The Revised PSD Disruptions and Need for Mutual Banks-Fintechs Working Framework.

Every indication is that the moment for Digital Finance is here. It behoves industry players to come together and discourse on the next frontier for banking and financial services. It’s the moment for government agencies, regulators, banks, telecommunication companies as well as service providers in the entire ecosystem to bring together industry thought leaders in robust discussion on future of banking post the PSD2 reality.  

In 1990, Bill Gates opined on Banks; Banking is necessary, Banks are not. This thought may not have been seen in the context of the EU Revised Payment Service Derivative (PSD2) which came into force in January 2018. The directive among other things enables non-banks institutions, the fintechs, to leverage on banks infrastructure and data to provide banking services. It also permits both consumers and businesses to use third party providers to manage their finances.

In a nutshell PSD2 positions digital finance, artificial intelligence (AI), internet of things (IoT) and big data at the center of financial services, e-commerce and payments systems like never been envisioned before.

As the directive get implemented, banking especially in the European Union and the European Economic Areas is set to significantly transform. With the PSD2 legislation, the Banks will be obligated to provide third party service providers access to their customers’ accounts data through the open applications Program interfaces (APIs) and effectively enable these third parties, often the Fintechs, to build their financial service business on the banks infrastructure and data.

The directive was a bold step to open up banking and enable the 21^st century consumers and businesses to benefit from the tremendous innovations and improve business and consumer experience. On the face of it, Banks have no choice in collaborating with the fintechs to satisfy the changing consumer lifestyle and expectations for fast, personalized, easily accessible and affordable service. A demand that evidently could only be satisfied through innovation and deployment of technology and which has been aptly captured in the rule, through the introduction of the AISP (Account Information Service Providers) and the PISP (Payment Initiation Service Providers). The players linked to the banks infrastructure, are permitted to access customers data and information, through the banks API and initiate services on behalf of the customer’s account.

Arguably, the PSD2 therefore has boldly changed banking as we know it, allowing Fintechs access to banks infrastructure and data, to leverage and do business without the requirements of heavy deployment of capital and stringent regulations to enter banking services. Effectively, this necessitates banks collaboration with fintechs to improve banks customer service level expectations and experience but alternately significantly props fintechs to eat on the banks revenue, as has been seen with the trends even outside the EU jurisdictions.

In Kenya and East Africa, a variation of PSD2 would be a fitting legislation, atleast in the sense of guaranteeing customer data security. Mobile and digital platforms are essentially providing financial services, including access to loans with data accessed from other banks and non-banking operators. Mshwari, Branch and Tala for example come to mind. We have seen even banks-fintechs collaborations as with Equity-Paypal, moble money platforms and fintech collaborations as with Mpesa-Paypal, telcos interoperability as with the Kenya’s case as spearheaded by Communications Authority. More recently, Mpesa, a mobile wallet moved over Kes 6.2 Billion in just under a month of the launch of the mobilemoney credit dubbed Fuliza.

With these developments in Europe, as well as is seen everywhere else and the understanding of the global nature of businesses and services, onus is on the players to come to a working framework that levels the playing field, improves services, protects the customers, and find rhythm in the collaborations that makes sure everyone is protected as we move towards more digitization in era of customer data sensitivities and the ever emerging fluid cybersecurity concerns.

Benard Were, CIFA

Associate, Galamore Africa Consulting.

When In A Hole, Stop Digging!

We Are in A Hole, But We Continue Digging!

Pages upon pages of auction actions in the local dailies speaks of real financial struggles and debt distress businesses and individuals are going through. Convenient explanations has been made to link the dire straits to the Covid-19 pandemic and the impact it has had on economies across the globe. Yet, truth is, for us this is only partially true.

For the entire duration of the Jubilee regime, reasonable advice for fiscal discipline and caution against uncontrolled expensive borrowing to fund huge infrastructure projects was ignored. Credible opinions and voices like those of economist David Ndii were conveniently drowned in the prejudiced political noise at the time. And while it seemed only sensible to test these opinions against our economic numbers and practice restraint in our fiscal approach, it seemed the policy formulators and jubilee administration had confidence in some scripts everyone else didn’t seem to understand. Could it be President Kenyatta’s administration had some assurance on the petrol-dollars the Turkana oil find was promising to bring our way? As it is, that path though still remains viable, seemed to have lost the lustre and hope it carried initially.

Responsible economies have understood the impacts and damage the Pandemic has had on their businesses and citizens. Most are formulating policy frameworks that inject stimulus to the struggling sectors, cushioning businesses against losses and generally easing burden on citizenry. The logic is that by saving businesses from failure and collapse today, they are seeking to secure them for economic recovery tomorrow. Incentives for investments to get back on their feet is essentially the most plausible root to recovery.

A debt distress like we see with the massive defaults and auctions, a huge gap between the revenue against the expenditure items and a critical debt repayment obligation like we have is enough motivation for sober and considered reflection on why we need urgent action to pull us from the precipice. Yet, the Budget Policy statement for 2021/22 demonstrates a cavalier attitude to the realities of our state. A budget statement that do not attempt to appreciate the hole we are in, continues to appropriate funds to political luxuries and generally have no qualms bleeding the few remaining surviving businesses and enterprise through multiple and insensitive taxation is perfect recipe for capital and business flight.

As they say, ‘when in a hole, stop digging’. But is anyone listening?

Benard Were, CIFA

Galamore Africa Consulting.

We Trust Regulators to Protect Integrity Of Our Markets.

Capital Markets Authority Board last week said in a statement that former CBA Capital Executive Mr David Maema has been found guilty of dealing with non-public privileged information in bond trades between 2016 and 2017 amounting to an illegal gain of upto Kes 83Million and have proceeded to institute penalties and suspensions of the trader. And in a clearest indication yet on this determination, there is also an active ongoing investigation involving insider trading of KenolKobil shares before the takeover by Rubis Energie.

History is replete with unfortunate incidences of illustrious careers tripped by seemingly innocent acts driven by unguarded moments of carelessness, unbridled greed or just unfortunate miscalculations. And it’s the nature of giants to take lightly the peril of those small insignificant malfeasance that has brought checkered careers to sometimes disgraceful ends.

Bruno Iksil, former JPMorgan Chase trader linked to the London whale trading scandal, was an amazing hand working under able leadership of Jamie Dimon but apparently with considerable leeway at bond trading, making some of the best deals for the firm at the time. Bruno Iksil is still intent on freeing his conscience from the devastating consequence of that market ‘aggression’. Proprietary trading was obviously unethical and risky. But Iksil’s hand was on the pulse and JPMorgan Chase ranks didn’t seem to have an issue with it or so it seemed. The resultant losses were devastating and sent shock-waves in the Financial system of the US.

Carlos Ghosn, Renault CEO didn’t have to throw measly coins in the pouch had he known the devastating consequence of a supposedly innocent indulgence. Everyone at Nissan and Renault understands that nothing was worth the stew Ghosn dipped his nose into. Looking back, everyone believes the financial misconduct couldn’t have been worth the painstaking years and reputation Ghosn had earned at the helm of Renault with amazing records of growth to boot.

As a member of the disclosure committee at Apple, serving alongside top executives in Finance and sales, Senior Director of Corporate Law Gene Levoff could have considered his responsibility and privileged position to resist taking advantage for personal gain in an insider trading malpractice that is being prosecuted by the US securities and Exchange commission. If found guilty, former Director Levoff could serve up to 20 years in jail with fine running into millions of dollars.

These episodes of professional misconduct from some of the best experts goes to point out the imperativeness of watchful regulation. It is for these reasons the spotlight in insider trading so strongly highlighted and spotlighted at the CMA and the investigations involving market malpractices deserves commendation.

As I pen this, there’s an ongoing tiff involving Kenyan legislators and the CBK, with the legislators insisting on laxed prudential guidelines in our Financial systems that will pander to their unbridled greed, at a time the World is putting more stringent measures to counter Money laundering.

Inspiring confidence in our markets and attracting capital and consequently growing our market performance is a responsibility that lies with the industry participants to develop and provide the much needed investments to our growing economy. Our actions especially in our financial systems and markets must be such that we inspire confidence as a safe hub for investments. Actions by entities and corporations that seem to derail or jeopardize these aspirations needs swift action in investigation, prosecution and penalties. The more reason why CMA with support of relevant institutions and professional bodies, needs to reign in on malfeasance and actions that seek to skew our financial systems and markets.

Benard Were
Associate, Galamore Africa

Protecting Integrity Of Markets, CMA has Our Support.

Capital Markets Authority Board last week said in a statement that former CBA Capital Executive Mr David Maema has been found guilty of dealing with non-public privileged information in bond trades between 2016 and 2017 amounting to an illegal gain of upto Kes 83Million and have proceeded to institute penalties and suspensions of the trader. And in a clearest indication yet on this determination, there is also an active ongoing investigation involving insider trading of KenolKobil shares before the takeover by Rubis Energie.

History is replete with unfortunate incidences of illustrious careers tripped by seemingly innocent acts that are driven by unguarded moments of carelessness, unbridled greed or just unfortunate miscalculations. And it’s the nature of giants to take lightly the peril of those small insignificant malfeasance that has brought checkered careers to sometimes disgraceful ends.

Bruno Iksil, former JPMorgan Chase trader linked to the London whale trading scandal, was an amazing hand under the tutelage of Jamie Dimon with considerable legroom expertise at bond trading, making some of the best deals for the firm at the time. Bruno Iksil is still intent on freeing his conscience from the devastating consequence of that market ‘aggression’. Proprietary trading was obviously unethical and risky. But Iksil’s hand was on the pulse and JPMorgan ranks didn’t seem to have an issue with it or so it seemed. The resultant losses were devastating and sent shockwaves in the Financial system of the US.

Carlos Ghosn, Renault CEO didn’t have to throw measly coins in the pouch had he known the devastating consequence of a supposedly innocent indulgence. Everyone at Nissan and Renault understands that nothing was worth the stew Ghosn dipped his nose into. Looking back, everyone believes the financial misconduct couldn’t have been worth the painstaking years and reputation Ghosn had earned at the helm of Renault with amazing records of growth to boot.

As a member of the disclosure committee at Apple, serving alongside top executives in Finance and sales, Senior Director of Corporate Law Gene Levoff could have considered his responsibility and privileged position to resist taking advantage for personal gain in an insider trading malpractice that is being prosecuted by the US securities and Exchange commission. If found guilty, former Director Levoff could serve up to 20 years in jail with fine running into millions of dollars

It is for these reasons the spotlight in insider trading so strongly highlighted and spotlighted at the CMA and the investigations involving market malpractices deserves commendation. Inspiring confidence in our markets and attracting capital and consequently growing our market performance is a responsibility that lies with the industry participants to develop and provide the much needed investments to our growing economy. Actions by entities and corporations that seem to derail or jeopardize these aspirations needs swift action in investigation, prosecution and penalties. The more reason why CMA with support of relevant institutions and professional bodies, needs to reign in on malfeasance and actions that seek to skew our markets or financial systems and markets.

Benard Were

Associate, Galamore Africa

Want To Invest? Nairobi Presents Exciting Opportunities

Report released Monday by Consultancy firm Ernst Young EY ranks Kenya as third most atttractive African Market after South Africa and Morocco for Private Equity funding indicating huge interests and promise in the East African largest economy.

At the same time, Turning Tides’ Africa Attractiveness report for October 2018 shows Foreign Direct Investments to Kenya increased by 44% compared with 2016 figures; with a 71.8% increase in FDIs to infrastructure projects pumping massive Kes 67 bn for H1 2018.

Clearly, these statistics demonstrates increasing interest in the Kenyan investments space; something that must not escape the attention of one whose eye is on opportunities to tap into investments.

We have had one of the most robust investments in transport infrastructure over the last decade that has strategically opened up Nairobi for growth with evident property prices increasing as access to previously inaccessible areas greatly enhanced. Cytonn Investments Saturday released their results for Q3  to September showing 113% profitability in their Real Estate portfolio to gross profit before tax at Kes 610Mn. Data by Kenya Bankers property index shows Q2 124.78 up from 117.52 in the same period last year indicating increasing consistent growth of the sector.

For an economy that is saddled by huge foreign debts, with upto 54% of revenue going into debt servicing, the openings in infrastructure developments is an opportunity to tap into for investments. As I pen this, President Kenyatta just signed the Supplementary Appropriation Bill No2 of 2018 that covers the initiative for affordable housing. Included in the bill is some generous tax relief on funds towards affordable housing for the investors willing to take up the opportunity. It is little wonder then that those from out there, and possibly from within that have seen the window is angling for piece of the pie. The Private Equity investments and the FDI inflows therefore may not be just coincidental.

Granted that the PE deals may require huge capital outlays, it should be instructive to know that such opportunities are available in the most basic, structured form and that it is upon the investor to identify the best entry point for structured products with upto 24% returns as shown by available industry figures .

That is why this is not the time to sit any ‘small’ or sizeable strategic capital capabilities in Bank vaults when we could do with some RoE for those funds.

Benard Were, CIFA

5th Devolution Conference: Commitment to Change Our Story is Now!

5th Devolution Conference: Commitment to Change Our Story is Now!

In a couple of weeks, the 5th devolution Conference will be going down in Kakamega. Naturally we would be expecting the County Chiefs to put their heads and focus together in an earnest push to protect Devolution and see it work. The teething problems of the new dispensation should be ideally behind them. A number of these County executives are on their 6th year, hopefully enough time to get around to understanding and appreciating the devolution with its attendant intrigues and politics.

Yet, from my corner, I wouldn’t be surprised if this particular meet is characterized by the usual pomp and superficial flowery declarations with no commensurate effort at implementations. That would be unfortunate indeed. Devolution, for me, should rank up there in our hierarchy of priority as a country. We have seen few Governors standing up and putting their people’s aspirations at the center of their programs. H.E Governor Prof. Kivutha Kibwana comes to mind. This County Chief is simply waving it in our faces that it was wrong to suppose that some regions can’t. And that development and investments is only feasible in some ‘potential’ regions. For that’s the lie that is the Sessional Paper number 10 of 1965. A development policy fashioned around isolationism, selfishness, lies and ethnic stereotyping. And for the past half century we have had a Country where inequality has been entrenched as normal and perpetuated at the highest policy level.

And so taking cue from Governor Kibwana, and few others pulling their fair share of the weight, its my sincere hope that they will send an equivocal declaration that devolution be given enough leg room, backed by policy and resources, to deliver. Forget about the often bandied excuse about corruption. Corruption permeates every fiber of this society. Kenyans am sorry to say, are attracted to sleaze like marabou to filth. Whatever they do, the most rational marabou stork will find its way to a dumpsite. That’s their nature as it is with an average Kenyan. That’s why we find sleaze in the most unlikely places; in pulpits as it is in the corridors of Justice itself. And oh yes, we resigned to the fate, and the law enforcers tops this chart spectacularly. We picked Retired Arch Bishop as head of Anti Corruption agency. And the results couldn’t have been a more spectacular failure! And so until we make up our mind as a people and get tired with corruption, using it as an excuse to deny Counties funds is a charade that can’t fly in the face of it. Corruption doesn’t just become expensive when it is at County level yet so commonplace and okay when it’s going on in Harambee Avenue. As I pen this, our own Treasury Chief Henry Rotich is admitting deficient coffers, and conveniently it, appears the Counties are the first ones being persuaded to laugh at the very comical joke. What a slap on our face.

In all intent and purposes, the design that we have had over the last half century must never be allowed to continue. Come to think of it, a Centralized system was such that Nairobi has benefited unfairly from the sweat and brawn of other counties. A village in Kilifi for example uses their meager resources to bring up and educate their son or daughter. Once so equipped and endowed, the young ambitious and capable fellow heads to Nairobi where he/she sweats and toils to create wealth for the employer in Nairobi. Once paid, proceeds to enrich the Nairobi landlord, Nairobi vegetable farmer, Nairobi matatu operators …the list is endless. The parents and by extension this typical Kenyan village would be so lucky to receive even 5% of their youngsters monthly sweat. And you can be sure that like rest from all corners of this country, will head back to Rabai at the end of his/her vocation, empty handed and broke, tired and used, having served with honor and diligence, his/her skills and vitality duly milked centrally just like the system was designed to. Tragedy is that these fellas who have put in their all couple of hundreds of kilometers from their homes have been conveniently, with tinge of disdain, labeled lazy and uncreative.

And so as the County Chiefs head to Kakamega, they must never loose sight of the big agenda …commitment to change a 50 year old sorry story. For sure we have had a not so rosy ride with devolved system. Five years characterized by looting, corruption and general ineptness. As expected many got into this office not having figured out how to balance big status and the demand of service placed on that office. Moving Unity in Diversity in confronting the challenges, myriad challenges we have had in our Counties and country. The challenges of unemployment and poverty, of broken down infrastructure and inadequate health facilities, the challenges of droughts and attendant malaise, the myriad challenges that cuts across all regions of this great Nation. That should be enough motivation to rally all of them to demand that this conference be a platform for sincere reflection and well reasoned discourse on how to move forward. Enough motivation to put aside selfish appetite to amass personal wealth at expense of peoples’ welfare. So that the big speakers lined, most of who are the custodians of the policy instruments, should be put on notice that it won’t be just speech and politics, but a genuine pronouncements of commitment to take a path that will change the 50 year old sorry story. Remember at the end of it all, History will record the intrigues and politics, but will be kind enough to honor those whom shall have placed honor and dignity on the people who placed their trust in their hands!

Benard Were

Galamore Africa Consulting

Making Case for Robust Islamic Finance Governance and Promotion in Kenya

Islamic banking as a financial window has been in Kenya for just over a decade, the uptake however has remained considerably low in a market that has huge potential especially in SME sector financing.

Uganda Central bank recently moved to publish Islamic Rules in yet a bold and deliberate step to place Islamic Finance at the centre of Uganda’s financial system, giving the East African Nation an opportunity to open up another front for growth and development of their financial system. Included in the proposed rules as published by Thomsons Reuters IFG is the legislation and rules around AML and Terrorist financing guidelines. The paper details for example robust KYC, Products Governance and Ethical pricing principles that underpins Islamic finance as a collaborative finance window. A move that may be seen to strategically position Uganda for the incredible opportunities and interests that Islamic finance has generated lately.

Abdalla Abdulkhalik, CEO Gulf African Bank during his weekly CEO chat dispelled a fundamental notion that’s part of the perceptive hindrance to growth of Islamic bank in Kenya, – perception that Islamic banks products and solutions are meant for those professing Muslim faith. “”One doesn’t have to be a Muslim or follower of Islamic faith to access Islamic finance which is only 10 years old in Kenya” #CEOChat http://chat.kba.co.ke” It couldn’t have been plainer and apt. Question still remains, what measures for example is being put in place to change these attitude and remove the prejudice around Islamic banking solutions as products that can compete favorably with other products possibly on the superiority of their innovativeness alone? Besides, the Muslim population in Kenya according to available statistics stands at just over 9.7%. Still, are we able to comfortably say that this segment is adequately convinced of the standards of the Islamic products vis-a-vis the expectations of their faith on the product’s design?

It is my view yet that the shift in consumer behavior and expectation places significant demand around innovation in product offering with focus shifting to digital channels in service and customer interactions. While this could be expected to not only deepen Islamic Banking products, very careful and robust legislation too is required to check and control attendant risks of cybercrime and AML. All of which places demand on players, both the Government and the banking industry, in this case the Islamic Finance players, on capital outlay, legislation, research and innovation.

Sometimes around 2014, Islamic window products by two local banks were withdrawn from the market. Instructively, there were issues around uptake but too there was concern around the standards as spelt out by the Sharia’h Board’s parameters. Clearly, the fact of the non-compliance with the Sharia’h law parameters could have been seen to have contributed significantly perhaps to low uptake by those customers specifically particular with the features and with Sharia’h compliance, but as well perhaps withdrawal of those who may have learnt of these inadequacy post entry. These I believe are fundamental governance gaps that I hope efforts are being made at streamlining so that robust and focused effort is made to position the Islamic banking as a window for our financial sector growth and development.

Equally, my view too has been that Kenyan Banks competition has greatly thrust a Relationship banking model at the frontline with significant percentage of bank /product choices made based on person to person engagement. However, and more significantly the products so promoted should be able to meet the ethical and sharia’h compliance threshold that the Islamic finance is modeled around. Giving a pedestal of relationship on which long-term customer service and satisfaction is grounded.

Benard Were
Associate, Galamore Africa Consulting

Banking Rate Cap is A sore Patch; Time To call It Up!

Bank Interest Cap Is A Sore Patch, Time To Call It Up!

We have had a year of experiment with the Interest Rate Cap legislation, The Banking Act (Amendment) Bill 2015. It is about time the stakeholders cut the chase and call this up!

Look, we can’t afford to have such a drag in our Financial and banking system at a time when the World is having a real stirring from the dynamics of what the financial system has become. Equally the most important sector of our young economy is in need of conducive environment to grow, but more importantly capital.

And so we see our growth sector, the SME taking real heat from the apparent predictable credit rationing. Banks as expected wasn’t going to remain lax in a market with significant risk. Admittedly, ours is a market with some of the highest risk. What with a young economy and a harsh economic and political operating environment as well as admittedly inadequate customer risk data. We have had what could pass as the longest and perhaps acidic electioneering period in the region. And any rational business can’t ignore the facts and factor commensurate Risk premiums in pricing. Business disruptions for example is bound to affect SME cashflow and consequently their ability or lack thereof to honor contractual obligations, to lenders included.

My feeling is that we can’t afford to apportion legislation without taking into account these dynamics of realities our banks are operating under. Adding on to that burden is the new rules for accounting standards, the IFRS9 which for example puts significant pressure on banks bottom-line. These as well as several customer centered capital requirements and accounting are meant to protect both customer funds as well as the industry from systematic risks. My honest understanding is that legislation around customer protection from exploitation could have been fashioned around the existing international standards so that we do not embed a sore patch like the interest rate cap bill.

Still, wouldn’t it have made a difference for example if bit more emphasis and effort was made around Credit rating and scoring so that credit pricing is based on the individual credit scores? These, I know would require a bit more effort and support, but it would have significantly made loans cheaper for those with better score and slightly expensive for those that are not making effort. That way, customers would be motivated to bring down their ‘own risk premiums’, essentially benefiting them in return. With that infrastructure in place, the credit squeeze, stifling industry growth like we are wont to see would be avoided. I believe, as we speak, most of the credit default as we are seeing with the increasing net NPL in most banks books are ripple effects of the same credit rationing and squeeze.

True, we could have had a justifiable beef with our banking Industry. They missed the basic tenets that define business relationships. Funds deposited with them were customer money, with the privilege of safe custody at a fee. On the other hand the customers deserved ‘courteous pricing’ whenever there is need for advance of credit. Of course there is the fundamental understanding of the shareholders interest as well as the investors’ expectations on their ROI. As long as everyone treated this relationship with courtesy and respect, all benefited. It’s just the way it is, the way it was designed to work.

Admittedly, we need robust and broad legislation to strengthen banking and financial institutions, protect consumers from unfair pricing and exploitation, but similarly not curtail growth and starve everyone, including those the bill is supposed to ‘protect’. Being broad, and bringing every stakeholder on board in coming up with a workable framework is for me a first step, so that final roadmap and bill is some well thought out structured legislation that protects everyone as well as our young economy.

Benard Were
Galamore Africa Consulting
http://www.purposepro1.wordpress.com; Twitter: purposepro1

Exploitative Bank Charges and Interest Rate Cap Dilemma: Case for Islamic Banking?

CBK Governor Prof. Njoroge is reviving debate around reviewing the Interest rate cap law, citing the slowdown impact it is has had on the critical sector of our economy.

Question is, will the debate this time consider the main reason for the cap, – the unethical and exploitative nature of Banking charges and interest rate regime.

I may not correctly predict at this point what direction these discussions will take considering the fluidity of our political uncertainty at the time and the policy direction the next government may wish to take. However, I feel at this time to presume that the Islamic Banking players will have a platform to share their insights around Ethical and Social finance models where the conventional banking seems to get it all wrong and skewed. Perhaps, it will be an opportunity to also place the Islamic Banking’s Islamic Finance and Impact Investing at the center of our financing options for the nerve center of our economy;- the SME sector, while demystifying the prejudice around Islamic Finance as a Muslim only product.

Of Safaricom Position and the Question on Dominance

In a couple of days, DG Communications Authority of Kenya Mr Francis Wangusi will be releasing a study finding by Analysys Mason on the structure of Kenyan telecoms market on the question of dominance and anti-competition behavior.I could almost predict that we wouldn’t be seeing the kind of action points expected in the circumstances we have in our telecommunication structure, though, finally some debate will be ignited in the coming days.

It’s amazing the kind of casual attitude obtaining in the circumstances we have with Safaricom position in Kenyan market. It’s not helping either that the CAK and indeed the rest of us have been persuaded to buy into the skewed legal arguments advanced by Safaricom in defending an obviously precarious structural deficiency. As expected, the discourse conveniently has been sold to both the authorities and the general public as a simple competition war between Safaricom and other players in the telecommunication sector. It is not.

The dominance question aside, Safaricom is in all intent and purposes our equivalent of a Systematically Important Telecommunication Institution (SITI) a definition I have referenced around Federal Reserve’s designation of SIFI, those financial institutions whose collapse would cause systematic disruption in the market, and the risks that would result from possible collapse of the so called ‘Too Big To Fail’ institutions. For this, I am afraid is the kind of potential disaster we are sitting on.

The dominance threshold loosely is placed at any one institution controlling 50% and above of the market share. Official figures under-approximate Safaricom market share at slightly above 65%. Look, any casual statistics would put Safaricom Market share at above 75%. But even then, 65% is way above the threshold for dominance consideration. Still, that’s not where my concern is.

The country’s financial as well as Banking system has by default find itself heavily reliant on the Mpesa platform for payment as well as banking solutions structured around mobile money transfers. Some KES 2.8 Trillion was transacted through mobile money transfer year 2016, with over 90% of these transactions through the Mpesa platform. We are proudly boasting of a financial system propped on a single legged stool. These clearly shows just how critical the Mpesa platform has become to our financial system. A disruption in these system will clearly have devastating effect to the running of our financial system with predictable consequences on the entire economy.

Today, the NSE report shows safaricom monolith market capitalization as bigger than the next big 9 companies share combined. With Market capitalizattion of about KES 1.8 trillion, safaricom’s KES 719,174,432,600 is at 40% of the entire listing of the NSE. One single Company. In short, we have an entire national stock exchange capitalization almost singularly dependent on one monolith, a too big to fail monolith?

As we head to our elections, every debate around electronic infrastructure and network coverage could as well be simplified around Safaricom network coverage. These besides the dependency we have around internet based security installations and infrastructures. I could go on to employee numbers and the jobs and businesses directly or indirectly sourced from one single Company, and the facts clearly pokes us in the face to recognize the systematic potential risk attendant with this kind of position.

As the debate has been, obviously the responsibility to asses and appreciate these potential risk cannot be expected to be with Safaricom.It has put itself ahead of the curve to remain at the top of the table and reap big in the process. That cannot be gainsaid. That’s the basis for which Safaricom, as indeed every business is founded. What is not in doubt too though is the duty of care and responsibility the authority has over the overall good of both the security and safety of our financial and telecommunication system. Credible jurisdictions cannot abdicate these responsibilities on the simplistic arguments on legalism because every effort should be put in place both in legislation and systems to guarantee the most important interests of the national public good.

We have precedence to learn from including the thoughts and arguments for possible legislative and systematic approach to protect our telecommunication and financial systems from possible disaster. I hope Analysys Masons will give us a basis for possible discussions around the concern. Let the honest crucial discourse begins.

Benard Were

Nairobi