We are proud of the sustained and intensive work the industry has undertaken over the last two years to introduce the principle of sustainable ﬁnance in our banks’ operations and ensure acceptance and adoption of the same.
KBA is proud to have been in the forefront of this quest whose objective is a banking sector that is not only efficient and profitable, but is also alive to the wider societal concerns of environmental and economic sustainability and social good.
While our members have a critical role to play in the country’s development as financiers and facilitators of economic activities, we believe the impact of our contribution greatly hinges on the quality of the decisions we make. Economic viability is vital, but time has come for banks in Kenya and the region to adopt and implement a more inclusive decision-making model that also factors in variables such as environmental impact and social capital in the overall finance equation. KBA’s deliberate leadership in the formation of the SFI and the development of the Kenya Sustainable Finance Principles are key milestones in this journey.
KBA’s participation in this process was also informed by the industry’s desire to make Kenya and the EAC bloc more competitive in the international arena. It is borne out of the realization that for us to win on the global stage, we must be tooled to play by the rules and precepts of other countries and blocs, sustainable banking principles included.
We therefore must make these principles part of our genetic make-up as an industry, as a necessary supplement to existing risk management practice, which is why KBA has developed this e-Learning platform as a structured and sustained Capacity Building program for all the key players in finance decisions: including credit risk managers, business development and strategy heads, operations officers and bank boards..
I wish to congratulate the entire SFI structure for a job well done. The SFI Working Group played a crucial role in coming up with the initial recommendations that have ultimately ensured that today; we have Guiding Principles that are attuned to the realities of our East African context. There are also the three Work-streams that have been coordinating the various aspects for the SFI, namely Principles and Procedures, Capacity Building and the Green Economy. The import of their input and sacrifice cannot be gainsaid.
This work also would not have been possible without the support of a number of partners and collaborators who bought into our vision. We thank them. UNEP Finance Initiative (UNEP-FI), DEG (German Development Finance Institution) and FMO (Dutch development bank) supported the inaugural CEO Roundtable and have remained committed to the program. We are also thankful for the goodwill received from the Central Bank of Kenya, UN Under Secretary and UNEP Executive Director, Achim Steiner, the IFC (International Finance Corporation) and African Development Bank.
The role of the financial sector as a facilitator in Kenya’s economic development cannot be gainsaid.
It is a role that is recognized and documented in Kenya’s flagship economic development blueprint, Vision 2030. Government planners and policy makers would appear to appreciate the fact that the financial
sector is a critical player in helping Kenya achieve a sustained 10 per cent-plus growth in GDP, which is the required level to propel the country to middle income status by 2030.
The optimal operation of the financial sector is therefore a key component of Kenya’s overall economy.
As currently mobilized, Kenya’s financial sector is bank-led, evidenced by their level of invested capital and market engagement in banking activity. It consists of the Central Bank of Kenya (CBK) as one of the regulators, 44 commercial banks and a single mortgage financier. Some seven foreign banks have representative offices in the country; there are nine micro-finance institutions (MFIs), two credit reference bureaus and 101 forex bureaus.
The typical Kenyan bank, besides engaging in commercial banking, is also likely to have units to handle investment, insurance (banc assurance), microfinance, custodial services, private equity ventures and capital raising through the capital markets.
Several parameters can be used to classify Kenyan banks. These include ownership and whether the particular bank is listed on the Nairobi Securities Exchange (NSE). Using shareholding as a differentiator yields three types of banks: foreign owned ones, those with some level of government ownership or those owned by local investors. Among foreign banks, there are those incorporated in other countries; those incorporated in Kenya but partly owned by foreigners and those incorporated else- where and fully owned by foreign interests.
Banks continue to make a solid and tangible contribution to the country’s economic development in a number of ways. They act as financial intermediaries and also pro- mote financial inclusion and deepening. They are a major employer of all cadres of personnel and also contribute to the Exchequer in the form of taxes. To illustrate the scale of banks’ contribution to the economy, they advanced Sh1.78 billion in June 2014, with a material 17.4 per cent going to small and medium enterprises (SMEs). Banks are also major investors in corporate philanthropy, with an allocation of Sh1.4 billion to high-impact corporate social investment (CSI) projects. In 2013, banks paid over Sh37 billion in corporate taxes alone, making the sector one of the highest tax- payers.
With such a heavy involvement in promoting economic development, banks can only be successful and impact optimally if the principle of sustainability is ingrained in their genes. Banks therefore need to stop focusing on financial returns alone, but also give due attention to the economic, social and environmental pillars of development.
Secondly, the pursuit of sustainability can no longer be hinged on voluntarism alone. The Constitution of Kenya expressly requires that development should be pursued sustainably by all.
A benchmark study by the KBA found out that while most banks practice some form of sustainability, adoption remains disparate and lacks a unitary structure. CSI initiatives also tended to be confused with sustainability. And this despite their short-term nature and the fact that they are sometimes largely driven by marketing imperatives. These underlying factors explain the need for a harmonized platform to assist banks incorporate sustainable finance principles into their operations. The study also called for a regulator to enforce compliance through incentives and sanctions while at the same time tracking progress on implementation of sustainability principles. Use of donor money by some banks in CSI initiatives was also questioned.
The initiative spearheaded by KBA, and supported by a number of partner agencies, is therefore the first attempt by Kenya’s financial services sector to embrace and adopt sustainable finance practices in its day-to-day operations for the mutual benefit of the firms and society at large.
The Sustainable Finance Initiative (SFI) falls within the KBA Governance structure, reporting to the Governing Council (KBA’s Board of Directors).