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Banker fights for his billions 30 years after takeover

Once upon a time, and only aged 36, Mr Mugo Mungai had a bank – not one, but two. But when he appeared in court recently, Mr Mungai never attracted any attention. Had that been in the 80s — when he used to sponsor major golf events or when taking the tail-between-the-legs-donations to State House — he would have been top news.

Mr Mungai is the man who built Nairobi’s Pioneer Estate, a project that he thought would be the flagship of his Pioneer Building Society and Capital Finance Limited. The two institutions owned prime properties in the city; Capital House in the CBD, 259 maisonettes in Pioneer Estate, and 50 half-acre plots in the up-market Gigiri, near Unep and the US Embassy. He also had a building in Thika town – today occupied by Ecobank – and a one storey building in Nakuru, now occupied by KCB.

All these, and his two institutions, were taken away from him on the morning of November 13, 1986 and, as he told the court, his “were solid institutions with no financial problems.” He was then 44.

RICHEST KENYANS

Had his properties not been taken, he also told the court, they could be valued at Sh7 billion, making him to be one of the richest Kenyans today. But he is not; he is merely scraping around for hard-to-come consultancies, and accounting jobs.

We met at his Spartan office at the United Kenya Club which is empty of any decorations. At 74, age is catching up. We sit next to a window overlooking the newly paved car park. “There is good lighting here,” he tells me. Immediately you enter his office, you first notice the basic furniture: The small-space sofa, a desk, table, chairs, and file cabinets containing a few lever-arch files — nothing to write home about. For a man who in 1978 got a licence to operate a building society, giving loans and mortgages to his customers, he ought to have retired into opulence.

FEAR INSTILLED

On this day, Mr Mungai is immaculately dressed in a suit and matching tie. He is reticent too and hardly speaks to the media, the result of fear instilled into him by the Moi regime. He speaks softly in impeccable English thanks to the years he spent in Thurrock Technical College and Woltham Forest in UK, training as an accountant and as a certified public secretary in the 1960s.

As he speaks, he clasps his hands. At 74, he has seen it all. “I was destroyed,” he tells me repeating what he had told the court. “At first, I thought I knew important people. But when I went down, they all disappeared.” For 30 years, he tried to get back the banks and the properties that he had lost. He knocked on many doors and, as he was losing hope, a friend advised him to see President Moi. “I went to Kabarak one morning in 2000 to see President Moi,” he recalls. “Moi knew me. I used to go to State House often to take donations to him, just like everybody else in those days. We talked diplomatically and I told him I needed his help. He promised me that he would sort out the matter and I gave him some written facts on my banks and properties.”

SEE AGAIN

One year later, Mr Mungai would return to the Office of the President to see President Moi again. “Hiyo nakumbuka,” Mr Mungai quotes the former president as telling him. But after a month, he received a letter from Dr Richard Leakey, then the Head of Civil Service and Secretary to the Cabinet, telling Mr Mungai to sort out his matter with the official receiver. “This matter should not be dealt here,” Dr Leakey said in a letter.

“I was shattered,” recalls Mr Mungai. He never tired from seeking audience with Moi and he was invited to State House again in May 2002. Mr Mungai felt that President Moi was now willing to help him. They talked. “Mr Moi left his office and escorted me up to the public car park. I got the impression that he would indeed help me recover my properties. But I was wrong. Seven months later, I saw him on television handing over power to Mwai Kibaki.”

The end had come.

Born in Kanyariri in Kabete, Mr Mungai had first trained in shorthand and worked as a stenographer. His first job in 1959 was as a secretary to Kimani Ngumba, who was then a schools’ supervisor at Christian Churches Educational Association, a body formed by the Anglican Church in 1958 to coordinate its educational activities in the country. Mr Ngumba would later rise to become Nairobi Mayor and in February 1983, he had registered his own bank – Rural Urban Credit Finance Ltd – with an office at Westland’s Waumini House.

‘NO OTHER’

“Before I registered Pioneer Building Society in 1978, my only competitor was East African Building Society. There was no other operating at that time,” he says as a matter of fact. East African Building Society had been founded by the late Kenyan billionaire Lalit Pandit in 1959 under the Building Societies Act of 1956.

When Mr Mungai decided to set up his financial institution, the Kenyan banking sector was then dominated by foreign-owned banks. In 1978, he had apparently sought a Sh150,000 loan from a bank and had taken his title deed. “Five months later,” he tells me, he had not received the money. “I was flabbergasted. I withdrew the title and decided that I have to start a local bank if this is the kind of frustrations people are going through.”

The desire took him to the Government Printer where he bought the Banking Act, the Hire Purchase Act and the Building Societies Act. “The capital for setting up a proper bank was too much. I settled for a building society,” he says. All this time, he had not shared his dream with anybody. At 36, his age-mates were roisterers and revelers. “I had realised that people liked drinking a lot. I didn’t have that time,” he says. When he went to the registrar of building societies he was shocked that they didn’t even have forms for registration. Building societies were not popular and Nairobi was only housing a population of 800,000 people with housing needs well served by government and City Council.

UNPOPULAR DECISION

“Nobody registers those things,” Mr Mungai was told about his unpopular decision. He was told, “go and tear up the sample registration form and bring it back.”

He returned to his Koinange Street’s Uniafric House office, filled the forms and on November 3, 1978 he had a licence to operate a building society. On March 13, 1980, he got another licence under the Banking Act to operate Capital Finance Limited.

Shortly after qualifying as an accountant in London in June 1970, Mr Mungai had visited the Shell headquarters in London. His visit coincided with that of Ian Ross, the Shell president who had just visited Kenya. “He said bring him in, and I was hired after he tried to impress me with his Kiswahili. I was employed in London and posted to Kenya.”

Mr Mungai was the assistant Finance Manager in charge of Kenya, Uganda, Ethiopia, Malawi and Mauritius. But after two years, he left to become the Kenya Meat Commission (KMC) Company Secretary. That was in 1972.

“My experience at KMC was terrible,” he recalls. “I had been trained in ethics and integrity and here I was at the heart of a corrupt system.”

He quit in protest.

Although he was later employed by Brooke Bond and sent to Mombasa, he left in 1975 to be “close to my ailing mother,” he tells me. “She passed on the Christmas Day of 1975 and I have never celebrated Christmas ever since.”

ASSOCIATED REGISTRARS

That January, he registered his accounting and audit firm, Mungai and Associates, and later on Associated Registrars Limited. That is before he sought a licence to open a bank.

It was in these offices he returned with a certificate and across his Uniafric office, a contractor was putting final touches on a building. “I went there and told the Asian owner that I wanted to hire the ground floor. He said, ‘no, not unless you take the entire four storeys’, I said I will take it.” He then walked with a fundi to the nearby Barclays Market Branch and showed him the kind of counters he wanted. “I then fixed a bright illuminated signage: Pioneer Building Society.”

On the door, he wrote: “Loans” – and customers flocked there.

Interest rates in the banking sector were by then regulated but building societies and financial institutions were allowed to attract deposits away from the banks and also charge higher interest rates. Mr Mungai became an overnight success. Banks started to set up their own financial institutions and circumvent restrictions under the Banking Act. His was the first to open banking service in Eastleigh, Nairobi; then considered risky.

OPENED BRANCH

In Nakuru, he opened a branch and one day he was called by the manager because the queues were snaking to the pavements. “I drove there and decided to look for a plot. I got one at Sh600,000 and we started building. After only one floor we stopped to move our branch there.” The building, today, still has one floor and houses the KCB Nakuru Branch.

“In total, I had eight branches countrywide,” he told the court. “We succeeded beyond anyone’s thought.”

As usual copycats followed: Equity Building Society, Family Finance, Nationwide Finance, Rural Urban Credit, Jimba Credit and many others.

The market was becoming complex and he approached a city tycoon, Paul Njiriri, who sold him some six acres in Nairobi’s Outer Ring Road to build the signature Pioneer Estate. “I wanted to be different,” he says. “I had a lot of stamina then”. He finished Phase 1 in 1984 and embarked on Phase 2.

In Uganda, Yoweri Museveni had, on January 29, 1986, seized power after toppling Gen Tito Okello. Mr Mungai had thought that he could open a branch in Uganda and went to Kampala. “I didn’t know that I was a marked man and after returning, I was arrested by the CID and interrogated about my visit.

“You went to buy guns?” one of them asked me.

WRONG YEAR

It was the wrong year. In 1986, the crackdown on Mwakenya had started and Moi had become paranoid following the attempted coup of 1982.

A few months after his Uganda visit, and on the morning of November 13, 1986, the Registrar of Building Societies, Joseph King’arui, wrote a one page memo to close down first Pioneer Building Society and later on Capital Finance Limited.

He told the court in an affidavit: “The Registrar of Building Societies ambushed me and purported to take over PBS. He claimed to have investigated PBS and was of the opinion that it should be dissolved.

By then, he told the court, he had fixed deposits at various banks of Sh30 million and miscellaneous investments worth Sh145 million. His advances and loans totalled Sh160 million.

‘UNDER SIEGE

He told the court that he opted to leave and for a reason: “Many indigenous banks were under siege and attack from the ruling political establishment at that time. Thus, given the menacing nature of the visit by (Registrar of Building Societies representatives) Messrs William Ikapel and A.S. Garama and the mere shock and audacity of the invasion and the prevailing political environment I was unable to question the takeover and under duress I surrendered.”

Mungai has filed this story in his court papers hoping that he might find justice. “We were not insolvent. Not at all. We had a lot of assets. If I had made any mistake, why wasn’t I charged in court?.

I ask him why he never went to court: “My fear was that I could be killed. People were disappearing those days,” he tells me as he escorts me back to the ground floor.

Our talk had lasted four hours.

The quest by Mr Mungai to seek back what Lloyd Masika valuers tell the court are assets worth Sh7.3 billion is going to be an interesting case.

He has won round one, demanding a forensic audit and is now asking the court to determine whether his rights were violated.

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