activities – or, in fact, force them into any CSR. Sure, a lot of banks do this, but they are, to date, not obliged to do so – CSR is voluntary. That some banks might want to focus on youth lending in their CSR is also not a completely silly idea: after all, financing is what they do on a regular basis, so this is an area where they can contribute some expertise. But some banks choose other fields: e.g. Standard Chartered’s annual marathon is dedicated to a public health issue.
And banks would have to lend to youth start ups as a CSR activity: it is not their job to provide start up financing as part of their regular business activities as this is far too risky and would raise concerns by the CBK who make sure that banks manage their risk exposure: After all, they take and onlend savings, and therefore must be cautious in how they manage those depositor funds. Financing start ups also requires a very different skill profile and is therefore typically done by seed funds or VC funds.
The president’s suggestion also struck me as a short-sighted approach. For one, we need to stop overhyping entrepreneurship as a solution for institutional failures: not everyone is cut out to be an entrepreneur, companies need employees, too, and even if you go on to set up your own company, gaining experience in a company can be very valuable.
And Kenyatta’s interest rate cap has certainly helped the government procrastinate a bit longer about its debt challenges by keeping its domestic borrowing rates low, but it has made life a lot more difficult for especially small and medium sized companies. They find that banks do not want to lend to them anymore because they cannot price their risk adequately, and it does not help much that the private sector in general struggles with the fact that the government does not pay its bills. According to the CBK governor, this accounts for at least one percentage point of non-performing loans in the banking sector.