Kenya is the undisputed darling of international charitable organisations in the East African region. Yet, the law governing their status is almost as murky as the law of the jungle.
The Non-Governmental Organisations Coordination Act, 1990 creates two categories of NGOs, namely, national and international. But that is as far as it goes. Either by design or poor drafting, the Act makes no further distinction between the two categories in its substantive provisions.
An international NGO (“INGO”) is defined in the Act as an NGO with the original incorporation in one or more countries outside Kenya but operating within Kenya under a certificate of registration. On the other hand, a national NGO is defined as one which is registered exclusively in Kenya with authority to operate within Kenya. By dint of these definitions, the law acknowledges that the two categories are different. It is therefore curious that the Act makes no specific provisions to govern each of these entities to preserve their distinctive character.
Kenyan law treats an INGO registered in Kenya as a separate and distinct body corporate from its parent organisation. In contrast, a branch of a foreign company registered under the Companies Act is deemed to be merely a local office rather than a separate legal entity from the foreign company.
It is evident from the definition of an INGO that upon registration in Kenya such entity retains its character as a foreign organisation, akin to a branch of a foreign company under the Companies Act. In essence it is the local chapter of the parent organisation.
Unfortunately, this is not how the NGO Board views INGOs. Apart from refusing to acknowledge that an INGO registered is practically the same organisation as the parent, the NGO Board categorically prohibits any reference to an affiliation between the INGO and its parent organisation. Any mention of such affiliation in the constitution of the INGO has to be deleted before the application for registration can proceed. The effect of this requirement is to obliterate the difference between an INGO and a national NGO.
An INGO is intended to operate as an appendage of its foreign parent organisation. It should therefore not be coerced to deny or conceal such a legitimate relationship. The parent organisation should be able to exercise direct control of the INGO and dictate its policy as a matter of right since, in most cases, it is the sole donor and also manages the Kenyan entity through secondment of key personnel.
The justification normally given by the NGO Board is that no NGO registered in Kenya should be answerable to a foreign organisation which is not regulated by the NGO Board. This, however, is killing a fly with a sledge hammer. The NGO Board retains the power to regulate all NGOs in Kenya and to impose sanctions for any misfeasance including de-registration in the event of noncompliance.
The ‘no affiliation’ policy presents a myriad of operational challenges to the concerned organisations. Firstly, the parent organisation loses the essential nexus with its Kenyan chapter and, with it, an effective means to control the activities of an entity created for the sole purpose of advancing the objectives of the foreign organisation in Kenya.
Secondly, the governance structure of most global organisations does not envisage the creation of separate legal entities across the world or autonomy in the governance of such entities. Decisions made at the headquarters are intended to be implemented by the INGO in accordance with the terms of the funding agreements signed between the parent organisation and donors.
Thirdly, a branch of foreign company is not required to have a separate Board of Directors in Kenya. While it is reasonable to require INGOs to have a Kenyan component in their Boards for guidance on local issues and ease of accountability to the NGO Board, the parent organisation should be allowed to run the affairs of the INGO through its global Board. Many global organisations struggle with the idea of having to scout for virtual strangers to sit on the local Boards. Under the current policy, a Kenyan must hold one of the key positions of chairman or treasurer.
The other equally vexing issue for INGOs in Kenya is the confusion around the status of NGOs operating under a Certificate of Exemption.
The Act empowers the Cabinet Secretary responsible for NGOs (Interior) to exempt any NGO, upon application, from registration under the Act. What is not clear is whether the exempted NGO has any ongoing compliance obligations under the Act. The law, unfortunately, provides no guidance in this regard but the NGO Board has filled the void with a policy.
A majority of international NGOs issued with Certificates of Exemption 20-30 years ago have operated on the assumption that being exempt means that they are not required to comply with any of the provisions of the Act. They have, therefore, not filed annual returns to date.
The NGO Board is now demanding that such NGOs should comply fully with all the provisions of the Act which begs question: what then is the value of the certificate of exemption?
In many cases the requirement for compliance is impractical owing to the unavailability of records going back so many years.
There are substantial fees and fines payable for late filing of annual returns which currently stand at Ksh. 25, 000 per year and a fine of a similar amount for each year of default.
The NGO Board should re-think its approach in dealing with the above issues in order to create a more predictable and conducive operating environment for INGOs which are a key source of foreign exchange.
The article was featured in the Daily Nation on 3rd March 2019 and can be accessed here.