16.0 BANKING, VENTURE CAPITAL AND CREDIT

The economic performance of a Country is directly related to the proper functioning of its financial sector. The economy requires efficient and effective financial services that are appropriately costed. Kenya has a fairly well developed financial sector. The Capital Markets Authority (CMA) regulates the venture capital market in the Country. It is also in charge of the Nairobi Stock Exchange, company mergers and the issuance of shares by the public companies. The CMA has limitations on the capacity to function effectively. The Nairobi Stock Exchange (NSE) lists public companies that have been cleared by the Capital Markets Authority (CMA). The NSE has been undergoing a modernization program over the years and is now one of the best Stock Capital Markets in Africa. The NSE has not been able to tap financial resources currently held by the Savings and Credit Co-operative Societies (SACCOS) and the cooperative sector in general. The cooperative sector for example is currently holding massive amounts of financial resources could be used in the Capital Market and which could generate better returns for the cooperative members.

The Capital Market can also tap financial resources with the National Social Security Fund. This money should be invested in the Capital Market and be used as venture capital and for only lending to private sector at affordable rate in order to stimulate economic growth and development.

Kenya currently does not have specialized banking facilities safe for the housing sector. There is therefore need to develop specialized banks in environment, water, fish trade, housing, service industry, agriculture, trade and investment. These banks would be able to develop specialized tailor made products for the sectors and hence encourage economic growth.

The growth in the Micro Finance Institutions in the Country is a welcome move. The Micro Finance Act is being implemented by the Central Bank of Kenya with a view of ensuring order in the sector. The sector is able to provide loans to the Small and Medium Enterprises (SMEs) without the collaterals required by the formal banking sector.

A major hindrance to economic growth has been the over borrowing by the Government from the local market to finance its Budget. Government borrowing in the domestic market clouds out investment. In other words it reduces amounts that would otherwise been available for the private sector. In order to enhance the economic performance and develop the financial sector, the Democratic Party of Kenya Government will implement the following measures:

1. Build capacities of both human resource and equipment at the Capital Markets Authority (CMA)

2. Encourage the creation of sector related banks, for example, agriculture, Trade and Investment, housing, fish industry, environment, water and service industry.

3. Reduce Government borrowing from the local market

4. Externalize Government borrowing from the Local Markets.

5. Encourage the co-operative movement to participate in the stock exchange

6. Use branches as information centres

7. Reduce interest rates to allow more investors to borrow

8. Provide free land so that investor can set up banks in rural areas including microfinance institutions

9. Promote the National Social Security Fund as a source of venture capital.

10. Ensure the use of Pension Funds for venture capital.

11. Provide incentives to banks and micro finance institutions operating in the rural areas that finance agriculture and the Small and Medium Enterprises.