CENTRAL BANK OF KENYA
4TH KBA ANNUAL BANKING RESEARCH CONFERENCE
Windsor Golf and Country Club, Nairobi
Opening Remarks by Dr. Patrick Njoroge
Governor of the Central Bank of Kenya
September 24, 2015
As Prepared for Delivery
Good morning! I am very pleased to be here at this opening of the 4th KBA Annual Banking
Research Conference. I am grateful to KBA for inviting me to this important forum and appreciate
the presence of all the participants.
This Conference’s theme, Kenya’s Experience and Prospects in Banking and Economic
Infrastructure Development is indeed relevant to our current context. This is because most of the
countries across Africa and the world are experiencing huge infrastructure gaps, and Governments
are grappling with the challenges of coming up with innovative solutions to financing these
investments. The importance of reliable infrastructure in raising the economy’s growth potential
cannot be overemphasized. In most Sub-Saharan African countries, the infrastructure deficit is in
critical sectors such as energy, transportation, health, water, sewerage, and telecommunications,
and is a significant drawback to the continent’s economic performance.
Vision 2030, Kenya’s development blueprint, gives prominence to infrastructure development as a
key driver of long-term growth. In recognition of the important role the private sector can play, the
Government is committed to creating an enabling environment to facilitate private participation.
With support from the World Bank, the Government initiated the Infrastructure Finance and Public
Private Partnership (IFPPP) Project and has put in place a supportive legal and regulatory
framework through the PPP Act, 2013 and the related Regulations, giving private participation a
central role in the Government’s long-term development strategy.
The complementary roles of the Government and private sector in infrastructure funding were most
recently highlighted at the UN’s 3rd International Conference on Financing for Development, held
in July 2015 in Addis Ababa, Ethiopia. At this summit, participants reiterated the vital roles both
Governments and the private sector can play in infrastructure delivery, sustainable development
and poverty eradication. Involving the private sector, not only eases the fiscal and administrative
burden on Governments but also enhances efficiency in the delivery of key public services. In this
regard, Public-Private Partnerships (PPPs) are an increasingly popular mechanism by which the
private sector has been brought in. PPPs are therefore among the options that have been sought by
Governments to address this funding challenge.
It is clear that there is interest in PPP projects in Kenya. As of July 2015, the National Treasury had
approved 71 projects in transport, energy, education, water, health, agriculture and the hospitality
sectors. Whereas many of these projects are still at the negotiation and feasibility stage, a number
have reached financial closure, with several banks participating through syndicated lending. The 71

PPP projects so far identified present a pipeline of investable opportunities for the Kenyan financial
sector.
In addition, the Government’s efforts in recent years to tap into other sources of infrastructure
finance, include:
Direct borrowing from foreign governments and multilateral lenders such as the African
Development Bank (AfDB) to fund specific projects.
Issuance of tax-free infrastructure bonds targeting investors to finance capital projects.
Issuance of a USD 2 billion sovereign bond (Eurobond) in 2014 to raise development funds
from the international market.
As of June 2015, the Government had raised approximately Ksh.250 billion through infrastructure
bonds, which have drawn both domestic and international participation. In a bid to widen potential
sources of funding even further, the Government is also considering Sukuk and Samurai bonds as
options for further sovereign bond issuance. These will further widen investor participation and
deepen the market.
There is clearly a case for participation in PPPs by banks and other private financial institutions.
However, there are a number of challenges that could arise from such participation, which I would
like to highlight for your consideration in this forum.
First, many infrastructure investments are long-term in nature, generating cash-flows many years
after project inception. However, the maturity of most bank deposits is short-term. There is
therefore a need for banks to manage this intermediation, taking a more long-term view about the
economy, which we flag as the single most-important constraint. Additionally, alternate sources of
longer-term funding could be sought. I am happy to note that banks in Kenya have started to
explore solutions such as collaboration with multilateral lenders and development finance
institutions to obtain long-term funding for infrastructure projects.
Secondly, given the huge scale and long duration of many infrastructure projects, lenders are likely
to find themselves exposed to significant credit, liquidity and political risks. It is therefore vital that
all project proposals be thoroughly and reliably assessed for their economic, financial and technical
viability before loans are disbursed. More importantly for banks, projects should have a clear and
equitable contractual structure that optimally allocates project risks among participants. Such risks
should be well-mitigated at the outset to make projects bankable.
Thirdly, participation in infrastructure projects by banks would also be constrained by legal and
prudential limits on the proportion of banks’ lending as a share of their core capital. Given the
considerable financial outlays involved in infrastructure projects, commercial banks would need to
enhance their capital base to participate in PPPs while remaining compliant with regulatory
requirements.
Finally, given the increased investments in infrastructure and the environmental implications, I do
hope that the studies lined up for discussion in this conference will give consideration to the green
economy (green growth) aspects. This proactive discussion by the Kenyan banking industry will no
doubt contribute towards adopting sustainable finance principles as per the commitments of the
Addis Ababa Financing for Development Summit earlier mentioned.

In view of the large size, huge cost and complexity of infrastructure projects, I would urge banks
and other financial institutions to build the requisite legal and technical capacities to evaluate the
value for money of PPPs relative to traditional asset classes. This will assist in identifying the
potential risks and the risk mitigation to be put in place in advance before the commitments are
undertaken.
I take that the engagement you will have for the next two days will be an on-going conversation
and the research work arising from this conference’s theme will inform future research in the area. I
am optimistic that the banking industry will continue to play an important role in supporting the
various sectors of the economy and in particular, the challenge to address the nation’s infrastructure
gap. The Central Bank is committed to creating an enabling regulatory environment that facilitates
the banking sector to effectively execute its intermediation function.
With those remarks, it is my honour to declare the 4th KBA Annual Banking Research Conference
officially open. I wish you fruitful deliberations.
Thank you.