Please ensure Javascript is enabled for purposes of website accessibility A Strong Foundation Built on Governance can Influence Success - Credit Bank PLC


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Too often do the statistics point to Micro, Small and Medium Sized Enterprises (MSMEs) and the staggering percentages that point to failure. Indeed, reflecting on such figures can be daunting to the budding entrepreneur. The Kenya National Bureau of Statistics (KNBS) did a survey in 2016 indicating the average lifespan of MSMEs is 3.8 years and 46.3% of them closed within the first year. But, a bigger issue in the offing is rarely pointed out. Several corporate giants have been falling and no statistic points to and at them. Fingers have been pointed to turbulent times in Kenya but such giants should weather boom and bust cycles. Fingers have also been pointed at lack of protection for local industries, more so counterfeit goods; true but protection can only last so long (case in point the highly “protected” sugar industry yet very uncompetitive).

As you dig deeper into the falling giants, what is revealed is a simple yet profound problem… Corporate Governance. Let’s dispense with what corporate governance is firstly. The cliché definitions will talk about structures and processes that govern (or direct) relationships amongst stakeholders. Not to underscore the importance of that definition but we must truly reflect on something deeper…

It is about Values

A value system that people truly believe in and uphold is indeed more valuable than structures and processes. Why value trounces structures and processes is that the latter can be circumvented the former is inherent. Therefore, to add to the definition of Corporate Governance we must include values; values that govern relationships amongst stakeholders. You may also wish to refer to these values as ethical business practices or core values that mould the culture within the said organisation. These values are mostly unwritten rules that people believe in.

So, how exactly do values, or lack thereof, contribute to success or failure of these giants? To demonstrate the importance of grounded values in business over structures and processes have a look at the banking industry. In the recent past, 3 banks have fallen… and not that there aren’t enough systems and processes. As a matter of fact, the banking industry’s regulator (Central Bank of Kenya) requires monthly reports from the banks. Again, two major retail chains in a similar period fell as well as a cement firm that is currently going into receivership.

It comes as a shocker to many that such large institutions can actually fail with so many regulatory checks. The problem, as earlier, is not the presence of structures and processes but a lack of values at the heart of the people. Once people, especially top management learn about the systems, structures and processes in place, they then look for loopholes. A good example is, which is what brought the banks down, careless insider lending, mismanagement of deposited funds and creation of fictitious reports. All these could have been avoided by values such as integrity. True, tighter rules come by after such incidents but one is left to wonder how an entire management team and further the board could come to be compromised.

What does the collapse of corporate giants mean? A collapse means stakeholders are affected. But too often do people assume who the stakeholders are. Most commonly looked at are the employees, the shareholders and creditors. Looking at a wider array of stakeholders underscores the importance of corporate governance in organisations. When a corporate giant falls, a deeper hole is left in the economy than is apparent. There is a multiplier effect to its collapse and is felt among the indirect stakeholders. Take for example a company employing 1,500 people collapses. It has been noted in our economy that a single salary could easily be the support of up to 20 people. So, you can see how 1,500 people can turn into a multitude of 30,000.

Few businesses are able to demonstrate proper forward and backward integration like large retailers, cement companies and especially banks. Forward and backward integration refers to the ability of a business to create other business up and down the supply chain. Betting companies, for example, do not demonstrate this. KNBS points out there are roughly 1.6 million MSMEs licensed by county governments which employ about 4 million people. So, if the businesses (MSMEs) created by the value chain of the corporate giant depend on it, then you are left to wonder how many of those that died were due to this carelessness. There’s also a big negative economic impact as the Government misses out on taxes.

To survive such falls, change must start from within. So far, we have addressed the giants, but such changes are also applicable to SMEs and the individual. Corporate malpractice in essence extends to malpractice by smaller businesses in the same value chain (compromise in business seems to have long tentacles). Businesses that base their model on values can outgrow current management and survive for generations. Businesses that have existed for centuries have values at the core of their operations. This then leads to sustainable businesses that positively impact the society by creating immense value along the supply chain.

This is what we want to see at Credit Bank; businesses that survive for more than 3.8 years and grow to create value chains of their own. Our new strategy places an emphasis on MSMEs as they contribute so much to the Kenyan economy (33.8% to GDP according to KNBS). SMEs however face a challenge of financial capacity to contract for bigger jobs thus fuelling their growth. As a financial institution, we fill the gap by enabling their financial capacity through funded as well as non-funded means. For this to happen, the SMEs need to establish sound operational practices. In essence, they need proper corporate governance in terms of structures and processes. More importantly are values they need to cultivate in their operations. Our sound governance values are the least we can impart on these MSMEs especially values of integrity and excellence. These values form part of who we are as an institution. Our mission reflects our desire to work towards and build an oft forgotten sector that in turn builds the economy.

The impact of sound corporate governance and clear strategy on MSMEs has transformed Credit Bank. We have been able to record growth over the past three years. This is noteworthy especially at a time when an interest rate capping law ensured most of the banks recorded losses or regression in growth. As demonstrated, direct and indirect stakeholders benefit greatly from existence of our institution. When we enable financial capacity of small businesses, other several indirect stakeholders benefit including creation of other subsequent businesses. To be able to continue to serve in the longer term, we must continue to base our practices on values… sound corporate governance.


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