The World Bank’s 2016 Doing Business Report is out. Kenya moved 21 positions to position 108, in part because “…the getting-credit indicator improved upwards as a result of the introduction of Credit Reference Bureaus, allowing financial institutions to assess the credit-worthiness of firms and individuals.” Let us allow this to sink in.

Arguably, there are three key stakeholders in a well performing banking sector: the state as a facilitator while ensuring there is a contribution to national development, the banks which aim to make a buck while being responsible players, and the citizens who patronize the banks by depositing and borrowing to enhance their wellbeing. The sector is doing well when all the three stakeholders are happy and prospering.

The dilemma about the banking sector in Kenya is that the banks turn in mega billion profits while the government and the citizens are broke and sinking deeper into poverty. This is intriguing in three ways. First, how do we enrich the banks so much despite our poverty? Second, why do banks as responsible players impose so high charges? Third, securing credit in Kenya remains a nightmare. So, with poor clientele, discouragingly high charges, and reluctance to lend, how do they make billions?

A while back, I got the chance to test our system. I needed Kshs 1.5m (say US$ 15,000) for a project, and to repay it in a year. I approached three banks (Bank-1, Bank-2 and Bank-3) for a loan. I am a chartered accountant and I work in part to promote access to credit and banking services in the developing countries. I have borrowed and repaid severally from banks in Kenya, the UK, and the USA. I have some assets too, and have maintained a steady job and a strong international credit score. I consider myself an informed, low-risk borrower our banks should be glad to do business with. How did they perform?

Bank-1, a leading bank I had used for over 15 years, had given me a similar unsecured loan 3 years back and I repaid it from abroad. My branch manager was supportive and the credit officer accepted my application package. There was no update for a fortnight so I followed up. I was asked if I could channel my USA pay through my local bank account which I politely declined. Without exploring other options the officer simply asked me to wait. I waited, waited, and waited. In fact, it is now a year and I am still waiting! I bet they quietly declined my application. The bottom-line? Bank-1 failed to communicate, made an unreasonable demand, lacked flexibility/creativity, and was indecisive.

Bank-2 is also a leading bank well known for its credit services. The credit team was eager and very proactive in communication. The team leader contacted me severally. They did not know me but were willing to rely on my international credit history plus a few assurances. They asked for a real asset as security. Lawyers would be involved and about 3% of the loan in additional costs, pushing the loan cost to about 19% p.a. As an accountant I judged the costs and effort to outweigh the benefits. The bottom-line? Bank-2 made unreasonable demands and the costs were too high.

Bank-3 is a leading international bank operating locally. The team was enthusiastic and professional. They assured me they could arrange the loan in a short time, at about 16% interest rate. Then they declined the security I offered: a recommendation from my bank manager and my personal pension at a local company. They then inquired if I channel my USA salary through my local bank account, and I politely declined. We mutually agreed to end the application. The bottom-line? Bank-3 was professional but with rigid internal procedures and could not rely on my international credit record.

Had I succeeded I would have secured a loan at an all-in-cost of 16% to 20% p.a. What is intriguing is, I did not succeed! If as a professional and a low risk borrower with steady employment and credit history I could not secure credit, what chances does a regular guy have to secure credit in Kenya and at what cost?

Contrast these scenarios with a signature loan I got from my bank in Washington last December. I applied online, got an immediate email confirmation. In 24 hours I got an update with loan forms to sign and the money was in bank account in under 2 days, unsecured, at 5.5%. I never met or called a bank official. Just a straight transaction.

What ails Kenya’s credit market? My thesis is that credit is still considered a privilege in Kenya. Regulations around the sector are either insufficient, outdated or not sufficiently enforced. Getting credit is largely driven by personal connections rather than a set of well-established principles. The market remains chocking under archaic and inflexible requirements, largely insular and wants to re-invent the wheel e.g. in recreating credit histories.

The market fails in some cases to correctly judge risks and balance them with access and costs. In those cases it remains largely predatory in that it prefers to lend at very high charges to three main categories of clients: those who are connected, those who will for sure make huge profits and share with the banks, and those the banks know well will default to pay but are willing to give good securities the banks will seize to auction.

This is not a credit market fit to drive Kenya on the grand road to Vision 2030. It is time to rebalance the stakes for the three stakeholders.

By Morrison A. Muleri FCCA, PhD*

*The author is a chartered accountant and holds a PhD in development effectiveness besides other qualifications. He works for a leading development organization in Washington DC. The views expressed here are entirely his own. He can be reached at mmuleri@yahoo.com