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Judith E. Tyson, Research Fellow, Overseas Development Institute
April 2015
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FINANCIAL SERVICES IN KENYA: ITS POTENTIAL ROLE IN ECONOMIC
TRANSFORMATION
4
INTRODUCTION
• Overview of Kenya’s financial deepening
• Types of hubs and their pros and cons
– Regional financial hubs
– Financial processing hubs
• Kenya’s competitive position
• Key questions for our discussion
5
KENYA HAS EXPERIENCED STRONG SUCCESS IN ITS FINANCIAL SECTOR
• 7.4% of 2013 GDP
• Financial deepening has accelerated
• Growth in regional banks and cross-border banking
• Innovation in mobile banking
-
5.0
10.0
15.0
20.0
25.0
30.0
35.0
40.0 Domestic credit as % of GDP
Kenya
Low income
Middle income
Year2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
-
5.0
10.0
15.0
20.0
25.0
International claims as % of GDP
Kenya
Low income
Middle income
Year
Source: World Bank’s Global Financial Development database
6
AND ITS REGULATION IS KEEPING PACE WITH NEW DEMANDS
• 2014 removal from the Financial Action Task Force following improvements in anti-money laundering and terrorist financing
• 2015 enhanced capital buffers implemented
• IMF see a “Strong commitment to strengthening prudential and regulatory oversight” (IMF, 2014)
• EAC Treaty – liberalization and harmonization of financial services
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GLOBAL FINANCIAL HUBS
7
Hong Kong
Singapore
Tokyo
New York
London
Globally represent $3.2 trillion or 5% of GDP and 10% of services exports
DEVELOPING COUNTRY SUCCESSES ARE OF MOST RELEVANCE TO KENYA
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Hong Kong
1. Regional financial hub
3. Specialist financial hub
2. Processing financial hub
Mauritius & Seychelles
(Offshore banking)
Dubai (Islamic banking)
Bermuda(Offshore banking)
Singapore
Johannesburg
Sao Paolo
India
Philippines
There are 3 broad types of hubs… some examples in developing countries today
Lagos
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1. REGIONAL FINANCIAL HUB
• High potential contribution to GDP
• High potential to create high-skill, high-wage employment
• Accelerates economic development through financial sector growth and strong linkages to other sectors
But…
• “Winner takes all” - although not yet in Sub-Saharan Africa
• Potential negative impacts on macroeconomic management and financial stability
• Longer term timeframe
10
2. FINANCIAL PROCESSING CENTERS
• Serve as “outsourced” processing centre to major financial centres
• Examples include call centres, data processing, accounts and invoice processing
• High-volume, low-skill employment creation
• Little potential for negative impacts on macroeconomic or financial stability
• Relatively rapid timeframe
But …
• Little impact on financial sector deepening
• More limited linkages to other sectors
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WHAT IS KENYA’S CURRENT COMPETITIVE POSITION?
1. Proven success in domestic financial services and its rapidly regionalizing banks are creating critical mass in Nairobi
2. Further synergy because of growing strength in complimentary business services and IT
3. Large talent pool of English-speaking graduates (2)
4. Compatible time zone for global financial centers (2)
5. Participant in EAC treaty (1)
1. Need for “best practice” legal and regulatory framework (1)
2. Need for greater number of experienced financial service professionals (1)
3. Need for further financial deepening including in capital and interbank markets (1)
4. Need to ensure confidence in long-term political and economic stability
5. Weaknesses in urban infrastructure that attract business
Competitive advantages Competitive disadvantages
(1) Most relevant to regional financial hubs (2) Most relevant to financial processing centers
SOURCE:
Key questions for the panel discussion;
1. Do participants believe that being a financial hub is a realistic prospect?
2. If so, which type of hub is best for Kenya’s structural transformation - a regional financial center or a processing hub?
3. What is needed from private institutions, regulators and government to make it a reality?
Thank you!
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