Kenyans Back to Mobile Loans in Droves - Money Weekly

The first quarter of 2023 is almost over and as Kenyans strain to keep up with the rising cost of living, there is a corresponding increase in dependency on digital loans for survival. 

From a boost to local manufacturing by making EPZs more competitive, the relentless rise in the cost of fuel, a free-falling Shilling, a new tax break for Sacco-financed first-time home-buyers, and how much time are you spending making phone calls? We have a lot to unpack this week.

As we do every Thursday, here's our weekly summary of the top money news from the last seven days and what they mean for your pocket.

Kenyans Return to Mobile Loans as Inflation Continues to Bite

According to a survey by digital lender, Tala, dubbed “State of the Economy” released on Monday, March 13, the tough economic conditions have forced 50% of Kenyans to borrow more money to meet their basic needs than they did six months ago. 

To survive the current challenging financial climate, many people have had to return to using more than three digital lenders at the same time.

“Compared to 2022, Kenyans are cutting down on spending and saving more in a bid to curb the impact of increasing inflation in their daily lives. More generally, we are also seeing Kenyans borrowing more, and it is fascinating to note that over the last six months, consumers have channelled more of their loans to their savings such as ‘Chama’ contributions,” stated Teddy Kahiro, Senior User Research Manager at Tala.

“It appears that customers are borrowing from digital lenders to help keep pace with their group contributions, underlying the need for access to affordable credit for continued financial independence during challenging economic times.”

According to the report, CBK licensing has become a significant consideration for clients when selecting digital lenders, even though the cost of borrowing remains the most important factor in decision-making.

The most common reason for taking out a loan is for business purposes, with 67% of respondents stating that they did so to finance stock purchases and business expenses.

In the face of rising living costs, priorities shifted to taking care of necessities such as school fees, electricity expenses, medical care, rent, and public transportation, resulting in a marginal decrease from 78% in 2022.

According to the poll, borrowers save 25% of their income through chamas, Saccos, or fixed deposit accounts, 22% for personal expenses, 23% for utility bills, and only 15% for emergencies.

Read Also: Things to Consider Before Taking a Personal Loan in Kenya

Digital Lenders Disburse Over Ksh500 Billion Mobile Loans

Digital lenders have disbursed mobile loans totaling Ksh500 billion to individuals and small businesses. The loans have been distributed to a total of eight million people over the past eight years.

The Digital Financial Services Association of Kenya (DFSA-K), which was formerly known as the Digital Lenders Association of Kenya, made this announcement during the Digital Finance Summit held in Nairobi on March 15, 2023.

The rebranding is part of DFSA-K's goal of increasing financial inclusion by attracting more businesses to the digital lending market.

According to DFSA-K chairperson Kevin Mutiso, almost eight million Kenyans have benefited from easily accessible mobile microloans, with an estimated 70% using them for business purposes.

The association is committed to addressing financial literacy issues with consumers, which a lack of a comprehensive and unified consumer-benefit strategy has long hampered.

Read Also: CBK Licences 12 More Digital Lenders  - FULL LIST

Hustler Fund Savings Will Be Used to Revive the M-Akiba Bond.

The Kenya National Entrepreneurs Savings Trust (KNEST), a government-owned personal pension scheme governed by the Retirement Benefits Authority, will now benefit from the 5% deduction on each Hustler Fund loan.

Under the Hustler Fund's regulations, which went into effect on December 1, 2022, a borrower is entitled to 95% of the money requested. The remaining 5% is split between short-term savings (30% of the total) and pension remittance (70%).

The National Treasury introduced the Board of Trustees for the Hustler Fund's pension plan on Wednesday, paving the way for the investment of the over Ksh1 billion that has already been raised.

According to a Treasury source, a significant portion of the Ksh1 billion will be invested in M-Akiba in order to make the mobile phone bond more sustainable.

Using financial channels provided by mobile phone networks such as M-Pesa, investors can transfer funds and receive interest payments on M-Akiba bonds, which can be sold on the secondary market.

Read Also: Is Investing in Government Bonds a Good Idea? (Pros & Cons)

Kenya to Boost EPZs to Expand Trade and Create Employment

Kenya aims to boost domestic manufacturing and increase job opportunities by making its export processing zones more competitive. According to Trade CS Moses Kuria, the government will spend approximately Ksh3.7 billion to improve export distribution services from the Athi River Export Processing Zone (EPZ) to Mombasa.

While launching the project in Athi River, Kuria stated that the funds will also be used to purchase three locomotives through the Kenya Railway Corporation.

To reduce the cost and time of shipping raw materials and finished goods from and to the Mombasa port, the government is utilising the Athi River Export Processing Zone and launching a railroad siding program to connect the zone with SGR.

“This will raise employment rates in the zone to almost a half a million, from the current numbers of about 50,000 people as we further efforts through local manufacturing to raise the export trade towards GDP growth and fiscal consolidation,” Kuria said.

Kenyans are Spending More Time on Phone Calls

According to data from the Communications Authority of Kenya (CA), Kenyans called for a record 20.8 billion minutes in the three months leading up to December 2022 due to special offers and discounts.

Safaricom, Airtel, and Telkom Kenya customers called for 10% longer than the 18.9 billion minutes recorded in the September quarter.

Airtel customers' calls typically lasted 2.8 minutes, compared to 1.5 minutes for Safaricom customers and two minutes for Telkom Kenya customers, according to the regulator.

SMS traffic, on the other hand, decreased from 14.23 billion SMS reported between July and September to 12.11 billion between October and December, according to the same.

This cancels out the 1.8% increase in SMS traffic that local telecoms saw between April and June, from 13.97 billion to 14.23 billion.

The decline in SMS traffic coincides with a trend toward less expensive modes of communication such as WhatsApp, Facebook Messenger, and Telegram, among others, driven by rising internet penetration and falling mobile broadband subscription prices.

Read Also: Money and Me: Living Through a Broke Time

Super Petrol Prices Rise by Ksh2, Diesel and Kerosene Remain Unchanged.

According to EPRA's most recent review of fuel pricing, which was published on Tuesday, March 14, 2023, the price of diesel and kerosene per litre in Nairobi has remained stable at Ksh162.00 and Ksh145.94, respectively.

 However, the price of super petrol has risen by Ksh2 to Ksh179.20 per litre.

According to an EPRA statement, the price of diesel has been cross-subsidized with that of Super Petrol to protect consumers from otherwise high prices, while a subsidy of Ksh23.49 per litre has been maintained for Kerosene.

The new prices went into effect on March 15, 2023, and will last until April 14, 2023.

Tougher Times as Shilling Continues to Weaken

The cost of buying dollars in banking halls and forex bureaus has surpassed a new high of Ksh145 per unit, widening the gap between official and open market rates and resulting in the emergence of a black market for US currency due to a lack of supply.

The shilling averaged Ksh129.60 against the dollar yesterday, compared to Ksh128 on Tuesday, according to Central Bank of Kenya (CBK) figures, but dealers claim buyers are paid up to Ksh140 per dollar in a Ksh10 spread.

Customers buying dollars in forex offices pay between Ksh141 and Ksh146 per unit, who are getting US currency for between Ksh135 and Ksh138.

Despite the National Treasury expecting a Ksh129 billion World Bank grant by June 30, according to CBK data, the exchange rate is out of control. However, this may be too little, too late. This infusion of funds represents a Ksh32 billion increase over the initial award of Ksh96.7 billion (USD750 million)  that was originally planned to assist fund spending through the end of next June. 

At a time when interest rates on loans in dollars are relatively high and Kenya's foreign exchange reserves have been declining, the money, referred to as a Development Policy Operation (DPO) facility, will provide significant assistance.

Read Also: 5 Things to Know Before Keeping Money in a Dollar Account in Kenya

Sacco-financed Homebuyers Will Get Tax Reliefs of up to Ksh25,000.

First-time homebuyers supported by savings and credit cooperative societies (Saccos) will begin receiving a tax break of up to Ksh25,000 on their monthly pay in July, according to a proposed legislative change by the Co-operatives ministry.

The cabinet secretary for cooperatives, Simon Chelugui, has pledged to move forward with a change to the Income Tax Act that would grant mortgage relief to Sacco members who take out loans to renovate, construct, or purchase properties for their own use.

The deductions, which are equal to home loan interest paid, now apply to borrowers with commercial banks, mortgage lenders under the Banking Act, building societies, and the National Housing Corporation's tenant purchase program.

“To enable more Kenyans to own more decent homes I urge all Saccos to position themselves to provide more access to affordable mortgage finance… to increase the scope of mortgage offering,” Mr. Chelugui said. “I want to see Saccos offering long-term loans to their members just like any other financial institution.”

Read Also: Saccos in Kenya: To Join or Not?