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Kenyan Economy Haunted by Illicit Financial Flows
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Nairobi - A new report has revealed that Kenya’s financial systems are vulnerable to illicit financial flows (IFFs), which have been hampering the country’s economic growth.
Vulnerabilities in the Financial Sector
According to the study, IFFs in Kenya are facilitated by various vulnerabilities in the financial sector. These include:
- Cash-based informal financial systems
- Weak banking regulatory and supervisory frameworks
- Low level of compliance with preventive measures
- Lack of institutional, technical, and human capacity
Absence of Necessary Infrastructure
The report also highlights the absence of necessary infrastructure such as:
- Financial Intelligence Units (FIUs)
- Beneficial ownership registries
- Asset recovery units
These absences hinder regulators’ ability to track IFFs.
Evidence of Illicit Activities
The study notes that Kenya’s financial institutions are not immune to IFFs, with evidence pointing to:
- Currency transactions connected to international narcotics trafficking
- Unreported transfers facilitated by hawaladars and mobile payment systems
“The lack of transparency in Kenya’s financial system makes it difficult to determine who ultimately owns and controls corporate entities with business relationships with financial institutions,” said the report.
Fiscal Deficit Challenges
The country’s fiscal deficit, which stood at 10.4 percent of GDP as of early 2018, creates a challenge for the government to finance its development agenda.
“The actual volume of IFFs in Kenya is unknown, but available evidence suggests that it is significant and has been undermining the country’s economic growth,” said an economist who wished to remain anonymous.
Recommendations
The report calls for:
- Strengthened financial regulations to prevent IFFs
- Improved international cooperation in combating IFFs
- Enhanced institutional capacity to track IFFs
- Implementation of necessary infrastructure such as FIUs and beneficial ownership registries
- Increase transparency in the financial system
Experts Weigh In
“IFFs are a major challenge for Kenya’s economic development, and it is essential that the government takes immediate action to address this issue,” said Dr. Jane Muthoni, an economist at the University of Nairobi.
“The report highlights the need for strengthened financial regulations and improved international cooperation to combat IFFs. It is also crucial that the government increases transparency in the financial system,” added Dr. Muthoni.
The Way Forward
The Kenyan government has been urged to take immediate action to address the issue of IFFs, which has been undermining the country’s economic growth. The report calls for strengthened financial regulations, improved international cooperation, and enhanced institutional capacity to track IFFs.
As the country seeks to achieve its development agenda, it is essential that the government prioritizes the fight against IFFs to ensure that the country’s financial system is transparent and accountable.