| ||||||||||||
| ||||||||||||
| ||||||||||||
| ||||||||||||
|
Country Commercial Guides for FY 2000:
|
CHAPTER VIII: TRADE AND PROJECT FINANCING
A. THE KENYAN BANKING SYSTEM
Although Kenya inherited at the time of independence a financial system typical of all British colonies in Africa -- a currency board; a commercial banking system wholly dominated by two major British banks; a Post Office Saving Bank and a small number of non-bank financial institutions (NBFIs) providing mortgage finance, insurance and other near bank financial services -- the sector has grown into a substantial, sophisticated complex. The sector comprises: The Central Bank of Kenya (CBK); 48 domestic and foreign commercial banks with branches, agencies and other outlets throughout the country; 11 NBFIs with an excellent branch network in Kenya's major cities; 6 building societies; 37 insurance companies; 7 development finance companies providing long-term finance; the Post Office Savings Bank, with a large network of branches around the country; and over 1,500 poorly-structured savings and credit unions.
In spite of the number of established banks, the banking sector is essentially dominated by four major commercial banks with an established tradition of working together. However, NBFIs recently have exhibited an ability to compete with commercial banks, particularly because of the less restrictive regulatory framework within which they operate. On paper, NBFIs operate as merchant or investment banks. In practice, they operate as commercial banks, taking deposits and making short-term loans. In June 1994, the Central Bank instructed NBFIs to convert and operate as commercial banks. So far 18 NBFIS have become banks and six merged with parent commercial banks. Kenya, already a regional leader, is expected to develop one of the largest commercial banking industries in Africa.
Despite the existence of a relatively developed and sophisticated financial system, Kenya's capital market is still in its infancy. The market for short-term securities is dominated by Treasury Bills and bonds. There is relatively light trading in commercial paper, and there now exists a secondary market in government paper.
The Nairobi Stock Exchange (NSE) is the only licensed trading exchange in the country. NSE originally started as a private association, but is now a fully fledged stock market. Currently, there are 62 companies listed. The value of shares traded increased from $65.1 million in 1995 to $68.7 million in 1996. In 1997, the value of shares traded increased substantially to $104.6 million, before declining to US$ 70.6 million in 1998. NSE trading has slightly declined as a result of reduced share prices. The NSE index as of December 1996 was 3,114.1 compared to 3,468.9 in December 1995. The index fell further to 2,962.1 at the end of 1998, from 3,115.1 at the end of December 1997. The number of shares traded increased from 59.4 million in 1995 to 111.5 million in 1998. Market capitalization as of December 1998 stood at $2.08 billion, up from $1.89 billion in 1995.
PERFORMANCE OF THE NAIROBI STOCK EXCHANGE (NSE), 1995-1998
1995
1996
1997
1998
NSE 20-Share Index
3468.88
3114.11
3115.14
2962.06
Market Capitalization, in KShs Millions
112,880
99,946
114,311
129,021
Total Number of Shares Issued
1,800,606,660
2,530,917,261
2,965,435,428
3,303,614,139
No. of Shares Traded
59,385,414
113,559,922
143,583,761
111,514,214
Value of Shares Traded, in KShs Millions
3,345
3,962
6,148
4,262
Source: Nairobi Stock Exchange
The exchange is fully computerized and is currently in the process of installing electronic central depository system (CDS). However, the NSE is still in its infancy. The strengthening of the Capital Markets Authority, the exchange regulator, through revised legislation in 1994 and the June 1996 budget measures helped in the growth of the exchange. Foreign firms accounted for about 75 percent of total market capitalization as of June 1995. With the right macroeconomic framework, it has the potential of joining the ranks of other strong emerging markets.
B. FOREIGN EXCHANGE CONTROLS AFFECTING TRADING
In conjunction with the removal of import licensing requirements, Kenya has moved to a market-determined exchange rate. The Exchange Control Act has been repealed. The repeal frees all the existing controls on foreign exchange. This policy measure has attracted short term capital inflows. The Central Bank of Kenya licenses foreign exchange bureaus. These bureaus are open longer hours than banks and are expected to increase competition in the foreign exchange market. Currently, only the following capital transactions have foreign exchange restrictions:
- Investment by foreigners in shares (set in June 1995 at not more than 40 percent of shares traded on the NSE); and
- Investments by Kenya residents outside Kenya exceeding $500,000 must be approved by the Central Bank.
Residents and non-residents are now permitted to buy or sell foreign exchange from/to authorized dealers up to the equivalent of $5,000 without the need to obtain permission from the Central Bank of Kenya. The recent GOK-sanctioned setting-up of forex bureaus is facilitating smaller forex transactions.
Exporters are now authorized to retain all their export proceeds in foreign currency accounts with local banks or sell such proceeds to obtain local currency. All restrictions on current account transactions have been removed, including restrictions with regard to the annual maximum amount of foreign exchange remittable. Unremitted funds earned before February 28, 1994, may be remitted by commercial banks at a rate of $100,000 per year. Remittances in excess of this amount require CBK approval. The Central Bank has streamlined the paperwork requirements by abolishing the requirement to fill out export forms.
The Central Bank has also revoked its provision regarding blocked funds. Residents may borrow abroad with no limit on the amount. However, the government will not guarantee any borrowing by the private sector. Although payments under technical, management, royalty and patent fees are freely remittable, the relevant agreements and renewals will be subject to approval.
Persons leaving or entering Kenya are permitted to take or bring into the country Kenyan currency up to a maximum of Ksh 100,000 and foreign currency equivalent to a maximum of $5,000. Amounts beyond these limits may be taken out or brought into the country, provided they are declared at the point of departure or entry.
C. GENERAL FINANCING AVAILABILITY
U.S. companies doing business or interested in doing business with Kenya have the full range of private sector financing available to U.S. firms doing business in other countries. This includes a range of commercial financing available to American firms in the U.S. Most major commercial banks in Kenya have correspondence relationships with U.S. banks. See Section E below for a list of such banks. Interested firms may contact their local banker or their nearest U.S. Department of Commerce District Office for more details. Alternatively, U.S. firms may seek advice by calling 1-800-USA TRADE. For specific financing of projects and investments in Kenya, U.S. firms may contact financial organizations listed below in Section F (Sources of Finance).
Kenya is currently on cover for short and medium term Export-Import Bank (Exim Bank) programs for the private sector, but is off cover for government transactions. Interested U.S. firms may contact Exim Bank, Washington, D.C., Telephone: (202) 565-3933; FAX: (202) 565-3931 for further information.
Multilateral Development Banks, NGO's, and other international aid organizations have hard currency sources for financing their imports and projects. The World Bank and the African Development Bank are two major sources of loans for commercial projects in Kenya. Substantial project aid was maintained by both bilateral and multilateral donors during the period after the end of 1991 when balance of payments support was suspended. World Bank balance of payments support was resumed in 1993. U.S. firms may wish to target their marketing in Kenya in the first instance to these types of organizations, and then expand to other commercial sectors after gaining experience in the market. Interested U.S. firms can contact the Multilateral Development Bank Office, U.S. & Foreign Commercial Service, U.S. Department of Commerce, Washington, D.C., Tel: (202) 482-3399, FAX: (202) 482-3914 for further information.
The Government of Kenya does not have a specialized financial institution exclusively focusing on export/import business like an export/import bank. Nonetheless, bank services similar to Eximbank-type financing and bundling facilities are undertaken by multinational banks. Many banks and specialized financial institutions in Kenya finance Kenyan exporters and importers. These banks have adequate liquidity to meet the financial demands of Kenyan firms. The credit supplied is highly influenced by the needs of the local firm, its stature in the market and the experience and its financial position. Credit terms are stiff to meet, usually requiring fixed assets exceeding one to three times the amount of credit requested.
D. HOW TO FINANCE EXPORTS/METHODS OF PAYMENT
Differences in business practices extend into export financing. U.S. firms are strongly advised to discuss the best methods and transaction details with an experienced international bank familiar with Kenya. U.S. firms are advised to determine the range of financing offered by competitors. Further information on financing sources is given in Section C. above.
There are several basic methods of receiving payment for products sold in Kenya, the choice of which is determined by the degree of trust in the buyer's ability to pay. Payment alternatives U.S. exporters might consider, in order of the most to the least-secure include: 1) cash in advance, 2) confirmed irrevocable letter of credit (if concerned about the importer and international standing of his bank), 3) irrevocable letter of credit (if concerned only about the reliability of the importer), 4) documentary drafts for collection (checks drawn on the importer's bank), 5) open account, and 6) consignment sales. Being paid in full in a timely manner is always a major concern of any exporter, as is relative commercial risk.
U.S. exporters selling to Kenya are advised only to transact business on the basis of an irrevocable letter of credit confirmed by a recognized international bank. Any other form of payment is potentially hazardous.
The U.S. Department of Commerce offers an International Company Profile (ICP) service, which provides U.S. exporters with credit information and industry standing and reputation of potential Kenyan importers. Interested U.S. firms may contact their nearest U.S. Department of Commerce Export Assistance Office for further details.
Kenya has various types of export financing and insurance schemes that are attractive and quite useful to Kenyan exporters. These include overdraft facilities, revolving lines of credit, pre-shipment rediscounting facility, and post-shipment financing.
E. TYPES OF AVAILABLE EXPORT FINANCING AND INSURANCE
U.S. firms requiring information on export financing can contact their nearest U.S. Department of Commerce District Office, their international bankers, or call 1-800-USA-TRADE. As indicated above in Section C, Kenya is off cover for Exim Bank programs to the government, but is initiating a program, including insurance, for short-term U.S. exports to the private sector.
The Overseas Private Investment Corporation (OPIC), Washington, D.C., Tel: (202) 336-8400, FAX: (202) 408-9859 supports and promotes U.S. investment in Kenya by financing investments projects through loans, loan guarantees, or equity investment and by providing insurance against certain types of political risk including non-convertibility, and civil disorder. Further information about OPIC's programs is available from the nearest U.S. Department of Commerce District Office. For other sources of export financing available to U.S. firms, please see Section C above.
Kenyan banks provide the following pre-shipment facilities to Kenyan exporters which include the following:
- Advances against contracts;
- Advances against letters of credit (L/C);
- Overdraft facilities; and
- Issue local currency for indirect domestic exporters.
Eight commercial banks provide post-shipment financing to exporters. Some of the facilities available under this scheme are:
- Confirmation of Letters of Credit (L/C);
- Discount sight Drafts Presented under L/C;
- Discount Time Drafts under L/C;
- Discount Time drafts Under Export Collections; and
- Overdraft facilities.
The receipt of a letter of credit and presentation of the appropriate documents evidencing shipment is required for banks to provide post-shipment facilities. Acceptances are created under the issuing bank's letter of credit in New York or London where a secondary market exists. Kenyan banks also create acceptances that are held in portfolio due to lack of a secondary market.
To qualify for any of the above facilities, the client must show evidence of appropriate security to the bank. However, multinational companies with lines of credit with foreign banks in London or New York do not need collateral. Advances against collateral vary from about 40% of value of the property to as much as 85% on more liquid cash and securities. Lending against inventory is not considered by banks. Domestic collateral either in real property or in cash and securities that is easily accessible to banks is preferred.
A few banks use the Preferential Trade Area (PTA) arrangement for settling letters of credit for their clients. However, delays in payment from some PTA member countries have adversely affected the efficiency and operations of this scheme.
Private export financing in Kenya is a relatively new development. Many banks have called for additional incentives from the government in order to provide more funds to exporters. Some banks refuse firm orders or letters of credit as collateral, particularly if they come from small to medium size exporters. Many financial institutions do not as yet undertake transaction-based export financing. Custom bond facilities necessary for control of an exporter's inventory and which can be used as collateral are lacking. Trading of banker's acceptances is limited. Commercial banks do not focus exclusively on export credit and the traditional working capital lines of credit are fully collateralized with cash, securities or property. The lack of a secondary market for export bills acts as a disincentive to providing export financing. However, despite these problems, export guarantees and insurance have played an important role in the development of an export financing market in Kenya.
F. SOURCES OF FINANCE
INDUSTRIAL DEVELOPMENT BANK (IDB)
IDB is a Government of Kenya funded financial institution. IDB provides medium and long term loan finance, direct equity investment and guarantees for loans from other sources. It also underwrites security issues, shares, stocks and similar obligations:
CONTACT:
Managing Director, IDB,
National Bank Building, 18th Floor, Harambee Avenue
P.O. Box 44036, Nairobi, Tel. 337079, Fax 335594INDUSTRIAL AND COMMERCIAL DEVELOPMENT CORPORATION (ICDC)
ICDC has been the Government's main conduit for joint venture investments and has made equity investments in many industrial and commercial ventures along with local and foreign partners. ICDC provides project and commercial financing.
CONTACT:
Executive Director, ICDC,
Uchumi House
P.O. Box 45519, Nairobi, Tel. 229213, Fax 333880DEVELOPMENT FINANCE COMPANY OF KENYA (DFCK)
DFCK is owned jointly by the Kenya Government through ICDC, the Netherlands Overseas Finance Company (FMO), the Commonwealth Development Corporation (CDC), the German Development Bank (DEG) and the International Finance Corporation (IFC). DFCK provides medium-term local and foreign currency financing for projects in the industrial, agro-processing, and tourism sectors.
CONTACT:
The General Manager, DFCK
Finance House, Loita Street
P.O. Box 30483, Nairobi, Tel. 340401/2/3, Fax 338426EAST AFRICAN DEVELOPMENT BANK (EADB)
The bank's shareholding is held primarily by the governments of Kenya, Uganda and Tanzania. The EADB provides medium and long-term loans designated in foreign currencies.
CONTACT:
Resident Manager, EADB
Bruce House, Standard Street
P.O. Box 47685, Nairobi, Tel. 340642, Fax 216651KENYA INDUSTRIAL ESTATES LTD. (KIE)
KIE provides term loans, and a package of other services. The loans are designated in Kenya shillings.
CONTACT:
The Managing Director, KIE,
P.O. Box 78029, Nairobi, Tel. 542300, Fax 553124KENYA EQUITY MANAGEMENT LTD. (KEM)
KEM provides equity and term financing, and particularly supports existing companies who wish to expand rather than start-up operations.
CONTACT:
The Managing Director, KEM
P.O. Box 62360, Nairobi, Tel. 340549, Fax 227147THE AFRICA GROWTH FUND (AGF)
AGF managed by Kenya Equity Management, an affiliate of the U.S. owned Equator Bank, invests in the full range of productive businesses, including manufacturing, agriculture, finance and service industries. Typically, funded projects are between $5 million and $50 million in size. Funding comes from the U.S. Overseas Private Investment Corporation (OPIC).
CONTACT:
The General Manager, AFG
P.O. Box 62360, Nairobi, Tel. 340547, Fax 217147INTERNATIONAL FINANCE CORPORATION (IFC)
IFC is an affiliate of the World Bank and finances private sector investment projects in agriculture, manufacturing and tourism. IFC extends term loans and makes equity investment in projects entailing investment of more than $20 million. It normally does not finance more than 25 percent of the project cost. The term loans are generally made in foreign currencies. IFC also manages the Africa Enterprise Fund, which can support projects with lower project costs.
CONTACT:
Chief of Mission/Regional Representative (EA)
Hill Park Building
P.O. Box 30577, Nairobi, Tel. 714141, Fax 720604.AFRICAN PROJECT DEVELOPMENT FACILITY (APDF)
APDF is a facility established by IFC, UNDP, USAID and The African Development Bank (AFDB). The facility supports medium-sized, African-owned projects by offering assistance in project preparation, locating joint venture partners and negotiating project finance.
CONTACT:
General Manager, APDF,
International House
P.O. Box 46534, Nairobi, Tel 337490INDUSTRIAL PROMOTION SERVICES LTD. (IPS)
IPS is a venture capital company owned by the Aga Khan, IFC Washington, Kenya Commercial Bank, and a merchant bank in the U.K. IPS offers equity investments up to 40 percent of share capital, provides loans and management assistance. IPS also assists in project development and in locating sources of technical know-how.
CONTACT:
Managing Director, IPS
IPS Building
P.O. Box 30500, Nairobi, Tel. 228026/728207, Fax 214563ECONOMIC DEVELOPMENT FOR EQUATORIAL AND SOUTHERN AFRICA (EDESA)
EDESA provides medium and long term financing in foreign and local currency. EDESA offers tailor-made package financing for start-up, rehabilitation, and expansion of local ventures which include loans, convertible loans, guarantees and equity.
CONTACT:
General Manager, EDESA Kenya Ltd.
P.O. Box 56038, Nairobi, Tel. 822920-4, Fax: 822925THE ACACIA FUND LIMITED (AFL)
The Acacia Fund is a private equity fund which makes equity or equity related investments in private sector Kenyan companies. AFL is managed by Kenya Capital Partners. Its shareholders are CDC, DEG (the German Investment & Development Company), Barclays Bank of Kenya and Development Bank of Kenya.
CONTACT:
Managing Director, Kenya Capital Partners Ltd
P.O. Box 43233, Nairobi, Tel: 228870; Fax: 219744EUROPEAN DEVELOPMENT BANKS
A number of European development banks provide finance to ventures in Kenya. They include the Netherlands Overseas Finance Company in Kenya (FMO), the Commonwealth Development Corporation (CDC), the Danish Development Bank (IFU), and the Swedish Fund for Industrial Development of Africa (SFIDA).
Private insurance and pension funds are also important mobilizers of long term savings in Kenya. These institutions normally invest their funds in real estate and listed securities.
LIST OF COMMERCIAL BANKS
Bank
Postal Address of Head Office
ABN Amro Bank
Box 30262, Fax 713391 Nairobi
African Mercantile Bank
Box 30090, Fax 333818 Nairobi
Bank of Baroda
Box 30033, Fax 333089 Nairobi
Bank of India
Box 30246, Fax 334545 Nairobi
Bank of Oman
Box 11129, Fax 330792 Nairobi
Barclays Bank of Kenya Ltd.
Box 30120, Fax 337201 Nairobi
Biashara Bank of Kenya Ltd
Box 30831, Fax 221064 Nairobi
Bullion Bank
Box 11666, Fax 221338 Nairobi
Citibank N.A.
Box 30711, Fax 337340 Nairobi
Commercial Bank of Africa
Box 30437, Fax 335827 Nairobi
Consolidated Bank of Kenya>
Box 51133, Fax 340213 Nairobi
Co-operative Bank of Kenya
Box 48231, Fax 330227 Nairobi
Credit Banking Corporation
Box 75501, Tel 336446 Nairobi
Daima Bank
Box 54319, Tel 338079 Nairobi
Delphis Bank
Box 44080, Fax 219469 Nairobi
Euro Bank
Box 43071, Fax 221781 Nairobi
First American Bank
Box 30691, Fax 333868 Nairobi
Giro Bank
Box 40263, Fax 230600 Nairobi
Guilders International Bank
Box 67437, Fax 218030 Nairobi
Habib Bank AG Zurich
Box 30584, Fax 218699 Nairobi
Kenya Commercial Bank Ltd.
Box 48400, Fax 338006 Nairobi
Middle East Bank Ltd.
Box 47487, Fax 336182 Nairobi
National Bank of Kenya Ltd.
Box 41862, Fax 330784 Nairobi
Prime Bank
Box 43825, Fax 334549 Nairobi
Stanbic Bank
Box 30113, Fax 330227 Nairobi
Standard Bank Chartered Bank
Box 30003, Fax 330506 Nairobi
Transnational Bank Ltd
Box 75840, Fax 210335 Nairobi
Trust Bank Ltd.
Box 46342, Fax 334995 Nairobi
United Bank Limited
Box 403, Fax 42551, Kisumu
G. PROJECT FINANCING AVAILABLE
Each year Kenya receives significant project financing assistance from donors. There are three sources of external assistance: multilateral, bilateral and Private Voluntary Organizations (PVOs). The first category can further be divided into United Nations Organizations and non-United Nations multilateral institutions. Bilateral donors lead in provision of project financing, followed by multilateral and PVOs. In FY 1996, external assistance to Kenya was estimated at $730 million. This figure excludes PVOs contribution.
In December 1991, multilateral and bilateral donors temporarily suspended balance of payments assistance to Kenya. There was no interruption of project financing flows to Kenya. A large amount of aid goes to NGO's for projects instead of directly to the Government of Kenya for balance of payment support or for government infrastructure projects.
The largest overall multilateral donor is the World Bank. World Bank-funded projects are listed below. The private lending arm of the World Bank Group, International Finance Corporation (IFC), provided substantial amounts of finance to the private sector, particularly those investments with a potential of generating foreign exchange. The African Development Bank/Fund has not had its concessionary lending facility adequately replenished. Thus, the only AFDB funded projects were those already funded and in the pipeline. These include the $60 million Greater Nakuru Water Supply. It is anticipated that the AFDB will recommence concessionary lending operations in the near future. U.S. firms also should examine the possibility of using the private sector window established at the AFDB. For more information on opportunities for projects funded by multilateral development banks, U.S. firms can contact the Multilateral Development Bank Office, U.S. & Foreign Commercial Service, U.S. Department of Commerce, Washington, D.C., Tel: (202) 482-3399, FAX: (202) 482-3914 for further information.
Japan tops the list of bilateral donors followed by Germany, the United Kingdom and the United States. In FY 99, the United States provided Kenya with a total of nearly $83 million in direct assistance. By far the largest portion of this total flowed through USAID Kenya, which provided almost $67 million in economic and humanitarian assistance to Kenya. Project assistance covers ten key sectors of the Kenyan economy. The top five sectors in order of importance are: Economic Management; Agriculture, Forestry and Fisheries; Health; Transport and Communications; and International Trade. Other equally important sectors are: Social Development, Human Resources, Natural Resources and Industry. The distribution of assistance in the top five sectors is highly skewed towards the sectors that contribute to economic development. For example, in economic management, over 90 percent of the assistance goes to macroeconomic policy planning. In agriculture, over half goes to food crops and support services, while in the international trade of goods and services, the export promotion sub-sector alone accounts for over 60 percent.
Listed below are World Bank funded projects in Kenya:
Project
Funding
Value (Million)
Mombasa Water II
World Bank
$ 43.0
Nairobi/Mombasa Road
World Bank
$ 50.0
Urban Transport
World Bank
$115.0
Energy Sector
World Bank
$125.0
Arid Lands Rehabilitation
World Bank
$ 22.0
Nairobi Water III
World Bank
$ 65.0
Human Resources
World Bank
$180.0
Lake Victoria Environment
World Bank
$ 70.0
For further information on project financing available, refer to Section F, Sources of Finance, above.
H. LIST OF BANKS WITH CORRESPONDENT U.S. BANKING ARRANGEMENT
Almost all major commercial banks in Kenya have either direct or indirect correspondent offices in London and the US. They include the following:
Stanbic Bank Ltd
Kenya Commercial Bank
Standard Chartered Bank
Bank Indosuez
Barclays Bank of Kenya
Bank of Baroda
Bank of India
Mashereabank PSC
Commercial Bank of Africa
Citibank
ABN AMRO Bank
Habib Bank A.G. Zurich
Habib Bank Ltd
National Bank of Kenya
|
[end of document] Note* International Copyright, United States Government, 1999. All rights under foreign copyright laws are reserved. All portions of this publication are protected against any type or form of reproduction, communications to the public and the preparation of adaptations, arrangement and alterations outside the United States. U. S. copyright is not asserted under the U.S. Copyright Law, Title 17, United States Code.
Next Chapter | Table of Contents
|
