Central Bank on the spot over shilling decline

The Central Bank of Kenya allowed commercial banks to access "free money" when the shilling was its lowest last year, Parliament was told Thursday.

As a result, the banks had access to over Sh600 billion, which was used to make a profit of Sh29 billion within three short months.

That was the bombshell that was dropped in the House as Adan Keynan, the chairman of the House Committee that investigated the rapid decline of the shilling, initiated debate on the report of the committee.

Mr Keynan quoted key documents that he received from CBK deputy governor Harun Sirima showing that the banks had accessed Sh600 billion in 2011, against Sh11 billion in 2010, through the Discount Window –a CBK facility to allow banks to access quick money at short notice to shore up their money.

That huge leap, he said, was evidence that the problem of a depreciating shilling was "designed and executed by the regulator of the financial markets".

Mr Keynan revealed that the money borrowed from the CBK Discount Window at an interest rate of less than 10 per cent (circa eight or nine per cent), was used to buy Treasury Bills, which, would then be repaid at a rate of 26 per cent.

This means that banks accessed taxpayers’ money cheaply used it to trade with the same taxpayer at a higher rate and pocketed the difference without breaking a sweat. That’s how Sh29 billion was made.

“If this is not an economic crime, I do not know what an economic crime is,” Mr Keynan told the National Assembly.

Committee members complained that that some annexes were plucked out of the report so that MPs did not have all the information for the debate. Mr Keynan and MPs Martin Ogindo (Rangwe) and Mr John Mbadi (Gwassi) said the clerks at Parliament had failed to include all documents to support the body of the report.

“This is a very serious omission,” said Mr Keynan.

The Joint Government Whip Jakoyo Midiwo said there were “crooks” within Parliament who were intent on laying their hands on the committee report and water it down. He blamed “crooks” for the missing annexes.

“We knew that if we didn’t protect it, the crooks would get hold of it. The information so missing is so fundamental that the report loses its merit,” said Mr Midiwo.

The MPs said the contest in Parliament as a “fight” between those who had stolen public funds and were keen to protect their loot, versus, the rest of the MPs “who had no opportunity” to steal.

With the accusations flying, Cabinet minister Amos Kimunya, and MPs Wilfred Machage (Kuria) and Kabando wa Kabando (Mukurweini) said the House had to halt the debate until the question of missing annexes was fully addressed.

Mr Farah Maalim, the Deputy Speaker, was forced to postpone the debate and order that the Office of the Clerk of the National Assembly, publish and circulate fresh copies of the report, and fully bind those copies.

“There were certain lapses and this report is not complete,” said Mr Maalim as he ruled on the report.

As Mr Keynan initiated debate, he was interrupted repeatedly and even taunted by Mr Kimunya and MPs Jamleck Kamau (Kigumo) and Maina Kamau (Kandara) who sought to make sure that the initiation of debate was not coherent.

Assistant minister Muriithi Ndiritu and Njoroge Baiya (Githunguri) had sought to stop the debate saying that the CBK ought to be independent. They had obviously overlooked the oversight role of Parliament.

“How can anyone justify Sh600 billion of taxpayers’ money being given to private commercial banks to do business with?” posed Mr Keynan.

He said the only condition under which such large sums could be given to banks, given that it is almost sixty times the amount accessed in 2011, is if the banks were under financial duress of insolvent proportions and need to be put under receivership.

Otherwise, he said, this was “free money”, given to banks to engage in arbitrage and make profits.

That scheme, Mr Keynan said, was hatched and executed within the walls of the Central Bank.

He warned MPs not to stifle debate just because of regional, tribal or personality cult tendencies.

“I want to see those who will say the interest rate of 32 per cent is justifiable,” said Mr Keynan as he warned MPs that Kenyans had suffered under the exploitation by banks over the high interest rates.