Entrepreneurship: Enjoy the Journey

Entrepreneurship means different things to different people. However, the one thing most founders can agree on, is that it is not for the faint hearted. When I talk of entrepreneurship I am not talking about ‘side hustles’, while this is a form of entrepreneurship, I am talking about how you build a business like Java. Java was never a side hustle, if it was then it would not be the business it is today.

When one looks at entrepreneurs who have made it, one may be tempted to think that they were ‘born entrepreneurs’ (entrepreneurs are born not made), or even that where they are now is where they have always been. Most don’t realize that “they started from the bottom and now they are here.” Kenya is home to the Silicon Savannah where entrepreneurship has been made into this ‘sexy’ lifestyle, university graduates are more likely to think of founding a Company today than they would have 20 years ago. But is it for everyone?

I founded InVhestia Africa Limited six years ago in 2012. InVhestia works with investors and entrepreneurs offering various services. For entrepreneurs we help them raise capital, carry out valuations, price their products appropriately, negotiate for deals etc. For investors we help in looking for investable deals, carrying out due diligence, working with their investees on the above issues etc.

I founded the company then with 2 co-founders from my business school, they soon left when the journey became tough. Truth be told there are days I have woken up and wondered if I should have done the same thing. When you are building a company not every day is a WOW day, there are days you fight your demons away and ask yourself some really tough questions and there are those that confirm to you why you decided to make the jump. If you ask many ‘real’ entrepreneurs they will tell you before you have ‘made it’ the former days are more than the latter ones, they will also tell you that the reason they keep moving is because there is no real alternative as far as they are concerned, what they are doing is what they were created to do!

In the upcoming masterclass I am hoping to share my experiences so far, I have not made it yet but I believe I have come a long way and have learnt a lot while doing this. I am fortunate to also work with many entrepreneurs on my day to day and can share a thing or two about the entrepreneurship journey. Some of the questions I hope to address include

  1. Should you start a business?
  2. What are the key considerations you need to think about before starting a business?
  3. What does it take to scale a business?
  4. How do you exit your business?

As a parting shot, if you want to be an entrepreneur you need to enjoy the journey just as much as the destination. If you do this you have a much better chance of making it. Come to Simon Page College of Marketing on 30th August, 2018 to learn and share on real entrepreneurship stories as well as figure out how to grow your business.

Stephen Gugu

KPDA Affordable Housing Conference

The Kenya Property Developers Association recently held their Inaugral Affordable Housing Conference. The event brought together various stakeholders from government and private sector to discuss the opportunities in affordable housing in Kenya. At the event, KPDA released their 2018 Affordable Housing Report.  According to the Kenya National Bureau of Statistics Economic Survey 2017, it is estimated that the current housing deficit stands at 2 million houses with nearly 61% of urban households living in slums. The deficit continues to rise due to constraints on the demand and the supply side.

According to the report, the affordable housing sector experiences several challenges. Among them is the fact that few urban centers have implementable urban development plans. This means developers have to incur an additional infrastructure costs when constructing. This was highlighted during one of the panel discussions moderated by Mary Chege.  “We cannot develop affordable housing in a vacuum. The systems in place should support it. And expanding roads is not the solution. Other forms of movement of people should also be explored,” said Eng Nathaniel Matalanga, the Honorary Secretary of Institution of Engineers of Kenya.

One of the other challenges developers face, as per the report, is high cost of construction. Construction finance loans are increasingly challenging for developers to obtain and so financing costs are included in the price when selling property. Another bottleneck is faced when it comes to registration. According to the 2017 Doing Business Survey, Kenya has a ranking of 121 out of 190 with respect to property registration. This inefficiency with the titling process is further complicated by devolution with different counties showing different levels of efficiency.

However, it is not all gloom and doom. There was discussion on some of the strategies that developers can adopt. Land joint ventures are one of the ways developers can increase returns and help land owners monetize their assets. Building smaller units can also help reduce the price of units while allowing developers to retain their margins. Another suggestion was incremental housing. The affordability of housing may be increased by making use of basic materials with the provision that home owners scan make improvements on the house over time. Finally, managing one’s cashflow is paramount. It is important to have a robust financial model at the onset of a development. We, at InVhestia, developed an online tool to assist with this. We have extensive experience working in the real estate space and have been involved in conducting financial viability assessments for various projects. Our web-based application appraises real estate projects and provides output that can be used in presentations for fundraising purposes. The platform is easy to use and gives you value for money. Try it for free at http://evaluate.invhestia.com/

You can read more about the KPDA Conference and report here

HEVA Fund Closes KES 90Million Investment

Thursday 21st June, 2018 goes down as the day HEVA Fund signed a cooperation agreement with the French Development Agency that will advance credit and technical assistance for creative industries in Kenya. InVhestia is pleased to have acted as advisor in the preparation of the fundraising documents and financial models for this transaction.

The project which is worth KES 90 Million will be used to offer support to businesses in Kenya and technical support to businesses based in the wider East African region. The creative economy enterprises that will benefit are those in four value chains: music and live events; fashion and apparel retail and manufacture; film and digital content; and gaming, e-sports and entertainment.

HEVA Fund previously commissioned our team to support the deployment of their Startup Fund, we were involved in their five stage evaluation process in the later due diligence and financial modelling stages, providing advisory services on businesses viability and deal structuring. The founder of Peperuka World – one of HEVA’s beneficiaries and whom we were commissioned to provide business support, spoke at the signing ceremony on the lasting impact of HEVA’s investment and support on her growth plans.

Kenya’s creative sector was estimated at about USD 2 billion in 2014. The sector contributes circa 5% to Kenya’s GDP and 4% to national employment. HEVA Fund has been in existence since 2013 and invests in the transformative social and economic potential of the creative economy.

As business advisory experts, we are glad to businesses quantify investment decisions by offering in-depth analysis through financial modelling. Through our fundraising services, we support high value businesses to make their investment proposition just right so that investors quickly see the value they have to offer. We are happy to have contributed to this successful and historic agreement which is part of a strategy to move KES 500 million into the creative sector over 4 years.

We believe this will contribute to the growth of dynamic, youth-led digital and creative enterprises as well as grow the East African cultural footprint in regional and international markets.

Project Finance Online Financial Modelling Course

InVhestia’s online financial modelling training offering has grown over time, catering for the needs of those who are unable to attend in class courses due to distance, costs or preference. InVhestia is happy to announce the addition of a new course, the Project Finance financial modelling course based on a real estate case study. InVhestia already has an introductory course to financial modelling, and a corporate finance and valuation course. The project finance course provides comprehensive coverage and a step-to-step guide towards understanding and evaluating a project with the added benefit of doing this from the comfort of your office or living room, at your own pace.

The course is hosted on the InVhestia online platform and is taught using instructional videos. Once you subscribe, you will access the course materials and handouts which have been organized in a modular manner. This means you can choose to start the course from the beginning or tackle specific items based on where you feel your challenges are. The only pre-requisite is a fair knowledge of MS Excel to enhance the quality of your experience.  If, however this is a challenge you can get started with the introduction for financial modelling course using FAST to bring you up to speed. The course is taught using the internationally recognized FAST Standard approach to financial modelling ensuring that upon completion any models you prepare can be used internationally and that they are Flexible, Appropriate, Structured and Transparent. Another key advantage of the FAST standard is that you can choose to sit the certification which sets you apart from other modellers and is a good indicator of your level of skill to employers and clients.

The aim of this course is to equip learners with the skills to make forecasts and evaluate projects with no historical information. This means that by the end of the course you should be able to create models for greenfield projects in various sectors. Instructed by Stephen Gugu, who has several years of experience in the project finance field and as an instructor, the course starts by defining the broader aspects of project finance. The course approaches modelling based on the three phases of the projects; development, construction and operations. It examines financing of projects, calculation of taxes, key ratios and returns from both the project and the equity basis. Sensitivity and scenario analysis are also covered just like in real world situations where these tend to be more important than the base cases.

It took us 48 hours to shoot the content for this course and more than 200 hours in editing and reviewing to ensure that the user gets the best product possible. The content was examined and reviewed by our team of junior and senior associates for ease of understanding and accuracy. The final product usually makes the work done in the background look easy, trust us it’s not! On one of the shooting days, the instructor powered through a battle with a flu, which explains the deepening voice when dealing with construction finance. Quips aside, we take pride in this course which we designed to pass along model build and audit skills in a way that makes for good retention. We have incorporated a discussion forum on the platform that allows one to engage with InVhestia’s experienced financial modelling team for any issues, and the good news is you are always guaranteed a response within the shortest time possible. Aside from that, a one-time purchase guarantees you a lifetime access which means you can refer, refresh and review the material at any time. If the lifetime access is not for you, paying per month at reduced rates is also part of the menu, reach out to us at learn@invhestia.com to get access to the course in the way that makes most sense to you.

The course is carefully structured with over 10 hours of content presented in 5 – 12 minute videos. The case study covers modules such as project finance timeline, construction costs, construction finance, operating revenue and cost and final exit of the project. The modules make it easy for one to understand the theory behind project finance, building a FAST-compliant project finance model and evaluate various projects using measures as IRR, NPV and ratios. Using other teaching tools, we have made it possible for you to follow the practical modelling and model alongside the instructor.

As an introductory offer, we have extended a 50% discount to anyone who signs up for the course by the end of November 2017. Don’t miss out!! Register for FM102 and use the coupon code F701C2C8C9 to take advantage of this offer.

Watch the Introduction to Project Finance video here

Impact Investing: The Different Perspectives

I am writing this as I travel back from Chicago in the US after attending a two day conference of the leading faculty in the world in the area of Impact Investing and all other terms that are close to it, i.e. responsible finance, social entrepreneurship, corporate social responsibility etc. Impact investing refers to a perspective of investing wherein an investor invests with a clear intent to not only make financial returns, but to also have clear and measurable impact on the environment and social issues. In some instances the investor may also push for responsible governance of the institution where they sink their money.

This was my first visit to the US and I must say it delivered; the sights, people, shopping experience, everything was impressive. With everything going on in the US vis a vis travel bans, the leadership, the Black Lives Matters movement arising from racial issues; I was a bit worried and expected a tougher visit all the way from immigration and moving around. I was however pleasantly surprised. Imagine the odds of meeting an immigration official who had worked in Kenya assisting to address the elephant poaching menace that has seen Kenya loose a significant proportion of its elephant population. I expected a barrage of questions and a hold up at immigration however the official was really happy to see me, we even managed a chit chat around the political situation in the US and Kenya. Getting out of the airport and the rest of my stay was smooth. Technology has really changed the world, between Uber, booking.com, TripAdvisor, whatsapp and facebook I literally gelled in.

Chicago Skyline

Chicago is a lovely city, I was staying in the Evanston area next to Lake Michigan; the sights were breath taking! Jogging and riding a bicycle along Lakeshore Drive with a breeze from the pristine blue lake bordered by the luscious green vegetation was what I would call an eschatological experience! The architecture of Chicago is sophisticated and beautiful at the same time. Having done the architecture tour I was amazed by the engineering feats employed to make the city’s skyline what it is today.

150 North Riverside

The tour guide explained that on one of the buildings, 150 North Riverside, has a significantly low base ground built area to the actual base (around 35%) due to railway tracks and the lack of build space within the City. This building is one of the tallest buildings in Chicago, that easily dwarfs Kenya’s Kenyatta International Conference Centre and has a gravity defying appearance due to its narrow base. The engineers and architects behind the project had to create huge water tanks which would be filled with water and used to help ensure that in the event of extreme wind conditions the water would sway to ensure that the weight of the structure would not cause it to collapse. How’s that for clever!


I could go on and on about my impressions of the city but really I set out to put down some of my views from the conference I was attending. The faculty in attendance was world class. Harvard, Stanford, Wharton, Northwestern Kellogg, Maastricht were among those represented, of course not forgetting myself from Strathmore Business School in Nairobi Kenya. The attendees of the conference were largely Western, from North America and Europe; there were only two persons from Africa, myself and lady from University of Cape Town.

The conversation over the two days was fascinating. My main takeaway was that there is a double lens from which to view the impact investing discussion; that of the investor and that of the investee /entrepreneur. In my day to day job at InVhestia as a principal, I work a closely with both private equity and venture capital (PE/VC) investors focused on Africa as well as entrepreneurs. One of the key characteristics of these PE/VC investors is that they have raised most of their funding from development finance institutions, family offices and other Western investors for whom impact is more than a financial return. Bearing in mind the attendees were largely Western and their major audience were these investors carrying out investments in emerging economies, the discussions we had were mostly from the investor’s perspective. We had really good discussions on why it is important to include the impact lens in any investment decision, measurement approaches, the needed research in the field, what students should be learning etc.

The on the ground lens, that of the entrepreneur who receives the capital was not covered as much, almost non-existent. This lens would reveal that for most emerging economy entrepreneurs, impact is mostly just measured by the number of jobs they create which for the most part is a sufficient criterion. Consider an entrepreneur who sets up a bakery in Nairobi and goes on to open 20 other branches across the country. Just by growing her business to these 20 branches she employs an average of 5 persons per branch making for a total of 100 employees. These 100 probably support a family of 4 each taking the impact number to 400. In addition, the entrepreneur sources for raw materials used in production from various stake holders hence having even more impact on more and more lives. What’s the implication of this? As far as the entrepreneur is concerned, they are having significant impact by being core to what they do… growing their business. Now enter a Western based investor who has a ‘sophisticated’ understanding  of impact and now requires the entrepreneur to ensure that 50% of her employees are women, that they source their raw materials from small holder farmers, that all employees have private medical insurance, are market rate wages etc. The entrepreneur’s life is now more complex than it was. While before they were content with creating employment now they need to add all these other factors together with the relatively tough operating conditions in emerging economies.

In the above case both the entrepreneur and investor are right. The investor needs to feel that their cash is having the impact they feel is right and the entrepreneur needs to have a business that is not too complex so as to jeopardize its very existence.

As said earlier, the impact investing discussion for the most part is being driven by the investors, in most cases with investors who lack the relevant context of what their decisions and expectations in board rooms mean for the teams on the ground. Two things need to happen to ensure proper alignment. First, any impact investing course should be coupled with a context creating discussion. This could be achieved through ensuring any ‘would be investors’ are required to have an experiential visit to places where they expect to carry out their investing to appreciate the on the ground challenges. Hopefully such visits would show to the investors that impact should be viewed from a spectrum and any impact metrics set for an investee should take into account what they are already doing. Second, entrepreneurs need to understand the investor mind-set. In my teaching of PE/VC courses, I have to admit that the impact discussion has not been pertinent, bearing in mind how critical the investor is to the realization of the entrepreneur’s goals. The entrepreneur needs to understand what the investor is looking and discuss how to ensure that both parties are aligned at the point of investment. A thing entrepreneurs could do is to agree on various metrics with a time based implementation plan. The most important thing after all is to ensure that the tail is not wagging the dog but that the two are in sync.

Authored by: Stephen Gugu

Life In The FAST Lane: Financial Modelling Competition Winners

James Wambua a 4th year Business and Finance student at University of Nairobi was walking on campus grounds heading to his dorms when a friend asked to borrow his laptop and for help carrying speakers. He helped carry the sound equipment to the meeting room, set up and then decided to sit in and find out what the session was all about. It turned out to be a financial modelling training session that changed his life.

James Wambua

“The trainer gave us a case to model and all of us tried to solve it using various methods. At the end of it, he introduced a variable which threw a spanner in the works. Suddenly, everyone was struggling with adjusting the outcome. And then he introduced the FAST Standard, and we were amazed that it did away with the margin of error” James recalled.

Kevin Mbugua fondly remembers the session that he terms as “the most productive training session he attended in his 4 years as a student at Nairobi University campus.” Kevin, a Finance and Accounting student, had received a Whatsapp message inviting him for the training. InVhestia had put out a call for students from various university campuses to participate in a financial modelling competition. The top prize was an internship as well as sponsorship for the FAST Certification exam. “The prize was a motivator but I was more interested in learning. I was looking for a challenge, to see what other opportunities there were outside of Accounting based on my area of study. I figured this would be an avenue to explore what was out there,” Kevin says.

Kevin Mbugua

After the training session, the students then spent some time going through the InVhestia’s free online training material to prepare for the financial modelling competition and tried their best to come up with a solution to the case given to them. On submission, they both remember being unsure about their results. However, a few weeks later they came to an InVhestia cocktail with other students from Strathmore University, their only information, they were shortlisted as the top performers in the competition. It is then they learnt that they had come in first and second position. Kevin, who led the students at the top, was surprised and elated. His first call was to his mother who he says was over the moon.

Both Kevin and James joined the InVhestia team and have enjoyed learning more as regards the financial industry. They have both recently passed their FAST Certification examination and are better modellers for it. “I think every student should take hold of opportunities like these,” says James. Even though he stumbled into it, he’s glad he did.  James hopes to pursue a Masters in Strategic Management in the near future. Kevin’s advice to students is to look out for training opportunities that will give them more than a certificate of attendance. He has aspirations of being a business owner and believes all he has learnt only serves to make him more successful.

InVhestia will be running the 2nd edition of the FAST financial modelling inter-university competition in October 2017.

Interest Rate Capping and Credit Flow to Private Sector

In this article we would like to add our opinion to the many that are already in place on the rate cap and what actions need to be taken going forward. This, especially taking into account news indicating that the rate cap has not had the desired effect, increased uptake of credit by the private sector.

The Banking Amendment Act No. 25 of 2016 took effect on September 14, 2016. Under this amendment, banks were limited to charging a maximum interest rate for a credit facility at not more than 4% and the minimum interest rate granted on a deposit held in interest earning account to at least 70% of the base rate set and published by the Central Bank of Kenya. The objective was to promote a savings culture among the Kenyan public but most importantly to lower cost of credit, resulting in growth of credit flow to private sector.

Case Studies

In countries where rate caps have been introduced, the main reasons are; to protect consumers from excessive interest rates, to increase access to finance, and to make loans more affordable.

Countries including European Union (EU) member states (Spain, Portugal, Belgium et al), African countries (Nigeria, Ivory Coast, Mali, Zambia, South Africa et al) the United States as well as some Asian countries (India, Pakistan et al) have regulated interest rates. The objectives were varying; Portugal’s was to protect the weakest parties. France, Belgium & United Kingdom (UK) were protecting consumers from predatory lending and excessive interest rates. In Greece the objective was to stop abuses arising from too much freedom. In the Netherlands it was to decrease the risk-taking behavior of credit providers. In Thailand the objective was to make finance affordable for low-income borrowers. In Zambia, it was to mitigate the perceived risk of over indebtedness and the high cost of credit, as well as to enhance access to the undeserved.

Effects of Rate Caps

Interest rate caps largely had a negative impact in the economies in which they were introduced.

In South Africa, some financial institutions evaded caps by charging credit life insurance and other services, which reduced the transparency of the total cost of credit. In West African Economic & Monetary Union (WAEMU) countries, the imposition of interest rate caps on microfinance loans caused microfinance institutions to withdraw from poor and more remote areas and to increase the average loan size to improve efficiency and returns because the interest rate ceiling was considered too low. As a result of lower caps on interest rates in Japan, the supply of credit appeared to contract, acceptance of loan applications fell, and illegal lending rose.

In Armenia, banks and microfinance institutions imposed fees and commissions, thus avoiding the ceiling and reducing the transparency for consumers. In Poland, interest restrictions reduced both access to credit and welfare. In France and Germany, interest rate ceilings decreased the diversity of products for low-income households. In France, lenders have used revolving credit to reach lower-income households, while in Germany many low-income and high-risk borrowers are excluded from credit.

In the United States access to credit for high-risk borrowers is greater when interest rate caps are higher but that the high cost of credit increases the probability of default. In Zambia, the cap was reversed in 2015 however, in an effort to bring down the annual inflation rate.

The Kenyan Case

Kenya Bankers Association (KBA), the banking industry umbrella body, has been vocal on repealing of the law. A consumer survey dated 22nd March 2017 commissioned by KBA and conducted by Nielsen states that 88% of the borrowers in the sample population did not change their borrowing behavior as a result of the rate cap. However, the same research also states that 77% of the sample would prefer a lower cost of credit than a higher deposit rate. This speaks to the need to increase affordability for the borrowing public.

KBA wants the law repealed on account of lack of growth of credit to private sector. However, it is important to note that credit to the private sector was already on a downward trend prior to the law coming onto effect as is evident from the graph 1 below.

Graph 1; Growth of Private Sector Credit

Source; Central Bank of Kenya – Monthly Economic Bulletin, Feb 2017

Since the rate cap was introduced, growth of credit to private sector has stagnated at single digit levels of circa 4% over the past 6 months as evidenced by graph 1. It seems to have bottomed out.

State of the Private Sector Economy

While cost of borrowing is a determinant to the level of borrowing, other factors come into play when looking at the quantum of borrowing. Economic activity affects the growth and amount of borrowing by the private sector. To the extent that aggregate demand for goods and services is high and increasing, the private sector will have a high appetite for borrowing.

The Monetary Policy Committee (MPC) Market Perception Survey conducted in March 2017 showed that private sector respondents expect a decline of growth in 2017, on account of the prevailing drought conditions and slowdown in private sector credit growth.

The Markit Stanbic Bank Kenya Purchasing Managers’ Index (PMI) dropped to 49.9 in May 2017 from 50.3 the previous month, falling below the 50.0 level which separates growth and contraction. The contraction is attributed to challenges in private sector access to credit, weak consumer demand arising from the drought impact and uncertainty over the forthcoming elections. The drought impact was best captured by the May 2017 inflation numbers which stood at 11.7%.

Bank lending is stronger when the economy is growing as firms and households request more loans and can repay them more easily. Economic growth in Kenya is currently dominated by public sector spending on infrastructure projects and not necessarily by private sector activity.

Asset Quality

According to the MPC press release from the meeting of 27th March 2017, a survey of commercial bank credit officers indicates that their expectations are that while demand for credit would increase with the interest rate caps, actual credit granted would remain constant as a result of tighter credit standards.

Banks have started to take less risk as a result of the increase in credit risk. The banking industry is doing so in the light of deterioration in its portfolio of past loans. Taking less risk leads banks to reduce their credit lines and thus show a slower growth rate in gross loans. In an effort to restore stability in the banking industry CBK has introduced new requirements for lenders especially in terms of provisioning for bad loans. 

Graph 2; Ratio of Non-Performing Loans to Gross Loans

Source; Central Bank of Kenya – Monthly Economic Bulletin, Feb 2017

Graph 2 shows the ratio of Non-Performing Loans (NPLs) to Gross Loans over a two year period.  There has been a historical pile up of bad loans in the pre interest rate cap era. The ratio was at 5.8% in early 2015 before rising to 9.5% in August 2016 a month to the rate capping. Post capping, it has been on a general decline hitting a low of 8.9% in January 2017 before rising to 9.6% in February 2017. The magnitude of this ratio has led to banks scaling back lending particularly to the customers who they perceive to be high risk.

Flight to Safety

Graph 3 shows the growth in credit to the public sector after the capping law came into effect. The growth peaked at 16.7% in January 2017 and at 31% in February for central government and county governments respectively. Commercial banks increased their stock of public debt in an effort to allocate funding to a ‘safer haven’. According to the banks, the rate cap limits credit allocation to the riskier segment of the market. The public sector’s appetite for funding has also worked in the banks’ favor.

Graph 3; Growth of Public Sector Credit

Source; Central Bank of Kenya – Monthly Economic Bulletin, Feb 2017


Private sector credit growth in the interest rate cap regime has been constrained by the following factors:

  1. A historical accumulation of bad debts by banks in the period leading up to the rate cap legislation. The ratio of NPLs to Gross Loans hit a high of 9.5% in 2016. In an effort to enhance asset quality, banks have been overly cautious in lending to the private sector.
  2. Weak private sector economy as evidenced by the contraction in the Purchasing Managers Index witnessed in May 2017. Businesses will only borrow when there is high demand for their goods and services. With low demand, appetite for credit dissipates.
  3. Crowding out effect by the public sector which is a result of government’s increased demand for funding. This can be seen by Treasury bill offers which have increased to a total of Kes 24 billion in 2017 from Kes 16 billion in 2016 across the three tenors of 91, 182 and 364 days. In the last Treasury bond auction which also included a tap sale (a tap sale is used to borrow more money at the same face value, maturity and coupon rate as the initial issue except price), Central Bank picked funds at 12.5% and 13.1% respectively for what are effectively 3 and 7 year papers. With lending rates capped at 14%, banks are better off lending to government than to the private sector.


Fiscal Discipline

In the current financial year, the government has been staring at a fiscal deficit of 8% and a domestic borrowing target of Kes 295 billion a revision of 59 billion from the initial target of Kes 236 billion. The revision was attributed to increased spending as well as missed revenue targets. These fiscal excesses will definitely short circuit the objectives of the rate cap due to the crowding out effect of government borrowing. Fiscal discipline is therefore required. Further government through Treasury should also target and commit to a low and normal yield curve. This is because private sector credit is priced off the risk free rate. If the risk free rate is near the cap, then banks will definitely lend to government.

Enabling Environment

Government should create a favorable environment to enhance competition in the banking sector leading to lower cost of and access to credit. This includes stable macroeconomic conditions, an appropriate legal and regulatory framework, price transparency, consumer financial literacy, availability of credit information, and strong financial architecture, such as credit bureaus and credit agencies. Efforts towards this include the setup of credit bureaus to facilitate credit rating and credit information sharing. However, this move is yet to have the desired impact. There is also the requirement for publication of the Annual Percentage Rate (APR) by banks to promote price transparency.


Central Bank of Kenya – Monthly Economic Bulletin, Nov 2016

Kenya National Bureau of Statistics; CPI & Inflation Rates May 2017

Markit Stanbic Bank Kenya Purchasing Managers’ Index (PMI) May 2017

World Bank Group Policy Research Working Paper 7070 Interest Rate Caps around the World


Written by Steve Ogada who is an investment banker with over 10 years’ experience in the East African capital markets. He’s a Principal at InVhestia Africa Ltd, a boutique corporate & project finance advisory entity. InVhestia is also a specialist in financial modelling, having adopted the FAST Standard  and is the only firm in Africa accredited as a FAST standard provider of financial modelling training.


Kigali: Lessons in Stewardship

Stewardship is defined by Merriam-Webster as the conducting, supervising or managing of something; especially: the careful and responsible management of something entrusted to one’s care. I travelled to Kigali last month for some meetings. I walked up to the counter at the airport and the Immigration Officer greeted me with a smile and welcomed me “back home”. She was surprised when I handed her my Kenyan passport but I knew from that first interaction that it would be a pleasant 4 days.

Rwanda is known as the land of a thousand hills, an apt description of the landscape. The streets of Kigali are remarkably clean and the landscaping is meticulous. It is hard not to think of Nairobi and compare the two cities. With the upcoming Kenya elections, there is little negative space on poles, walls, even trees. Political posters can be found everywhere, some missing a face, vandalized by the opposing party. It had gotten so bad in the lead up to the primaries last month, that one could find posters plastered on bumps on the road. This is a stark contrast to the situation in Rwanda, a country that is also having elections in August. This level cleanliness and environment responsibility is something that Rwandans take pride in. Whereas leaders can set the precedent, being a steward requires an individual to focus on what would help maintain integrity for the common good of all.

Another proverbial leaf we can borrow from our brothers also pertains to stewardship, although of a different kind. In all our conversations, it was clear that the people of Rwanda feel very strongly about wanting things to be above board. The 2016 Corruption Perception Index which is published by Transparency International, placed Rwanda as third least corrupt country in sub-Saharan Africa. The Rwanda government has zero tolerance stance on corruption. This was clear in our interactions and the lack of red tape, especially when it came to meeting key decision makers. There is a sense that these values and principles are held true by all, a precedence set by the government. Earlier in the year the Rwanda state minister in charge of socio-economic development, Mr Vincent Munyeshyaka, said that the government believes this aspect of good governance “is a pre-requisite to sustainable economic development, peace and security.”

This economic development is evident as well. Even though Rwanda is a smaller market than Kenya, the entrepreneurial ecosystem has grown in leaps and bounds. The government has supported this growth by embracing ICT. In 2008, a course on entrepreneurship was introduced in secondary schools. Rwanda’s long term vision led to the start of an initiative that has provided laptops to children and teachers across the country. This move towards tech was evident with the uptake and interest in our online training offering and more interestingly, a leaning to Whatsapp-communication with business professionals. A study done by the Rwanda Ministry of Trade and Industry as a precursor to their 2010 SME Development policy document revealed that close to 98% of private businesses in Rwanda at the time belong to the SME category. Based on our conversations, there are many businesses that are investor ready and organizations like BDF are working to boost SME financing. This is why we are excited to be holding our Corporate Finance and Valuation Financial Modelling Training in Kigali from 14th – 16th June. This course is aimed at equipping learners with skills to make forecasts and conduct valuations on businesses, which is really a way to grow towards responsible management.

What can you do to become a better steward of your time, finances, environment and country? In the words of Ghandi, “Be the change you wish to see in this world”.