FSD TRUST KENYA

KMA CENTRE, 5TH FLOOR

UPPER HILL,
P.O. BOX 11353-00100,
NAIROBI.

Dear Sir/Madam

RE: PROPOSAL ON PROVISION OF LEGAL SERVICES BY SICHANGI PARTNERS

ADVOCATES

Executive Summary

As a firm comprising of experienced lawyers and technocrats, Sichangi Partners Advocates

(“the firm”), has strategically positioned itself and deliberated to provide this proposal. The
firm has overtime perfected the model of Partnering and Specializing in our clients’ Businesses.
To this end, the firm has adopted a Specialized Customer Service Delivery Interface model to
best meet and serve the client’s needs.

Crucial to the growth of enterprises, is credit lending which is without a doubt the lifeblood of
the modern economy. In many developing countries, credit facilities are the prime source of
financial support for enterprises and majority steady income earners.

Of concern however, is that most credit facilities and the broader spectrum of conventional
wealth stimulants are rarely availed to low income households and people with less traditional
sources of income. The general impact of this is a recurrent deficit in a country’s projected
economic growth and an ever broadening wealth gap.

There has therefor been a need to device options that are specially designed for low income
earners, self-employed persons and young investors, a majority of whom are excluded from
accessing credit facilities and other financing options or are simply suffering from chronic “loan
apathy,” an attitude cultivated over-time by high credit costs and the attendant risks.
This has seen the enactment of recent legislations aimed at ameliorating credit apathy and
allowing banks to develop credit products tailored for low income earners.

Financial Sector Deepening

Established in 2005 as an independent trust, Financial Sector Deepening (FSD) is an

independent trust under the supervision of professional trustees, KPMG Kenya, whose
objective is to harness financial solutions to meet the needs of lower income households and
small scale businesses by ensuring reduced vulnerability to economic shocks, increased income
and employment.

To achieve these objectives its focus areas are; digital financing, consumer insights, SME
financing, Risk and Insurance, credit market development, financial landscape and social
protection.

To ensure more effective financial services, FSD works closely with the Government, financial
regulators, financial services providers and startups to develop initiatives with lasting changes
that improve access, relevance and reliability of financial products and services.

Enter The Movable Property Security Rights Act.

The Law’s primary intent is to widen financial inclusivity by providing for the use of non-
conventional tangible assets and bio-assets as well as intellectual property rights as collateral for
credit facilities. The law also makes provision for the creation of security rights over book debts
(factoring), floating and fixed charges, pledges, financial leases and warehouse receipts.

Introduction of the Rate Capping Law

The Banking (Amendment) Act 2016 was initially a welcome relief for most Kenyans as it was
meant to curb predatory pricing, a culture that had become prevalent amongst institutional
lenders. However, a revisit of the law’s implementation nine months later reveals that Banks are
engaging in restrictive credit profiling and economic sabotage by excluding a substantial chunk
of the borrowing market from households, the privates sector and small enterprises who are the
unwitting victims of a silent war between banks and the government.

Another reason why there’s a credit “dry-up” is the spike in bad loans since the Law came into
force. Smaller unsecured borrowers are taking advantage of the law by defaulting on loans,
secure in the knowledge that they will not face token consequences for default.

Invariably, banks have instead opted to invest in Government issued securities such as treasury
bills and developing products tailored for their wealthy clients like the recently launched Co-op
Bank’s Captain Club Premium Service that targets wealthy clients in Kenya.

Technological Revolution

It is no secret that financial institutions are being forced to change from typical, conventional
banking to more technologically adept ways of conducting business.

Studies show that in East Africa and Kenya in particular, most banks are in a rush to digitalize
their services in a bid to stave off redundancy in the first changing modern market.
For instance, the Central Bank of Africa recently launched LOOP, a new and edgy financial
services application designed for its mobile first and technologically savvy customers. The
application allows a customer to open an account with the bank at the click of a button. It was
designed to by-pass all the rigors that come with opening an account.

Of Sichangi Partners Advocates and Financial Sector Deepening (FSD) Partnership

Sichangi Partners Advocates, a Multi - disciplinary legal practice offering high quality legal
services, has been a strategic Partner of Financial Sector Deepening (FSD) and a number of other
key players in the financial sector.

Having worked together with FSD on a number of projects, most notably the drafting of the
Movable Property Security Rights Act, the firm believes that Lawyers and other professionals in
the financial sector have a key role to play in ensuring the full implementation of the new
legislative framework.

Proposed Way Forward

Firstly, the Central Bank in conjunction with FSD Kenya and other stakeholders need to
rationalize the pricing cap by coming up with guidelines that will ensure the pricing cap is
applied to secured transactions and proposing flexible viable adjustments that will allow for
low cost loans in the long-term.

Secondly, Banks should undertake to conduct objective risk assessment rather than subjective
profiling and exclusion of an entire class of borrowers. This can be done by fully integrating
Credit Reference Bureau data and issuing loans based on an individual’s credit score.

Thirdly, as is synonymous with most Kenyans, “ignorance is bliss!” Studies will prove that
most Kenyans remain unaware of the benefits of the new laws. This calls for aggressive
sensitization programs by lawyers and financial experts to ensure that the common man
appreciates the current changes in the commercial landscape so as to ensure exhaustive
utilization of the new laws; and

Finally, with the revolution of e-commerce fast bearing down on conventional modes of doing
business, and the equally relative uptake of technology by key players in the financial industry,
there’s a need to safeguard against the risks of e-commerce. Recent global cyber-attacks with
Russia and the Ukraine being the latest countries to be affected are an example of why there’s a
more urgent need to better regulate the use of technology.

There’s a need to call for review of the cyber security laws and regulations or come up with
better laws that will better enhance the use of technology in the country.
METHODOLOGY

Attuning To The Clients’ Needs And Requirements

Our broad based experience in Financial Services Law Practice enables us to fully understand
and be attuned to FSD’s main objectives while appreciating the centric role it plays in
developing Kenya’s financial service markets. We can therefore be key players in ensuring that
Kenyans are made aware of the expanded access to affordable financial services through
training and other sensitization processes.

Proactive and Creative Approach

The professionals at Sichangi Partners Advocates have a reputation for being proactive and
finding practical workable solutions. They are also creative and dependable in providing advice
and solutions, advising on the optimal manner in which services may be structured so as to
minimize on time and costs.

The firm’s overall commitment to the development of corporate practice is second to none. This
continues to be demonstrated through our partners who have been frequently called upon to
contribute at seminars and actively participate in the drafting of various legislations affecting
the commercial and corporate world.

Our Properly Sized and Priced Entity

Despite being one of the larger firms in Kenya, we operate a niche Commercial Services
department that draws its expertise from a substantial support staff headed by experienced
lawyers who facilitate its smooth operation.

Our blended charge out rate for all members of our Professional Team enables the client to pay
reasonable fees for our quality expertise and ensures the conclusion of a transaction in a timely
and cost efficient manner.

Conclusion

This proposal is informed by our keen desire to enhance service delivery to Financial Sector
Deepening, to boost our mutual relationship and promote our respective missions and values to
heights unrivalled in the regional markets. We provide this Proposal for your consideration,
approval and implementation while at the same time inviting your counterproposal on the
same.