Is there less incest in the Kenyan banking sector?

Four years ago I penned an article on LinkedIn titled “could incest in the kenyan banking sector be what is ailing it” which was an attempt at understanding why we have new banks being setup yet they all seem to be reading from the same script.

When I wrote the article the common excuse by the banks, for their lacklustre financial performance, was the capping of interest rates but if you looked at their balance sheets they were still playing it safe with a majority of their deposits sitting in government paper and not being leant out.

Since then I have had the privilege of going back to the class room but this time to teach, the interesting thing is that when you teach you actually learn much more that your students.?

I teach two units one called “Entrepreneurship Skills” and the other “Strategies for scaling” whose main text is "Innovation and Entrepreneurship" by Peter F. Drucker published in 1985 which is over 35 years ago.?

In the book Peter Drucker takes us through the history of banking and its role in the growth of entrepreneurship in the west starting in Germany and later being replicated in the US by JP Morgan.? He also looks at why the US avoided the business cycles as per the Kondratiev waves.

Deutsche Bank, founded by Georg Siemens in 1870* had the following specific mission;

“Finding entrepreneurs, financing entrepreneurs, and forcing upon them organized, disciplined management."

When I read that statement I was flabbergasted because it meant that the function of the bank is not just as a custodian but is actually the catalyst for economic growth of any economy that wishes to flourish in modern times.?

For the spiritually inclined as well as students of life long study the parable of the servants and the talents means that this concept dates back to the time of Jesus if not further which is brought to the fore by what the master told the servant who put his talent in a hole, for those who prefer restricted reading let me paraphrase what was said.

“You would have given my talent to the money changers, read bankers, who would have paid you back the principle with interest”.

I am sure that statement will get a number of you to contemplate not reading any further but I want to believe that at least a half of you are curious enough to see where I am going with this train of thought.

To pay my bills I run a micro business, the tea lady still has to come by my office for money for milk, that offers data centre infrastructure services and monitoring to organisations with on premise facilities and remote management and monitoring for both those with on premise of collocated facilities.?

It is a line of business that I believe has maybe another five years of life left in it as more organisations become more confident to move into the cloud.?We like to think of ourselves as the plumbers of the IT industry in that we make sure that the servers receive clean air and that their hot exhaust is dealt with.

Now back to the core reason for my writing this article, at the height of the Covid-19 pandemic most of our clients, as is usually the case during a financial downturn, decided to cut down on costs related to keeping their core IT infrastructure working effectively as they reduced or completely eliminated the maintenance of their data centres and used the money to invest in new reception areas as well as other more visible facilities.

I place the decision to cut IT costs on the inability of most IT managers to explain to the rest of management the financial implications of their servers going offline, a discussion that the cloud providers are much better at delivering and thus the expected shift from on premise to public cloud.

That was another an aside better known as a commercial break in the traditional broadcast world, back to the jest of the article, due to the reduction of the need for our customers to keep their IT infrastructure operating smoothly and opting for the finger crossing strategy meant that our revenues took a major hit.

At the same time one of our client’s issued us with an LPO to supply some equipment as well as carry out upgrades to their data centre.?The amount required to fulfil the order was much higher than what the business had in its coffers as most of it had been drained to meet our work from home expenses.

As I was looking at the LPO and seeing the opportunity evaporate right in front of me, I receive a phone call from my bankers I&M Bank Ltd .?I was sure it had something to do with a standing order that might not go through, so I braced myself for the worst.

Lo and behold, that was not it, it was our relationship manager at the bank wanting to find out if we had any need for a short term loan, I checked the caller ID again to make sure I was not dreaming and that this wasn’t one of those calls from my friends who are wards of the state currently accommodated at Kamiti.

To make sure I was not been socially engineered, I suggested that I visit the bank to discuss the issue further as never in my wildest dreams did I expect a local bank to call me offering me a loan.?So off I went to meet with my banker and verify this unexpected turn of events.

I met the bank representative who indicated that they had noticed a drop in activity within our bank accounts and they wanted to know if there is any way they could assist.?

I am sure that most of you running micro and small businesses would agree with me that the only time you have heard such words were from a predatory lenders agent offering loans against vehicle logbooks.

Simultaneously while pinching myself, I also mentioned that we had an LPO for which we need funding to fulfil.

His response was that we share the details of the LPO and a letter from the client indicating that they will remit payments to our account in the bank.?The benefit of having a good working relationship with your client is that such requests are just an email away.

I am sure the fact that the client had paid us multiple times previously didn't hurt our rating.

To cut the long story short, swiftly, within 48 hours we had eighty percent of the LPO value deposited in our account allowing us to service the order and within a few weeks pay back the bank and have a little more cash in the kitty.

What the bank did made me contemplate whether the incest scenario that I had raised previously was reducing or if somewhere along the lineage a new injection of DNA was introduced.

As we have celebrate FinTech and all the rest, let us not forget that at the core what truly matters is a single point of truth from where your banker can analyse your financial health.?

Doing cash and around the bank type transactions reduces the number of data points that your banker has of your business activities thus making it difficult to evaluate your businesses financial health.

This is one time when putting all your eggs in the same basket has a more positive impact than spreading them around the footpath.

Now that my banker has learned to mine the oil that has always been stored in a barrel within their premises hopefully it will not take another 35 years for them to realise that their role is not to keep my money safe but more to empower me to go out and multiply the money for all concerned parties.

Hopefully next will be my bank calling offering to pay the subscription for my ERP so as to enable me maintain better financial records and therefore better monitor how we are putting their money to work.

In the Kikuyu creation folklore Gikuyu and Mumbi prayed for sons to come and marry their daughters as clearly all the men in the village where relatives and they did not want to suffer the effects of further incest, I wish the same for our banking sector.