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{
    "id": 1096079,
    "url": "https://info.mzalendo.com/api/v0.1/hansard/entries/1096079/?format=api",
    "text_counter": 238,
    "type": "speech",
    "speaker_name": "Kisumu East, Independent",
    "speaker_title": "Hon. Shakeel Shabbir",
    "speaker": {
        "id": 140,
        "legal_name": "Ahmed Shakeel Shabbir Ahmed",
        "slug": "shakeel-shabbir"
    },
    "content": "I am a member of the Departmental Committee on Finance and National Planning. The issue was presented to us and during public participation, the Kenya Deposit Insurance Corporation came to see us. They were the only ones who came before us to give a presentation. There is no question that the depositors’ deposits must be protected. The Ksh100,000 is a miniscule amount and what the proposer is suggesting is to go up to Ksh1 million. In essence, it is good but the problem that was presented to us, the Departmental Committee on Finance and National Planning, is that the Kenya Deposit Insurance Fund has only Ksh130 billion in funding against a potential of nearly Ksh1.9 trillion. That brought us to a proposal: that the insurance scheme that banks must put a certain amount of money towards the Kenya Deposit Insurance Fund. It should be increased thereby increasing the cost of capital. Instead of putting a certain percentage to cover Ksh500,000 as an insurance scheme, the banks have to increase that amount and the premiums too. As the premiums increase, the rate that the banks charge the public increases too hence there is a financial constraint to the wananchi and not to the bigger boys. The wananchi look for smaller loans. They said very clearly that they would like to cover up to a million shillings, but that would mean that our sinking fund must be a trillion shillings. To raise that trillion means raising the cost of banking for wananchi because you are going to ask for a higher premium from the banks. Either that, or through the Budget, we put aside another Ksh900 billion in what is the safety net. This proposal was presented to us. I have been a banker for a long time. The proposal here is to put it in a Bill. There is already a legal notice increasing it to Ksh500,000. There is nothing stopping that legal notice to take it to a million shillings, but we should do it in steps. We should do it in consultation with the Budget and Appropriations Committee, the banks and the Central Bank. The main role of the Central Bank is prudential supervision and regulation of banks to avoid overexposure. The problem that we had with these so- called banks that went under is that they were not properly secured, managed and regulated. All the banks that we talked about took deposits and then broke the rules. The CBK should have been able to capture and close them down before they were put under receivership. So, what we have here is a case where you over-insure and the CBK’s one main role of prudential supervision is thrown out of the window because then they will say, “We do not care”. There are certain rules that we have to maintain. There are certain regulations that we must have as banks. If you are the bank that is going to give a certain percentage of insurance and cover the depositor, then you see the CBK’s role of exposure, regulation and prudential scrutiny will relax. We felt that this is a twin system. It is a balancing role. You want to insure only for what you can insure. Hon. Temporary Deputy Speaker, you have a vehicle. When you insure your vehicle for, say, Ksh10 million because you feel that if you lose that vehicle you want to get another one for Ksh20 million… So, if you insure your vehicle for more than the value of the vehicle, the cost of the vehicle is going to increase. I think in the same manner, I feel as a banker that deposit takers must be held responsible for the deposits. I feel that Ksh1 million or even Ksh2 million is appropriate and there should be something increasing in accordance with inflation, the rate of deposits, and the propensity to save. We have to balance this with the role of the Central Bank versus the role of the insurance. You cannot have an over-insurance premium that is going to increase the cost of borrowing. So, I am in a quandary. Hon. Rahim has in mind every thought to save the small depositor. We are all for it. We are asking: how do we do it without increasing the cost of capital and the cost of lending to the wananchi ? If there was a system we could employ, I probably would be 100 per cent for it, The electronic version of the Official Hansard Report is for information purposesonly. A certified version of this Report can be obtained from the Hansard Editor."
}