David Ndii is a theorist. now he has turned himself to kra

[sema]

If you look at what Singapore did in the beginning, they followed a government heavy model and when Lee Kuan Yew was asked about this, he said, they had no choice, but to do it because the private sector was so under-developed. 

As the country became richer, Kwan Yew said they would gradually reduce the governments involvement in the economy because private sector growth is always better than government led growth, but even for Singapore after almost 40 years, there is still a very heavy government presence and I think this is the model Ndii is following, but the problem for Kenya is what happens after 10 years when Ruto leaves? Singapore had Lee Kuan Yew for almost 50 years.

[RV Pundit]

Exactly. Most people apply developed world models on 3rd world. The thing that works in developed world - cant work in a wilderness.

If you look at what Singapore did in the beginning, they followed a government heavy model and when Lee Kuan Yew was asked about this, he said, they had no choice, but to do it because the private sector was so under-developed. 

As the country became richer, Kwan Yew said they would gradually reduce the governments involvement in the economy because private sector growth is always better than government led growth, but even for Singapore after almost 40 years, there is still a very heavy government presence and I think this is the model Ndii is following, but the problem for Kenya is what happens after 10 years when Ruto leaves? Singapore had Lee Kuan Yew for almost 50 years.

[hk]

Our private sector is too small. Our public sector is big. Our SME space is huge and informal.

The problem facing our economy are structural; they cant be fixed by monetary or fiscal tools; The problem as far as Ndii goes is MSME sector is dead. There is no SME banking outside the micro-finance and fuliza that is very expensive. The gov has to step in and de-risk it. 

The other part of course is lack of infrastructure - especially now water - both for domestic use & irrigation. Electricity is pretty much covered - cost is an issue - but coverage is pretty extensive. The rural roads we are about halfway there - if gov can do another push to get another 10K rural roads done - and PPP for urban roads that will be the magic.

Look at Fuliza - annually it's loaning 5B dollars - private sector even however best it tries - cannot manage such. When I last checked the total private sector credit in Kenya is about there - since I dont know when - Fuliza is doing it in a single year.

So ultimately Ndii is right - the focus has to be on the bottom of the pyramid. They need a little push - and the SCALE they can unleash is enormous. Lowering interest will not make commercial banks lend to SMES. They cant. Gok has to step in and get dirty.

Fiscal & monetary tools are really developed world toolbox. It has almost zero impact in kenya. If you raise interest or low - zero interest. The banks would still rather lend to gov - because the bottom of pyramid is too fragmented, too risky, too comburesome to lend to.

M-pesa just clocked 300B dollars - growing 35% - 3 times the GDP of kenya. That tells you Bottom of Pyramid (not private sector) is where the action has to be in - and gov cannot sit in fancy office and play with fiscal policies -  someone has to go to slums - get structures in places - and formalize these people - organize them in groups & saccos - to deal with fragmentation etc.

By private sector we mean all private entities that aren't government owned. SME and MSME are part of private sector even households. The banks are already lending to the bottom of the pyramid but at high interest rates. Banks make money by lending, if government lowered its borrowing appetite , the banks would lend to private sector. This is how in kenya you lower interest rates. The hustler fund wont be derisking it'd only mean the risk is absolved by taxpayers. The government borrows at 14% then lends at a lower rate?
Why's lending to sme and msme expensive? That's what needs to be addressed.

[hk]

singapore developed by attracting foreign investors in manufacturing. In the 70s and 80s, foreigners owned more than a third of all manufacturing companies. Singapore as a country city had to invest in housing just like Hong kong, this was the biggest government investment apart from education. Kenya isn't a city country, less than 10% of kenya population is in urban areas.

[RV Pundit]

Private sector can further be split into formal (2m plus engaged), informal MSME and individuals(this where 20m people are stuck).
If gov reduces borrowing - banks will lend to blue chip companies like Safaricom - rich individuals with securities - never to the millions at the bottom.
The problem is structural - and gov has to fix it - by first organizing the individual & informal sectors into some formality (cooperative)
Then giving them loans - and the tax payers has to take the risk - because commercial banks cannot shoulder that risk.
If we continue - nothing much will change - private formal sector will be healthy and everyone else poor.
Gov will have to tax the formal sector to death - to sustain social spending.
If we fix the economic structure - to make the informal SME the engine of growth - not formal private sector - we will be somewhere.
And we have technology - fintech - M-pesa is good proof.

By private sector we mean all private entities that aren't government owned. SME and MSME are part of private sector even households. The banks are already lending to the bottom of the pyramid but at high interest rates. Banks make money by lending, if government lowered its borrowing appetite , the banks would lend to private sector. This is how in kenya you lower interest rates. The hustler fund wont be derisking it'd only mean the risk is absolved by taxpayers. The government borrows at 14% then lends at a lower rate?
Why's lending to sme and msme expensive? That's what needs to be addressed.

[RV Pundit]

Everyone needs a house. The choice really is btw having Colonial/Kenyatta/Moi era NHS/NSSF estates - or the new informal housing which sprouts up Kayoles all over - and turn our cities into mega slums like you see in West Africa.

Gov has to intervene - by de-risking it - forcing people to save for housing - and pension - then everyone can get decent house cheaply - and be on path of owenrship.

This used to happen until 2000s in kenya. Now our cities are turning into Kayoles. The is money to build the houses - and there is money to rent - the problem is just informality - denying economies of scale that major players can bring. One chinese company can build decent Kayole - than having 1,000 people building small apartments that create a mess.

singapore developed by attracting foreign investors in manufacturing. In the 70s and 80s, foreigners owned more than a third of all manufacturing companies. Singapore as a country city had to invest in housing just like Hong kong, this was the biggest government investment apart from education. Kenya isn't a city country, less than 10% of kenya population is in urban areas.

[hk]

Private sector can further be split into formal (2m plus engaged), informal MSME and individuals(this where 20m people are stuck).
If gov reduces borrowing - banks will lend to blue chip companies like Safaricom - rich individuals with securities - never to the millions at the bottom.
The problem is structural - and gov has to fix it - by first organizing the individual & informal sectors into some formality (cooperative)
Then giving them loans - and the tax payers has to take the risk - because commercial banks cannot shoulder that risk.
If we continue - nothing much will change - private formal sector will be healthy and everyone else poor.
Gov will have to tax the formal sector to death - to sustain social spending.
If we fix the economic structure - to make the informal SME the engine of growth - not formal private sector - we will be somewhere.
And we have technology - fintech - M-pesa is good proof.

By private sector we mean all private entities that aren't government owned. SME and MSME are part of private sector even households. The banks are already lending to the bottom of the pyramid but at high interest rates. Banks make money by lending, if government lowered its borrowing appetite , the banks would lend to private sector. This is how in kenya you lower interest rates. The hustler fund wont be derisking it'd only mean the risk is absolved by taxpayers. The government borrows at 14% then lends at a lower rate?
Why's lending to sme and msme expensive? That's what needs to be addressed.

Banks do lend to informal sector but at a relatively higher interest rates. Equity bank is an example of a bank that has thrived by lending to informal sector

Boss in a previous life, I was Chief Economist of Equity Bank. We had a balance sheet of Sh9b and 50k customers. We decided to become a jua kali bank. Rest is history.

— David Ndii (@DavidNdii) March 23, 2020

?lang=en
Lowering interest rates means even the informal sector gets reduced interest rates.
Lending to informal sector is more profitable for banks if the risk of default is reduced. Risk of default is premised on the health of the economy, fix the macros and lending to informal sector defaults are reduced. The bigger question is why aren't the formal sector killing the informal sector or rather why is informal not growing to become formal.

[RV Pundit]

The good thing this money becomes revolving - so after few years - the fund will grow

Banks do lend to informal sector but at a relatively higher interest rates. Equity bank is an example of a bank that has thrived by lending to informal sector

Boss in a previous life, I was Chief Economist of Equity Bank. We had a balance sheet of Sh9b and 50k customers. We decided to become a jua kali bank. Rest is history.

— David Ndii (@DavidNdii) March 23, 2020

?lang=en
Lowering interest rates means even the informal sector gets reduced interest rates.
Lending to informal sector is more profitable for banks if the risk of default is reduced. Risk of default is premised on the health of the economy, fix the macros and lending to informal sector defaults are reduced. The bigger question is why aren't the formal sector killing the informal sector or rather why is informal not growing to become formal.

[hk]

Majority of loans by Equity to informal sectors are from donors willing to de-risk the informal sector. Otherwise they cannot waste depositor money. Someone has to de-risk the informal sector. The economy can boom like South Africa did - but for a minority -5% percent. Kenya is not further away from RSA.

Banks do lend to informal sector but at a relatively higher interest rates. Equity bank is an example of a bank that has thrived by lending to informal sector

Boss in a previous life, I was Chief Economist of Equity Bank. We had a balance sheet of Sh9b and 50k customers. We decided to become a jua kali bank. Rest is history.

— David Ndii (@DavidNdii) March 23, 2020

?lang=en
Lowering interest rates means even the informal sector gets reduced interest rates.
Lending to informal sector is more profitable for banks if the risk of default is reduced. Risk of default is premised on the health of the economy, fix the macros and lending to informal sector defaults are reduced. The bigger question is why aren't the formal sector killing the informal sector or rather why is informal not growing to become formal.

Equity has 9m accounts, majority of their depositors are informal sector, without informal sector deposits equity would be a microbank. The few billions that IFC lends to equity can't account for their huge informal sector loan portfolio. What needs to be addressed is why jua kali isn't graduating or transitioning to formal sector. That's the structural economic problem in kenya.

[RV Pundit]

Expensive credit - these guys get ripped off by micro-finance - interest of 20-30 percent - and shylocks.
That at least is one reason.
There are others of course.

What needs to be addressed is why jua kali isn't graduating or transitioning to formal sector. That's the structural economic problem in kenya.