CENTRAL BANK OF KENYA
Uganda Bankers’ Association
The Fourth Annual Bankers Conference 2021
Bend But Do Not Break
Keynote Address by Dr. Patrick Njoroge
Governor, Central Bank of Kenya
Tuesday, July 27, 2021
As Prepared for Delivery
Good morning! I am honoured to join you at your Fourth Annual Bankers Conference.
At the outset, let me express my gratitude to my brother Governor Mutebile, for inviting
me to speak at this important conference. I also applaud Uganda Bankers’ Association
(UBA) for organizing the conference with the timely theme, how the financial sector
can thrive in the era of the fourth industrial revolution. We are meeting virtually, but I
recall Uganda’s warm hospitality, beauty, and vibrancy. I am optimistic that we shall
soon be able to meet physically, in the Pearl of Africa but also elsewhere.
We convene at a critical juncture, firstly, having struggled globally with the ravages of
the coronavirus (COVID-19) pandemic for one-and-a-half years. Secondly, we are at the
cusp of the Fourth Industrial Revolution, whose transformative powers are already
evident in the financial sector, and will transform the way we live, work, and relate to
one another. In the words of Professor Klaus Schwab, who popularized this label:
“It is characterized by a fusion of technologies that is blurring the lines between the
physical, digital, and biological spheres.”1
1 Schwab, Klaus “The Fourth Industrial Revolution: what it means, how to respond” January 2016.

Both these elements portend stormy times, for our way of life, society, families, and the
institutions that we represent. But how should we react? We can attempt to stand firm,
unyielding against these perils, and fully aware that they may destroy us. Or we can
accommodate some of the pressures with the grace of a palm tree, and build back
better—bend, but don’t break. Allow me to set the stage by highlighting three disruptive
trends in the current global context.
First, the entrenchment of globalization. This product of the third industrial revolution
has redefined the terrain for governments, businesses and citizens, shortening distances
and brought together disparate people in common markets. Global supply chains have
overhauled the traditional manufacturing and production processes with resultant
efficiency gains. Markets have increasingly opened up allowing businesses to expand
their global footprints. The absence of a navigable route to the sea for Uganda and other
landlocked countries need no longer be a handicap to economic development. Closer
home, regional integration efforts particularly the East African Community (EAC) have
borne fruits with banks extending their reach across the region. The imminent
operationalization of the African Continental Free Trade Area (ACFTA) is expected to
create an Africa-wide market with resultant benefits from economies of scale.
Financial markets have increasingly become global. In particular, the U.S. financial
markets have become a global bellwether with an outsize influence including in
emerging and developing countries. Given the dominance of the U.S. dollar as a global
reserve currency, we in the EAC are not immune to the dynamics in the U.S. financial
markets. Global movements in the dollar exchange rate and interest rates are
increasingly impacting our markets. On the one hand, as we expand our presence in the
international Eurobond markets, we are becoming increasingly vulnerable to movements
in global bond yield curves. On the other hand, with a growing influence of foreign
investors in our markets, we have to be alive to their short-term horizons and their
potential flight to safety in turbulent times.

Nevertheless, there are other urgent concerns that must be recognized and attended to.
The cost of globalization in terms of the industries that are wiped out and livelihoods
that are altered, must be addressed. We have also seen the rise of nationalism in the last
few years, particularly in Britain, Europe and the United States, threatening to reverse
the gains made by globalization. There has been an increasing retreat to protectionism as
large segments of the populace particularly in the West feel excluded from the global
economy. The COVID-19 pandemic has presented the two sides of the coin in this issue.
On one side, the vaccine nationalism particularly by western countries has shown the
ugly face of the retreat from globalization. On the other side, the pandemic has
emphasized the need for global cooperation and coordination as no one is safe until we
are all safe. We are certainly treading dangerous ground.
Second, is the proliferation of innovations and new technologies. From mobile
banking to cloud computing, artificial intelligence to blockchain technology, internet of
things, and robotics, all heralding significant opportunities to re-engineer the operations
of governments and business and transform lives and livelihoods.
Even before the COVID-19 pandemic, digitalization had transformed the African
financial sector landscape. In Kenya, we had seen access to financial services triple from
26 percent of adults in 2006 to 83 percent in 2019. These transformational financial
inclusion stories riding on digitalization were replicated across the continent including in
Uganda, Tanzania, Rwanda and Ghana.
Undoubtedly, digitalization has been the silver lining during this pandemic. With various
containment measures including social distancing, lockdowns, and stay-at-home
protocols, digitalization has enabled access to not just financial services but also other
essential services including health and education. E-commerce has exploded as
businesses pivoted to the digital marketplace. Businesses in diverse sectors ranging from
hotels, retail, transport, communications, entertainment, health to education, have to a
large extent transformed their businesses riding on digital rails and platforms.

Workplaces have changed with a shift to working-from-home on a scale that was
unimaginable before the pandemic.
Additionally, technologies and innovations are being adopted rapidly.2 New ideas and
products are spreading at an exponential pace, putting pressure on innovators and
promoters to compromise on the quality of their products.
Third, is the rise of sustainability concerns. It is now widely appreciated that
businesses can only be as successful as the societies they operate in and draw their
existence from. Environmental, Social and Governance (ESG) considerations are now
paramount in any organization’s strategy and operations. Most notably, the adverse
impact of climate change has become evident. Natural disasters, associated previously
with developing countries, have spectacularly reared their ugly heads in the developed
countries. In the last few weeks, once-in-a-millennium floods have ravaged Europe,
while heatwaves and bushfires have scorched the western parts of the U.S.
In these circumstances, the urgency to meet targets to reduce greenhouse emissions
under the Paris Climate Agreement has been amplified. Significant financing will be
required as the world moves to mitigate and adopt to climate change. Will banks rise to
this challenge? The consequences of failure are dire to society and banks specifically as
they reel from the damage to their loan portfolios from extreme weather events. Further,
banks may be left with stranded assets, if they do not keep abreast with the transition to a
net zero emissions global economy.
Against the backdrop of the significant transformation foreshadowed by the three themes
highlighted above, how will bankers bend without breaking in this environment? How
will they guide their institutions to thrive and not just survive? I want to draw on an
analogy from football, appropriately so in the wake of the recently concluded Euro 2020
tournament. For the first time in over 50 years, England was on the cusp of winning its
first major global tournament. Unfortunately, the trophy did not come home but went to
2 Brynjolfsson, Erik and Andrew McAfee, “The Second Machine Age: Work, Progress, and Prosperity in a Time of
Brilliant Technologies” W. W. Norton & Company, 2014.

Rome. As English fans absorbed their loss, they must have remembered their retired
talisman David Beckham, who could have very likely made the difference. In his heyday
Beckham had the knack of kicking the football and bending its flight past the wall of
defenders and into the goal. Analogously, how will banks develop fit-for-purpose
strategies and business models, bending their way around the obstacles that come up
every day in their field of play? Will the institutions bend but not break in the face of the
disruptive trends? Let me identify the walls we must navigate around in three areas.
First, we must not forget that it is all about people. While Returns On Equity (ROEs),
Price-Earnings (P/E) ratios and the bottom-line are easy clutches, people-centricity must
be at the heart of products, services and operations of financial institutions. The needs of
citizens globally have grown over the last 18 months as lives and livelihoods have been
upended by the pandemic, which has adversely impacted implementation of the Social
Development Goals (SDGs) and threatened the vision of shared prosperity for all by
2030. Recent World Bank assessments indicate a reversal in the global fight against
poverty following the pandemic—an estimated 130 million people could slip into
extreme poverty by 2030, if concerted global action is not urgently taken. Closer home,
the African Development Bank estimates that 30 million people in Africa slipped into
extreme poverty in 2020 and a further 39 million could slide into extreme poverty in
2021. Micro, Small and Medium Enterprises (MSMEs), women and youth have borne
the brunt of the pandemic.
Supporting the recovery process will be at the heart of banks that will thrive in the new
age. Targeted financial services to MSMEs and other vulnerable groups particularly
women and the youth will be imperative. This will need to be supplemented by finance
plus, particularly in the form of business advisory services, as MSMEs pivot their
business models to fit in the new normal.
Second, innovation presents opportunities but also risks. How do we maximize
opportunities while minimizing risks? Emerging technology including Artificial
Intelligence is a goldmine in building credit profiles and enhancing access to financial

services for segments of our populace with thin credit files and who lack collateral. For
financial institutions saddled with moribund ICT legacy systems, the cloud presents an
opportunity to upscale to the anytime anywhere cutting-edge financial services platforms
demanded by today’s discerning customers.
Even as we reap from innovation, we must remain alive to the risks. Recent devastating
cyber attacks including Solarwinds, Colonial Pipeline and Kaseya in the U.S. come into
mind. In the region, we have also seen an upsurge in online scams, identity theft and
social engineering attacks. We must therefore reinforce our cyber defenses internally to
neutralize the insider threat. Externally, as a financial sector we must build a circle of
trust, nationally, regionally and globally to share information and co-ordinate our cyber
responses.
Third, strong governance should underpin the culture in banks. This goes beyond
the classical tenets of an effective board, management and staff with clearly defined
responsibilities and accountability. Governance in the age of the fourth industrial
revolution would also be about the public good, for instance, supporting appropriate
behavior in the financial markets. Banks play a critical role in foreign exchange markets
and are key players in the government securities markets. Misbehaviour in these markets
adversely affects society through distortions in foreign exchange rates and raising the
cost of debt for government. Appropriate market conduct is therefore imperative to avoid
short term profitability gains jeopardizing the long term societal good.
Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) is
another key facet of supporting the public good. Lapses in AML/CFT can be devastating
given the consequences particularly of terrorism. Kenya, for instance has borne the brunt
of terrorism including the Dusit 2 complex attack in 2019 that took advantage of
vulnerabilities in AML/CFT frameworks of part of the financial sector. Technology now
offers banks, cutting-edge technologies to monitor and analyse transactions and reinforce
their AML/CFT defenses.

*****
As I draw to a close, I want to emphasize that we must all act with courage to do the
right thing, and not just survive but thrive. We must have the courage to Bend it like
Beckham, to go around the walls to attain the goals of people-centricity, balanced
innovation, and stronger governance. I am sure you will reach deep and find the courage
to bend it like Beckham one day after another, as we are in a marathon and not a sprint.
Across the street from my office, is a large mural of Kenya’s Marathon Champion Eliud
Kipchoge with his mantra No Human is Limited. Along with the millions of his fans, I
will be rooting for Kipchoge on August 8, as he defends his Olympic Marathon Gold
medal title against other strong contenders such as the Ugandan Team led by Stephen
Kiprotich. We may not agree on who is best placed to win the 2020 Olympic Marathon,
but I am sure we will agree that, in as much as No Human is Limited, the financial sector
must and will find a way to bend without breaking in order to thrive in this new age.
Thank You!