Controlled Lending Rates – Not Business As Usual

Ask most people and you will learn that they are in the business of making money. Bankers know this only too well. But henceforth other motives of doing business may need to be explored. The government has effective July 2014, set a benchmark rate, against which loans must be pegged by the 43 banks in the country. This rate branded as Kenya Banks Reference Rate (KBRR) and set at 9.13 percent, will be the pricing basis for all commercial loans.

The rate which is reviewable every 6 months must be sweet music for the borrowers, who had all along been at the mercy of lenders. They watched in dismay as the lending banks competed in minting billions of supernormal profits, largely accrued from the loans advanced. The good news is that the new controls have been received well. One of the banks has already responded positively and others will no doubt follow suit.

This bank has reviewed all the lending rates.  Secured business loans particularly, will astonishingly attract a rate halved, from 21% -10.9 %. This somehow confirms the fears by most analysts that the banking sector’s supernormal profits were totally unjustified. Why was this happening? And what lessons do other sectors now need to learn?

Not long ago, I was wowed by an interesting analogy on value systems as narrated by an amazing American lady. She had visited Japan for the first time, to share her inspirations. In a hotel, she ordered for a cup of green tea with sugar. Ironically, the sugar was not availed. Upon enquiry, the waiter indicated that green tea is never served with sugar. The visitor’s insistence was of no help.

Even complaints to the manager yielded nothing. He instructed that the customer be informed that there was no sugar in the hotel. That led to abandonment of the tea, which was already on the table. Instead, the customer abruptly changed her preference to coffee, which was swiftly served, together with 2 sachets of sugar. “Where has the sugar suddenly come from?” The customer wondered aloud. “Here in Japan, we help people to make the right choices,” the   waiter intimated.  Reflecting broadly on this matter has yielded some interesting lessons worth sharing.

Strong cultures reinforce quality and continuous improvement processes (sometimes referred to as Kaizen) in Japan. This explains why Japan has been an economic powerhouse. In fact, it has for long been part of the Triad, a group of the three economic blocks of Europe, Japan and America. Before China embraced modern market dynamics, this Triad was the fulcrum of the global economy.

More insights bring to mind the societal grip on people behavior, especially for those in generation x, who grew up in the rural areas. Behavior was those days largely controlled by societal values and belief system. Economic/business activities too were largely controlled by this societal value system. There were no lethal brews for example, yet traditional liquor was part and parcel of rural life.

Of great interest is that most of the value systems, beliefs and therefore culture were controlled, not by the government, but rather the society itself. Much as everybody was free to make independent decisions, the same were to be within the confines of the societal values. On this, we somehow compared well with the Japanese, whom we share a common background of what is known as collectivism or “we” concept. This attribute associated with the Orientals and Africans, is denoted by harmony in behavior. The only difference is that the Orientals, represented by Japanese in this case, still firmly hold their cultures.

Today’s Kenyans are totally different. Majority have moved on from collectivist to individualistic culture, more synonymous with western societies. It is about the “I” concept. It is about making decisions in total disregard of the (now eroded) societal value system.

Largely, people are free to make choices as they deem fit. That is as long as the personal choices do not infringe any laws or ‘negatively’ affect other people. Compare our situation with that of the Japanese. How does our belief system affect the way we do business?

As the American visiting Japan experienced, the Japanese were ready to forgo the opportunity of selling coffee, or any other product that could result to infringing of their cultures. They didn’t care how the Americans take their green tea, as long as they do it the Japanese way, when in Japan.

Business theory has a way of bridging the gaping gaps left bare by the erosion of our value system.  More particularly, studies in business values and ethics recognize 3 motives that universally drive the conduct of business. Firstly, business is driven by the moral motive.  It is about conducting business that respects the societal beliefs on what is right or wrong. It is about doing business, while at the same time observing such values as care, respect, integrity, responsibility, trustworthiness and other related characteristics.

Secondly, the theory also recognizes the legal motive of doing business. It is compliance with the laws of the land for the general good of all. Many will however grudgingly comply with the law, but cut corners, whenever opportunities present themselves.

Thirdly, the theory recognizes the profit motive of doing business. Reasonable profits are expected to result from the conduct of any business, whereas supernormal profits border on crime and are definitely immoral. However, many will rely solely on the profit motive (not necessarily reasonable), in total disregard of the moral and legal motive.

How else can we describe the manufacturers of lethal brews? What of the lawless matatu drivers, who will break all the known traffic rules, as they pursue profits? You can easily count numerous businesses that don’t care less about their customers, as long as they get the profits.

Meanwhile, credit goes to the government for reining in on the high interest regimes prevailing in the banking industry. Banks are well known for the propensity to follow the profit motive, in total disregard of the moral motive. Whereas the lending rate is anywhere around 5% in the western world for instance, that of the Kenyan market has had no links with international benchmarks.  Locally, lending rates are as high as 17- 24% compared to deposit rates of less than six percent.

Many other business sectors too need to be wary of inability to balance the moral, legal and profit motives. Besides developing guiding missions and visions, there is need to formulate strong guiding values such as responsibility, trustworthiness, diversity, integrity, service as well as innovation amongst others.

These values reflect the moral consciousness of every business, especially if practiced and strictly adhered to. Customers will consistently identify and work with such businesses.

The truth is that any organization is a person (artificial though), whose existence and operations are governed by legal statutes. Further, we act and behave on behalf of organizations. The behavior of these organizations is a reflection of our strongly held values and belief system, therefore our character.

Most importantly, successful and sustainable conduct of business is for now and the future totally dependent on the balance between moral, legal and profit motives, which are in turn entirely reliant on our belief system. The good news is that it only takes a paradigm shift to transform the value or belief system for our businesses to align with trending global dynamics. Recognizing and putting the 3 business motives into perspective could yield invaluable benefits and paradigm shifts as opposed to waiting for the occasionally disruptive statutory control.

Meanwhile,

• If you wanted to holistically and strategically transform the fortunes of your organization, where would you start?
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