Lake Region economic bloc to buy a bank and set up a fish factory in Kisumu

The newly formed Lake Region Economic Bloc, a brainchild of 14 counties in Western Kenya, has opted to buy an existing bank instead of starting one from scratch.

To bypass the long route of applying for a licence, the bloc is now scouting for a bank from the 43 lending institutions licenced by the Central Bank of Kenya (CBK) to either purchase in full or acquire majority of its shares.

Kakamega Governor Wycliffe Oparanya who is the first chair of the regional bloc, says the bank will offer loans to residents of the 14 counties at very low interest rates in an effort to help provide cheap capital to businesses in the region. Jointly, the bloc has a population of about 14 million people.

“We are buying an existing bank because starting a fresh institution can be very expensive,” Oparanya told Sunday Standard in an exclusive interview. The leadership of the bloc has already identified a list of possible banks. It has also identified a consultant to help narrow down on the most suitable bank to buy a controlling stake in.

However, due to the initial capital available to the bloc, it is unlikely to get a controlling stake in the big banks and may only afford one classified as small by CBK.

Insurance company

Out of the 43 banks, two are owned by the state. Of the 40 privately owned banks in Kenya, 26 are locally owned while 14 are foreign-owned. Oparanya says the process of identification and acquisition is expected to be completed by the end of October.

“Banks are sensitive so we cannot give names at this point of the possible targets,” Oparanya said.

After buying the bank, the bloc also plans to establish an insurance company to support it.

The counties who are part of the bloc include Bomet, Bungoma, Busia, Homa Bay, Kakamega, Kericho, Kisii, Kisumu, Migori, Nyamira, Nandi, Siaya, Trans Nzoia and Vihiga.

Oparanya said the secretariat has dispatched a set of 14 Bills to the various county assemblies for consideration and approval to give the bloc the legal foundation for its operation.

Each of the counties is expected to contribute Sh200 million each to the bloc, giving it Sh2.8 billion initial capital. The bloc is scheduled to hold its inaugural conference in Bomet County in October. Bomet Governor Joyce Laboso is the current deputy chairperson of the bloc.

Kisumu will be the headquarters of the secretariat that will run the bloc. Later on, the bloc will open offices in every county.

“We picked on a bank as the first project of the bloc because we want to strengthen entrepreneurship in this region. Our people are unable to undertake business ventures mainly because they do not have capital,” says Oparanya.

He says the challenges of succession in the region have made it difficult for even legitimate land owners to get titles especially when their original owners are dead. “There are also too many costs that are loaded on the bank loans. We want a bank that by just giving an LPO (Local Purchase Order) from a county government, they are given money straight away,” he says.

The LPO will be used as security against the loan as long as the bank confirms from the county executive in charge of finance where it originates from.

The bank is also expected to support infrastructural development and industrialisation of the bloc. “The first thing we did was to sign a binding agreement as the 14 counties to put us together. This happened last month,” Oparanya said.

Each of the counties will second a number of staff to run the secretariat. The plan is to break down different roles at the secretariat and have a particular county send staff into a particular area. The secretariat is expected to be operational from next month. Top leaders of the county assemblies -- among them speakers, their deputies, majority and minority leaders and chairs of budget committees -- are expected to meet next month in Kisumu.

The meeting will be used to sell the idea to the leaders, to get their blessings and urge them to legalise the bloc when the Bills arrive at their county assemblies for debate and endorsement.

“As soon as they adopt it, we will be free to make a budget for the secretariat,” says Oparanya.

Afterwards, the bloc will embark on a process of mobilisation of development partners. The bloc has already selected specific projects under nine pillars.

Besides the financial services, the other sectors the bloc will be looking at include agriculture, education, tourism, healthcare, ICT and infrastructure.

“We want to go into avocado growing in the entire region. We will re-look sugarcane farming and see how we can revive it,” says Oparanya.

The bloc will also explore ways of setting up a fish factory around Lake Victoria.

“There is no viable fish factory around. Even the national government is targeting fishing as a priority area,” he says.

Tourist circuit

The bloc already has the backing of the Ford Foundation, which has advanced it Sh18 million grant as first support to help it strengthen the secretariat.

The World Bank has indicated its willingness to support the bloc, says Oparanya.

Besides a bank, the bloc will also establish an agricultural commodities exchange to support investments in fish farming, dairy cooling plants, high value crop farming and large-scale irrigation.

It will also establish the lake region tourist circuit that will entail the creation of high-end hotels, building a 1,000 capacity convention centre as well as jointly carry out marketing initiatives. In the education sector, they plan to create centres of excellence and research, which will benefit agriculture.

The bloc will also approach major road constructions jointly under the supervision of the secretariat, especially for roads that extend from one county to the next.