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State banks merger plan receives nod

Zachary Ochuodho @zachuodho

The Cabinet has approved the merger of three government financial institutions. Industrial and Commercial Development Corporation (ICDC), IDB Capital Ltd and the Tourism Finance Corporation (TFC ) will fold to form Kenya Development Bank Ltd.

The purpose of the merger is to create a single cross-sector development finance institution with sufficient scale, scope and resources to play a catalytic role in economic development. In a meeting chaired by President Uhuru Kenyatta yesterday, the Cabinet also gave the green light to the proposed public finance management (Biashara Kenya Fund) Regulations, 2018.

The regulations are meant to guide operations of the proposed Biashara Kenya Fund to be set up after the merger of Uwezo Fund, Youth Enterprise Development Fund, Women Enterprise Development Fund and Micro and Small Enterprise Authority.

Each of the banks to be merged has been financing specific segments of the economy. For instance, the IDB provided medium and long-term finance to medium and large-scale industrial enterprises.

ICDC, on the other hand, was established to provide development and investment funds to Kenyan businesses and manufacturers as well as facilitate the investment in the economy. Tourism Finance Corporation was set up as a specialised development financial institution to provide long-term development funding and advisory services for the tourism industry.

James Murigi, Metropol Credit Reference Bureau Ltd executive director said in a recent interview that development banks are expected to fill the gaps created by private financial institutions – whose goals are often short term and commercial in nature.

He said before independence, Kenya had development banks which were funding specific segments of businesses but were turned into commercial banks, soon after. 

Development banks due to their responsibility, Murigi said can fund large-scale projects with long maturation periods, which require long-term finance, something which ordinary commercial banks are unwilling to undertake due to the risk involved.

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