What you need to know:
- Kenya has witnessed the collapse of several banks in the last three decades.
- The collapse of the banks has largely been due to fraud and insider dealings.
The National Assembly moved to secure customer investments in banks after the Kenya Deposit Insurance (Amendment) Bill, 2020 sailed through the second reading yesterday.
The decision by MPs on the bill, whose passage at the debate stage was the third attempt after quorum hitches, gives hope to depositors of banks that collapse.
The bill, which was sponsored by Imenti North MP Abdul Rahim Dawood, gives a minimum deposit guarantee of Sh1 million for every account held in a bank that goes under.
It failed to progress to the committee stage last week for lack of quorum.
At least 50 MPs are required to be in the House before a bill sails through at the debate stage, known as the second reading. It then goes to the third reading.
Mr Dawood said his proposal seeks to protect citizens who have invested in banks that later collapse.
“I am happy the bill has passed at the second reading. However, this is not the end. We still have a lot to do at the committee and the third reading stages,” the lawmaker told the Daily Nation yesterday.
“I hope my colleagues will see the sense in passing the bill as it is.”
Major corporate scandals
The Kenya Deposit Insurance (Amendment) Bill, 2020 is an improvement on the maximum of Sh100,000 the customer is entitled to as compensation regardless of the number of accounts held.
Kenya has witnessed the collapse of several banks in the last three decades, the recent ones being Dubai and Imperial Banks in 2015 and Chase Bank a year later.
The collapse of the banks has largely been due to fraud and insider dealings.
Others that have gone under are Euro, Trust, Charter House, Prudential and Trade.
To stop the collapse of banks, the government undertook surveillance that would help detect questionable financial dealings early enough.
The surveillance, according to National Treasury Cabinet Secretary Ukur Yatani in the 2021 budget policy statement, is carried out by the Central Bank of Kenya (CBK), the Financial Reporting Centre (FRC) and other concerned government agencies such as the Directorate of Criminal Investigations.
“Early detection of major corporate scandals elicited interventions that stopped the collapse of some financial institutions,” Mr Yatani says in the policy statement.
The law and circulars issued by CBK Governor, Patrick Njoroge, require banks, insurance firms, savings and credit cooperative societies (saccos) and other financial organisations to file daily reports to the FRC on money laundering, terrorism financing, piracy proceeds, bribery and other suspected illicit flows.
Mr Dawood said the progress of the bill has not been easy. The Imenti North lawmaker said some individuals in government are not comfortable with the Kenya Deposit Insurance (Amendment) Bill, 2020.
Minimum deposit guarantee
He added that the unnamed people had increased the minimum deposit guarantee from Sh100,000 to Sh500,000 in the hope that he would drop the amendments.
“This was done through regulations,” the lawmaker said. “They later approached me to have the bill dropped in favour of what was contained in the new rules but I declined.”
Mr Dawood said to protect investments in banks, the minimum deposit guarantee must be in law, not regulations.
The current situation is that if a customer has, for instance, three accounts in a bank – each with say, Sh300,000 – the client can only get a maximum of Sh500,000 in compensation after a lengthy process.
Mr Dawood’s proposal seeks to have the compensation made within six months or less of the bank collapsing.
In its report on the bill, the Parliamentary Budget Office (PBO) said its enactment would spur a saving culture among Kenyans.
“The culture will improve. Customers will be sure of the safety of their money,” the PBO report before the House says.
The PBO advises Parliament and its committees on financial matters.