Category Archives: Kenya judiciary

SME Lending in Kenya

The Central Bank of Kenya, Financial Sector Deepening Trust Kenya and the World Bank, have published a study on bank financing of Small and Medium Enterprises (SMEs) in Kenya ($1=Kshs 100). Excerpts

  • The total SME lending portfolio in December 2013 was estimated at Kshs. 332 billion, representing 23.4% of all banks’ total loan portfolio
  • Donor Support: Nearly all of the banks interviewed received some form of donor support or were in discussions with donors for support directly related to financing of SMEs. In several cases there were banks with support from as many as four donors at a time.
  • Limited Government Intervention: In 2010 The Government (though the Treasury) established a special SME scheme, called the MSE Fund, but since 2012 no new loans have been approved by the fund. According to Treasury, the scheme was discontinued because “the intention was not for the Government to lend, but to create an incentive for banks to engage with SMEs”. After only a year of the fund’s operation, banks started to lend more to SMEs from their own books, especially Equity Bank, and therefore Treasury did not see any reason for the continued operation of the fund. In addition to the MSE fund, the Government set up a Youth Fund and a Women Entrepreneur Fund, in which a number of banks are participating. The Government is also contemplating a partial credit guarantee for agricultural loans.
  • Courts Not Good at Dispute Resolution:  Enforcement of secured claims appears to be slow and costly, affecting the cost of credit. It takes 4.5 years, costs 22% of the value of the debtor’s estate, and only yields 30% of what is owed
  • PE & VC’s: The majority of around 15–20 active private equity funds focused primarily on SMEs with a perceived financing gap of typically between US$50,000 and $5 million. The funds target deal sizes of around $1–3 million, which is still at the high-end of the SME segment and is therefore out of reach for most SMEs in Kenya. The venture capital industry is still nascent with about 10 venture capital type funds, but interest from international firms, as well as local ones, especially in the emerging ICT industry, has recently been on the increase. There are several incubators which have been set up to help build the pipeline for such deals, but the sector is still at an early stage of development
  • 3 Kinds of Banks: Banks target the market segments they are most effectively able to service. There are 1. Corporate oriented (Barclays, CfC Stanbic, Standard Chartered)  2. Supply-chain oriented (BoA, Chase, DTB, Ecobank, FINA, I&M, NIC) 3. Micro-oriented (Co-op, Equity, Family, KCB, KREP, Jamii Bora)
  • Overdrafts are Bad: The most interesting finding from this analysis is arguably the central role played by overdrafts in SME lending in Kenya. While overdrafts can be useful to meet immediate liquidity needs and to avoid firms having to turn to informal lenders or shadow banking, a problem arises when firms use overdrafts to fund specific working capital or investment financing needs. Overdrafts tend to be very expensive and inefficient in addressing specific business funding needs. Banks, on the other hand, may have limited incentives to reduce firms’ reliance on overdrafts, as the overdrafts usually provide high profit margins. Nonetheless, during the interviews some bank managers confirmed that over-reliance on overdrafts can be a major hindrance to the development of SME finance in Kenya: overdrafts are a financial ‘black box’ because they do not reveal why firms are borrowing nor how the loans are used.
  • Interest Rates: The average annual interest rate is 20.6%  for microenterprises, 18.5% for small enterprises, 17.4% for medium enterprises and 15.3% for large enterprises.
  • Potential 20 Million Credit Reports: As of 31 December 2014, a total of 5.2 million credit reports were requested by banks, compared with 2.3 million as of December 2012. Adding the information from the over 20 million registered mobile money/mobile financial services users would lead to a significant expansion of the underlying information base.

Solomonic Blue Dress Courts

A few weeks ago there was an odd debate by thousands of people in many countries over what color a certain dress was – “White and Gold?” , or “Black and Blue?”.

While the dress debate rages on, there are similar debates are going on in the Kenyan judicial system. If you attend a Kenyan court, and hear lawyers for two sides argue, they will say polar opposites of each other. E.g a bank lawyer will say that Person A has defaulted on a Kshs 10 million loan and they want to sell his/her house. In reply, the lawyer for Person A will deny that he knows the bank, or took a loan from the bank, and that there is a fraudulent attempt to sell his house.

confusion-over-exact-colour-dress-appearing-picture-tumbler-has-triggered-frenziedOr in the case of the Tatu City, you have two groups of directors saying totally different things. One side calls the others fraudsters who have never put a cent in what is a billion shilling project, while the other  side says that foreigners want to deprive them of a rightful stake.

The truth is usually somewhere in between in these cases, but why do antagonists, through their lawyers and affidavits retreat to polar opposite sides ahead of court? This forces a judge to  wade through months or years of volumes of evidence and documents in order to arrive at at a Solomonic decision that may reflect the reality, or a sense of fairness. Not the truth.  In these drawn out cases sides are given injunctions and orders that prolong, and make the ultimate decision, needlessly more expensive.

Could a lot of cases be settled faster, and less time lost in the courts? There’s no need for Solomon in every case.

 

Bankruptcy Court

I once interacted with someone in a Nairobi bankruptcy Court. He was always dressed in a new suit, white or grey, even as his lawyer told the judge he was too poor to pay his bank and other debts. He was said to drive a Mercedes jeep, but there were no assets that were listed in his name.

His lawyer always tried to ensure that the Court processes took as many months as possible to frustrate his creditors. There was one time where his lawyer slipped up by saying his client would not be able to attend the next hearing as he had to make an overseas business trip, at which point the presiding court official perked up and asked “how is that possible?” – this was because the client should have lodged his passport with the Court as a pre-condition of the bankruptcy proceedings.

The long delays seemed to work as, one by one, his creditors stopped showing up at the bankruptcy hearings. Either they lost interest in the debt or got frustrated with the long processes, but in some cases, they accepted small payments from the man for a fraction of what they had initially demanded.

A few months ago, one of the companies of the previously bankrupt man won a Court judgment, including a large sum of money as compensation, when a judge ruled that the government which had shut down the company, could not prove that it had engaged in fraud.

Who Got Court?

When you spend the day the Commercial Court in Milimani it’s not a fun day. It’s a dreary and boring rotation of procedures and observations of roles played by (mostly) young lawyers, who learn to master the art of speaking.

When a case is called, lawyer stands up and states their name, “I am Odinga for the plaintiff” or “Kibaki for the defendant”, and wait……… for about a minute while the judge scribbles out these details. The sequence is repeated for about another ten minutes, as a lawyer speaks for about ½ a minute at most, and the judge writes out the details. Only one lawyer speaks at a time, while standing up, and only at a glance, or reminder, from the Judge to continue or speak up

As with all Courts in Kenya you bow as you walk in or out when court is in session and please don’t have your phone rings in the presence of a mischievous judge.

The Judge is like a teacher who takes homework from in a particular case. Who filed their affidavit? Who has not filed their reply? Who is not ready to proceed and why? This is often the outcome in each case as one or more parties is not ready to proceed and asks their lawyer asks the judge to indulge them with an adjournment – another two weeks to reply, get evidence, issue summons etc.

The court is low key, no guards, bailiff, handcuffs, cells, and metal detectors etc. that are found in criminal court houses. You are unlikely to spot a famous defendant, and there is rarely the colorful testimony as you would find a criminal court where the theft of a chicken is before the court.

It is a back and forth of civil, not criminal, disputes between two parties or companies over money, mediated by their lawyers and governed by documents, evidence, contracts etc. The cases are often open and shut, but one party is too stubborn to honour a contract, and gets a lawyer who goes through the charade of filing a case or a defense – Bank vs. debtor, debtor vs. bank, company vs. supplier, etc. The lawyers know this, and know each other even as they refrain from throwing barbs at each others clients. Parties to a dispute are often encouraged to settle out of court, or come to this conclusion after many months of legal bills and mountains of evidence.

There are few smoking guns or surprise Perry Mason like moments that overturn the course of a case, these sometimes happens – and a lawyer friend of mine has won shocking cases on technicalities such as with this example.

That’s a day at the Milimani Courts.

the famous question/phrase who got court? is attributed to the Late ODB of the Wu Tang Clan who uttered the phrase when he discovered, in the middle of a press conference, that he had another court hearing due. Listen below to the clip from the Howard Stern radio show on You tube – Part II has the phrase, Part I is the funnier one to be listened to first

Giving banks a legal hand

The judiciary has been the bane of banks, taking forever to get things cleared. You can apply for a case against a debtor today and be told the next hearing date available is in 2008.

Something is very wrong when a case can’t be heard for almost ten months. There’s enough blame to go round – complex cases heard using archaic processes, too few judges, judges who take too long to clear cases, lazy/crafty lawyers who seek a postponement for any reason to keep cases going on forever etc.

The Chief Justice tried to give a helping hand in his gazette notice to stop one delaying avenue where matters relating to a case are presented in different courtrooms around the country. The most visible case has been the ongoing Charterhouse Bank saga which has been in courthouses in Nairobi, Malindi and Eldoret leading to conflicting legal positions.

jobs

from the daily papers last week
– Accountant at Bakri international (oil company). Apply to bakri@accesskenya.co.ke by 25/3
– Senior associate at Creative Associates International. Apply to recruitment@caii.com by 23/3
Ernst & Young: tax trainees and an accountant. Apply to Eyrecruitment@ke.ey.com by 30/3
– Huawei: transmission engineer, wireless engineer, and intelligent network engineer. Apply to kenya@huawei.com by 30/3
– Communications specialist at ILRI. Apply to recruit-ilri@cgiar.org b 30/3
– Property manager at international house limited. Apply to jobs@ihlkenya.com by 26/3
– KPMG: audit manager (AM-07), senior internal auditor & internal auditors (IAS-07), tax manager (TM-07) and tax consultants (TC-07). Apply to esd@kpmg.co.ke by 30/3
– Cluster manager at millennium villages. Millennium Promise is a partnership of the Earth Institute (Columbia University) and the World Agroforestry center. Apply to j.morabu@cgiar.org by 30/3
– National Oil Corp of Kenya: depot accountants (Nakuru & Eldoret), and a credit controller. Apply to hr@nockenya.co.ke by 29/3
– National coordinator – African peer review mechanism at NEPAD Kenya secretariat. Apply to jobs.ke@undp.org by 23/3
– Business development manager at Savings & Loan (KCB subsidiary).
– Financial management specialist at the World Bank. Kenya. Details and apply online by 30/3. Also, financial management consultants (6 months and 12 months) – D/L is 11/4
– World Vision: ICT manager at world vision, Manager – KUTER initiative, and (RMB/IMCI) program officer. Apply to recruit_kenya@wvi.org by 30/3