Ease of Doing Business and Digitization of Business Registration Services
The World Bank lists amongst other parameters the following indicators against which the ease of doing business in a country is measured:
- Starting a business – Procedures, time, cost and paid-in minimum capital to start a limited liability company;
- Registering property– Procedures, time and cost to transfer a property and the quality of the land administration system;
- Getting credit– Movable collateral laws and credit information systems; and
- Resolving insolvency– Time, cost, outcome and recovery rate for a commercial insolvency and the strength of the legal framework for insolvency.
The World Bank’s Ease of Doing Business report for the year 2018 indicated that Kenya had made major strides in this area and we note that a large part of this progress was attributable to the digitization of various processes through an initiative undertaken by the Government.
The Government of Kenya had, through the development of the National ICT Master Plan 2013/14 – 2017/18, sought to guide the creation of an enabling policy, legal and regulatory environment to facilitate the provision of e-government services that are simple to use and convenient for citizens and businesses; increase the productivity, efficiency and effectiveness of critical economic sectors; stimulate the setup and growth of ICT-related businesses to enhance employment creation; enable and scale up ICT innovation; and develop a dynamic and robust ICT sector that will enhance socio-economic growth.
This policy was implemented through the establishment of Huduma Centres which is a programme aimed at ensuring provision of services by the Government in an efficient and accessible manner through various integrated service delivery platforms. Amongst the delivery platforms is the online business registration that is run on the Government’s e-Citizen online portal (www.ecitizen.go.ke) which is noted as a gateway to access Government services. It allows citizens to access including registration of businesses; application for registration and extension of passports, identity cards, driver’s licenses amongst other services.
Business Registration Service
In the year 2015, the National Assembly enacted the Business Registration Services Act (Number 15 of 2015) under which the Business Registration Service (BRS) was established as a body corporate charged with the responsibility of “implementation of policies, laws and other matters relating to the registration of Companies, partnerships and firms, individuals and corporations carrying on business under a business name, bankruptcy, hire-purchase, and security rights”.
The BRS is intended to facilitate the starting of a business, maintaining it, registration of encumbrances as well as other services all aimed at enhancing the ease of doing business in Kenya and to ensure effective administration of the laws relating to the incorporation, registration, operation and management of companies, partnerships and firms, specifically overseeing the digital operations of the Companies Registry, Movable Property Security Rights Registry (Collateral Registry), Insolvency (Official Receivers) Registry and the Hire Purchase Registry
Some of the services offered under BRS portal include name search and reservation; registration of: business names, partnerships, limited liability partnership, limited companies, public companies, companies limited by guarantee, foreign companies and non-governmental organizations; official searches through the application of a Form CR12; winding up of a company; name change of a company; filing of Annual Returns and changing the directorship and shareholding structure of a company amongst other services.
Coupled with this, the enactment of the Companies Act No. 17 of 2015 has introduced wide-reaching provisions on current and emerging trends in the management of companies operations in Kenya and led to a number of benefits for shareholders and directors. This Act has transformed an streamlined the company registration and maintenance processes by allowing the adoption of electronic platforms that have has seen a shift from manual registration and lodgment of documents to an online registration system on the e-citizen platform.
Benefits Accruing From Digitization and The Use Of The Business Registration Service
- Prevention of Double Registration of Companies
Online registration of businesses has made it possible to resolve the issue of double registration of companies, business names and partnerships. Unlike in the previous system where no online database was maintained containing all the names of businesses and companies which had been reserved, registered or incorporated, under the online platform there is ease in searching for names as well as certainty where two different entities have similar names.
The use of the online platform has even prompted the Registrar of Companies to require companies or businesses which were incorporated or registered under names which were similar to those of businesses existing prior to their registration to change their names. This directive, although done in compliance with the applicable law, has had a cost on the affected businesses as many had used the name for years amassing goodwill in the market. The changes must also be filed in accordance with the provisions of the Companies Act, No. 17 of 2015 meaning the companies would have to bear the costs of registering the changes.
- Ease of Doing Business.
Business people are no longer obligated to travel to Nairobi to make changes in the company thanks to the migration to the online registration process, which has significantly reduced the number of people attending to the Company Registry offices to file company documents.
In addition, timelines to lodge documents for filing up to completion have been significantly reduced. For example, registration of a Company takes 3-5 days once the required forms are (CR1, CR2, CR8 and stamp duty form) uploaded on the portal and payment made online via Mpesa being most preferred payment mode.
- Proper Revenue Collection
The Government is now better positioned to collect monies paid upon services offered online to companies through introduction of an Mpesa pay bill number through which payments for all services are channeled, thus ensuring a better revenue collection by the Government.
- Elimination of Corruption
There is a reduced cost of registration of companies due to elimination of brokers and middlemen involved in companies’ registration process in the previous Companies Act. Such persons who were out to defraud entrepreneurs wishing to legitimately register their businesses no longer have room to conduct their business due to the direct link stablished with the users through the online platform.
Challenges Of The Online Business Registration Process
Despite its positive outcomes, the BRS has not failed to experience some teething problems in its development. Such hindrances include:
- Some files cannot be traced for linking as they are either hidden or misplaced and in other cases where a company has a dispute with its members or a rival company, staff are used to hide or destroy files to conceal the history of the company at the Companies registry. As a result, unless the company stakeholders have copies of the documents filed, the status of the companies remain unknown.
- Not every entrepreneur has an e-citizen account as a majority of them, particularly in the rural areas, are either computer illiterate or not trained on how to operate the BRS portal.
The digitization of the process has not completely eliminated the human interaction as the changes must be reviewed by an official from the relevant registry. The system does not also allow the user to communicate directly through the platform to highlight the issues encountered forcing the users to still make trips to the Registries. This reintroduces the
- element of corruption as some unscrupulous officials may take advantage of the user’s frustration, confusion and desperation to solicit bribes so as to review and process the changes.
- System delays at the Registry due to the inability of the server to handle a lot of data. This has been attributed to the lack of adequate personnel to review applications. Unfortunately, this state of affairs has taken away from the gains made at the initial stages where applications would be processed in a speedy manner.
- There is incompatibility of the Business registration service and Kenya revenue authority in appointing artificial directors and shareholders. The merging of Business Registration Service and Kenya Revenue Authority on ecitizen to allow ownership of companies by artificial persons (companies) has been delayed therefore limiting growth economically and yet digitalization was meant to ease business.
- The digitalization has not made it possible to register debentures and charges on the Business Registration service portal, to ensure transparency on companies’ dealings to the public. There is need to have the said properties registered online and search made possible to the public. Online registration of debentures and charges should be done upon linking of the company in order to make everything move digital way.
In conclusion, the reforms have enhanced and promoted healthy competition in the business sector therefore attracting a large number of foreign investors investing in Kenya. The challenges highlighted above are not fatal as the following steps, some of which are
currently being employed by the BRS, can be taken to cure some of the adverse effects:
- Offering short term employment to individuals to help in linking companies.
- Involving company secretaries to create awareness on existence of companies’ online digital migration and its benefits.
- Signing code of conduct by the registry staff to enhance accountability, transparency and diligence in their work.
It’s therefore imperative that all companies together with their stakeholders work together to ensure the success of the implementation of the online business registration process.
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