BLOG: Kenya’s attained 85% financial inclusion due to banking innovations

By Patrick Otieno

In the midst of the erosion of public trust in Kenya’s banking system following the collapse of Chase Bank, the Central Bank of Kenya (CBK) has joined the ranks of regulators that have had to step up to help banks cope with liquidity problems.

In Kenya’s case, however, the reason for the assistance, which the regulator has offered but is yet to be taken up by any bank, is a little different compared to examples like the subprime mortgage crisis banking emergency that coincided with the US recession of December 2007 – June 2009.

Unlike banks in the US, Britain and Germany, which needed to be bailed out with hundreds of billions of dollars in new capital, Kenya’s major banks are solid and solvent. They don’t need any help. The picture at the top is so rosy that Equity Bank was recently listed amongst the best banks in the world.

The Financial Times’ (FT) latest listing of the world’s Top 1,000 banks shows that Equity Bank is Africa’s lender with the highest Return On Assets  (ROA)— an indicator of profitability that is determined by dividing the net income by total average assets — while Kenya Commercial Bank (KCB) is third.

The ROA ratio illustrates how well management is employing the company’s total assets to make a profit. The higher the return, the more efficient management is deemed to be utilising its asset base.

“For the second year running, Kenya’s Equity Bank made the highest return on assets in the continent, generating a rate of 6.84 per cent,” the report says, adding that its local rival, KCB, with a rate of return of 5.14 per cent, is Africa’s third-most profitable lender.

KCB and Equity are the only Kenyan banks who made it to the listing of the world’s largest banks that is published by FT’s the Banker magazine. Cooperative Bank, which made it to the list in 2014, missed the latest ranking.

The Banker report ranks the world’s top lenders based on a number of parameters, including deployment of capital, use of shareholder funds and profitability. The report states that KCB, Kenya’s largest bank by assets, is the world’s 846th largest while Equity Bank is 990th having climbed nine places from position 999 in 2014.

The 2014 Banker report says Equity Bank had the highest return on capital in Africa at 54.9 per cent while KCB was fifth with a rate of 39.5 per cent.

Statistics can be numbing at times, but to elaborate just where Kenyan banks are in relation to world economies, data from the CBK shows that Kenyan lenders had an average return on assets of 4.7 per cent last year — higher than the best performing lenders in Asia, Middle East, Central and South America.

Despite this achievement, the false narrative that Kenya’s banking sector is sinking has spread so far and wide. Even folks who have otherwise been friendly to free-markets are buying into it.

But should this falsehood be allowed to fester and continue spreading panic amongst Kenyans?

Part of the reason why people don’t know what to do with their money kept in the banks in the face of Chase bank’s debacle is the lack of trust in the regulator, CBK.

Banks like Equity, KCB and Co-operative also haven’t done enough to tell their success stories in the global arena to help reassure the public about their competency and calm nerves and therefore, should also take part of the blame.

One factor that helped make Kenya the new gold standard in banking in Africa and by extension, the world is the attainment of nearly 85 per cent financial inclusion, largely due to innovations such as mobile banking and agency banking.

The introduction of M-Shwari – a partnership between Commercial Bank of Africa and Safaricom and agency banking services in Kenya helped the country to boost total bank accounts by two million to 17.6 million in 2012.

Today, the country is at a ‘payments ready’ stage when it comes to adoption of financial services, with 85 per cent of adults holding a bank, mobile, prepaid or other payment product.

Agency banking has made it easier for customers in Kenya to access financial services by allowing them to do their banking activities at non-bank locations.

For a bank like Equity, being listed as the eighth best performing bank in the world in terms of ROA should be a source of pride. But because it isn’t shouting about this, people are in the dark letting panic ride roughshod over Kenyans.

(The writer comments on topical issues. The Financial Times report can be found at


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