(DTIS) Update, Volume 1 – Main report - Enhanced Integrated ...

further ahead in recognizing the scale economies that can accrue from establishing a cross-borderpresence.Kenya-based banks are leading regional integration in the EAC banking sector. A growing numberof multinational and Kenyan owned banks use Nairobi as a hub to expand their operations into the EACregion. These include four indigenous Kenyan banks (KCB, Equity Bank, Fina Bank, and CommercialBank of Africa). Most of these banks have to some extent operationally integrated in the areas of ICT,risk management, customer service, and treasury operations. It is especially significant that interviewswith these regional banks indicate that their cross-border presence has facilitated the introduction offinancial products and services that would not have been possible in the absence of scale.There are also indigenous Kenyan insurance companies with branches within the region. Theseinclude: APA Insurance, Insurance Company of East Africa, (ICEA), Jubilee Insurance, Phoenix of EastAfrica, Real Insurance, and UAP Insurance. Similarly, several Kenyan stock broking firms havesubsidiaries within the EAC region. These include, Dyer and Blair Investment Bank (Uganda andRwanda), Faida Securities (Rwanda), and Kingdom Securities (Rwanda).Cross-listing of shares in the EAC is already occurring and has increased private capital flowswithin the region. Kenya defines a local investor as an EAC citizen and allows foreign participation ofup to 75 percent. Tanzania allows foreign participation of up to 60 percent of shares in primary orsecondary issues. There are no restrictions in Uganda or Rwanda. Participation in EAC stock and bondmarkets is usually dominated by institutional investors, national pension funds, fund management firmsand insurance companies.2.3 Burundi and the East African financial marketBecoming an active participant in the fast integrating East African financial market can yieldseveral potential benefits for a small, underdeveloped financial system such as Burundi’s. Thiswould notably be made possible by the generation of “systemic scale economies” that typically accrue tolarger financial systems: Scale introduces efficiencies in financial markets. By raising the number and type of financialinstitutions that operate in a particular local market, integration fosters greater competition andlowers the prices of financial products and services. By enabling them to cater to a largerregional market, it allows financial service providers to operate with smaller margins andmaintain revenues. Regional financial markets expand the scale of and opportunities for financial intermediationbeyond national borders. It allows domestic savers to avail of investment opportunities thatmight be scarce at home, and/or alternatively also allows for a regional financing of lumpynational investment projects where domestic savings might not suffice. A larger volume of transactions also means a better use of various parts of the financialinfrastructure, such as payment systems, regulation and supervisory expenditures, all of whichhave high initial fixed costs. Regional markets create more opportunities for risk management. They allow for greaterdiversification of assets and markets for individual investors. They also allow individualfinancial systems to tap into a collective pool of reserves in the event of an idiosyncratic shockor speculative attack. Finally, in the long run integration also fosters the harmonization of business practices, laws, andinstitutions, closer to those prevailing in the most developed member state.120 / 153