News and Analysis
April 25, 2024
The last seven days have been packed with significant developments in business, finance and economy. The difference in the cost of credit across top tier banks continued to be reinforced, underscoring the need to compare before choosing, risk-based lending continues to dawn on consumers and unga, well, maize flour that has been subsidised is not in every shelf.
The taxman also made the headlines with a few announcements of their own, with Kenya Power taking centre stage with its plan to split up.
For this and more, here is the news that grabbed the major headlines in Kenya’s money world, and how this could affect your pocket.
An August 1, Business Daily report exploring the cost of borrowing Ksh1 million from different commercial banks in Kenya shed some more light on the different ways lenders price their loans even as risk-based lending takes shape.
Relying on data from the Kenya Bankers Association (KBA) and the Central Bank of Kenya (CBK), the report found that you could pay as much as Ksh50,000 more in a year for a Ksh1m loan depending on the bank that you chose to borrow from.
The fact that all the lenders reviewed had borrowers taking up their loan products suggested that despite them theoretically having the ability to interrogate loan terms, many borrowers never actually did so.
This, the report suggests, would explain why lenders market loans largely based on the top-line interest rate as opposed to the total cost of credit which includes other fees that a loan attracts in addition to interest rate.
Learn More>> BEWARE: Fees Your Bank Loan Will Attract
When those additional levies and third-party charges such as processing fees, credit insurance and excise duty are added, they can add an average of 6.4% points to the average interest rate of 13.5%.
According to the Business Daily, this is how much it would cost you to borrow Ksh1 million from select banks in Kenya for a 1 year tenure. .
It is important to note that the total cost of credit for Absa indicated above does not make it clear whether there are other bank or third-party charges included.
According to the State of the Banking Industry Report 2022 published by the Kenya Bankers Association (KBA), banks are shying away from lending to individuals and small businesses due to a lack of information on their credit status.
Read Also: 8 Reasons Your Business Loan Application Will Be Rejected
The report cited the move to suspend Credit Reference Bureaus (CRB) from listing defaults on loans that fall below Ksh 5 million as the main reason.
In September 2021, President Uhuru Kenyatta gave the CRB directive that would see defaulters of Ksh 5 million and below go unlisted, a directive that is scheduled to end on September 30.
In his address, the President stated that the move was meant to cushion borrowers hit by the Covid-19 pandemic.
This has proved to be a double-edged sword as although it has protected defaulters who were hard hit by the pandemic, it has also meant that banks have been steering away from lending to SMEs and individuals whose creditworthiness cannot be backed by data.
On August 2, the CBK gave at least half of the commercial banks in the country the green light to roll out risk-based loan pricing.
Under this system, a borrower’s credit score determines the interest that will be charged on their loan.
It is a system that rewards borrowers who have shown a disciplined and predictable loan repayment plan, thus granting them access to more credit.
This directive by the CBK is in line with its ongoing policies aimed at ensuring banks adopt customer-centric business models.
“What we need to insist on is that the models are realistic and not just some sought of class project. We have to be specific about that,” CBK Governor Dr. Patrick Njoroge stated.
Of those approved, only Equity Bank has publicly stated that its risk-based lending model has been approved where it has been allowed to charge between 13% and 18.5%.
The regulator had in 2019 warned commercial banks against reintroducing punitive rates higher than 20% after the cap was lifted. Before approval, CBK requires a lender to justify the margins it adds to their lending formula.
Read Also: Eligibility Requirements For Business Loans In Kenya - FULL GUIDE
Data from the Sacco Societies Regulatory Authority (Sasra) shows that over 1.18 million Kenyans halted their contribution to Saccos in 2021, with the hardship of the job market due to the pandemic cited as the main reason.
“A large proportion of the members numbering 1.18 million were, however, reported as dormant, implying that they had not conducted any transactions with their respective Saccos for more than six months.” Sasra Chief Executive Peter Njuguna wrote in the annual Sacco supervision report.
This is from a total Sacco membership of 5.99 million in 2021 which was a 3.03% increase from 5.82 million Sacco members registered in 2020.
There was a 16% growth in loan defaults which is seen by Sasra to be a reflection of the struggles workers and SMEs are undergoing as the economy is still recovering from a pandemic-induced slump.
In the report, Sasra also announced that it had also barred 4 credit unions from taking any more deposits, citing non-compliance.
The deregistered saccos are;
The latest quarterly Capital Markets Authority (CMA) report shows that use of shares as collateral has declined from a high of 59.4% in 2021 when retail investors used 6.5 billion shares out of the total of 10.9 billion they held to obtain loans, to the current level of 54%.
Individual investors used their shares as collateral at a higher rate a year ago, at 41,687, compared to the current figure of 40,717.
The decrease in pledged shares coincided with falling share prices, which can significantly reduce the value of collateralized portfolios.
Borrowing against stock allows individuals to access money without selling their shares at a loss, or before raking in the maximum returns from capital gains and dividends, allowing for greater financial and investment flexibility.
Under this shares-for-loans system, banks normally issue loans at a significant discount to the current share price to counter any risk of loss if the borrower defaults and the share price plummets.
The pledged shares are then frozen, with investors regaining full control of the stocks only after their loan is cleared.
Car owners are now turning to second-hand spare parts following a 50% increase in the price of new parts over the last half-year.
Rising shipping costs coupled with a weakening Shilling has been cited as the root cause of the progressive price surge.
As an example, data gathered by Business Daily showed that Toyota Corolla headlights that used to go for Ksh18,000 six months ago are now retailing at Ksh24,000. A Toyota Premio front bumper is now going for Ksh45,000, a 28% spike in the 6-month period.
“The government should come in and allow us to use the old taxes we were using before as we wait to usher in the next regime which must also come up with favourable taxes.” Car Importers Association of Kenya chairman Peter Otieno stated.
Read Also: Is Taking a Loan to Buy a Car Worth it?
The National Treasury, on August 1, issued a proposal to have all used car dealers vetted afresh.
Under the proposal, dealers will be mandated to reveal the identity of buyers as well as their source of income.
Car dealers will be required to disclose buyers' names, addresses, dates of birth, ID numbers, and occupations, as well as the date of the transaction and the amount involved, among other things.
According to the government, the weakly regulated used car market is proving to be a lucrative avenue for drug dealers and con artists to ply their trade.
In this regard, Treasury Cabinet Secretary Ukur Yatani has proposed a review of the law to push the used car market dealers to file their transactions with the Financial Reporting Centre (FRC).
FRC is the entity that is legally mandated to go after illicit cash.
If approved, greater scrutiny will be placed on the source of cash that car dealers deposit in banks in order to prevent money launderers from using them as front companies.
According to the latest Money Laundering and Terrorism Financing National Risk Assessment Report, betting firm owners, real estate, money remittance providers, Saccos, legal professionals and second-hand motor vehicle dealers pose the greatest threat.
Read Also: Too Good to be True? Signs It’s a Get-Rich-Quick Scheme, Scam
Kenyans have been left puzzled as supermarket shelves remain empty due to a lack of the Ksh100 bob 2kg maize flour, despite a government subsidy being in place to assure the new price of the staple commodity.
A quick spot check by Money254 showed that most of the leading supermarkets have not stocked up on the highly-demanded commodity.
Reports have since emerged that the lack of unga in supermarkets is because millers have been shying away from these retailers as they usually operate on a 45-day credit period.
To combat this, the national government has asked supermarkets to pay maize millers within 2 days to ensure that more Kenyans have access to the subsidised product.
On their part, the millers have openly confirmed that they prefer dealing with wholesalers who buy in cash.
Notably, the Kenya government has extended duty-free maize import by 8 weeks to September 2022.
Over the course of the last 10 years, the purchasing power of the Ksh1,000 has dropped off by nearly half.
The Ksh1,000 note during a similar period in 2013 is only worth Ksh 548.60 in today's economy.
Typically, an increase in the cost of goods and services, stunted growth in real wages, depreciation against hard currencies, and economic shocks reduce the real value of money over time.
The most noticeable effects have been higher food and fuel prices, as well as the shilling's depreciation as a result of both internal and external economic shocks.
For context, a litre of petrol is today retailing at Ksh159.94 in Nairobi, up from Ksh 111.30 in July 2013. Note that without the current government subsidy, petrol would be retailing at Ksh 209.78.
Covid-19 compounded the issue even further, with over 2 million recorded job losses that pushed Kenyans to the limit.
Read Also: IMF Wants Kenya to Scrap Fuel Subsidy by October - Money Weekly
Nine out of every 10 companies in Kenya did not pay taxes in the year ended June 2022.
New KRA data shows that only 84,428 out of the 759,164 firms registered for corporation tax paid their dues for the period under review.
According to the taxman, this suggests that many businesses may be reporting losses in order to avoid paying taxes.
However, it could also indicate an increase in the number of dormant companies, primarily start-ups registered in recent years.
The report further revealed a large share of firms filing ‘Nil’ income tax returns.
This could explain why the taxman has been trying to push for a minimum payable corporate tax, a move that the High Court declared unconstitutional.
In a bid to plug any tax avoidance loopholes, KRA has introduced the Tax Invoice Management System (TIMs).
All companies are now obliged to transition from the old electronic tax registers to TIMs by September 30, 2022 – a 2-month extension from the earlier deadline that was set for July 31, 2022
Proposed split of Kenya Power – The state agency is slated for a significant change that will see it only distribute electricity to large commercial and industrial consumers. According to the proposal, the Rural Electrification and Renewable Energy Corporation (Rerec) will take over the distribution of electricity to households
CS Matiang'i eyeing betting firms again – The spotlight is on betting firms again as they have listed as the number one avenue for money launderers in Kenya.
What customers spend on Safaricom services - According to the company's disclosure of its revenue mix, customers spend the most money on its M-Pesa mobile platform than any other frequently used service.
Interestingly, the report showed that what customers are now spending on M-Pesa transactions rivals the costs they incur to run their personal bank accounts.
Delivery firm Sendy cuts jobs – The logistics company has reduced its 300-person workforce by 10% due to the funding crisis affecting Kenyan startups.
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