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{
    "id": 1096091,
    "url": "https://info.mzalendo.com/api/v0.1/hansard/entries/1096091/?format=api",
    "text_counter": 250,
    "type": "speech",
    "speaker_name": "Kipipiri, JP",
    "speaker_title": "Hon. Amos Kimunya",
    "speaker": {
        "id": 174,
        "legal_name": "Amos Muhinga Kimunya",
        "slug": "amos-kimunya"
    },
    "content": "situation in the 1980s, our banks mainly collapsed because of political machinations and also because some of them were used as conduits to move money from the National Social Security Fund (NSSF) and the National Hospital Insurance Fund (NHIF) for political reasons. After the money had moved from the public coffers, through the banks, to finance, for example, some fake properties and titles in Karura Forest, the owners of the banks mysteriously disappeared. They made sure that you would not follow up to get the NSSF monies that went through some of those banks. Based on the experience in the USA, several countries then took advantage of looking at this model and said: “Deposit insurance is a good way to protect bankers, especially when it turns out that some of these events have nothing to do with the banks.” As of 2017, there were almost 140 countries which had established deposit insurance corporations and another 28 countries were in the process of establishing insurance schemes. So, it is something that is good, but we must remember that even a good thing has limits as to what you can do to it before you make it bad. If you look at the real objectives of the deposit insurance schemes, the first thing is that the Central Bank or the regulators have the fundamental responsibility to ensure that we have a stable financial system. So, the deposit insurance scheme is only part of the variables that help to enhance the stability of the financial system. It is not the only variable that we have in place. There is the prudential regulation by the banks and the behaviour of the customers, managers and owners of the banks. All those things come into play. In the event that all those other variables have been operating in good faith, but the bank still collapses because of something else, then the insurance comes into play. This Bill is trying to make the insurance more important than the wider prudential regulation. This is what brings in this complexity or something that is generally referred to as moral hazard. It is where you could actually encourage bad behaviour and irresponsibility in choosing a bank because, for example, you may have Kshs1 million and say that so long as you can get it back through insurance, it does not matter which bank you put your money in. This will encourage rogue banks to tell everyone to just deposit their money with them because they are covered by the insurance. That is why the limits are put at a rather small amount so that you encourage the behaviour of the saver and you also discourage some rogue banks from going to the market and encourage people to save with them. That is exactly why we have the pyramid schemes. Pyramid schemes disappear with people’s money because they prey on the vulnerability of people wanting to make quick money. Even all these banks that have closed, if you remember, they were encouraging people to save with them with a promise of giving them some very high interest rates. It is all about working on the vulnerability of people thinking that they can go to a certain bank and get very high interest rates, they then put their money in their bank and the bank would collapse. Remember, one would put Kshs1 million and would get Kshs1 million back. Somebody else would think that people are putting their millions of shillings and getting back the equivalent amounts and then go and put Kshs10 million. They eventually lose Kshs9 million because they only get a maximum of Kshs1 million. So, we need to protect the wider society from the risky behaviour by some banks of telling people that they will not lose their money regardless of the bank they put their money in. These small banks, especially the high risk ones, have that tendency of behaving like pyramid schemes. They want to go out to market and tell everyone, “Come, we will give you high interest and all these other products. In any case, you cannot lose because the KDIC will pay you back up to a million”. Now, the bigger risk is obviously the fact that, as you bring in the one million saver, you will also be attracting people to put in bigger amounts and they all lose it. This is because the guys 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."
}