M-PESA to Roll Out Standing Orders - Money Weekly Roundup

It is the second Friday of September 2023 and barely one week into the ninth month of the year there is already a lot that has happened in the world of money. 

From Micro and Small Enterprises (MSEs) grappling with loan defaults to a reprieve for civil servants as Parliament rejects a bill targeting acting allowances to a surge in new car prices over the new 35% import duty and a weakening shilling…here is what made the headlines for the last seven days.

Let’s dive in.

Micro and Small Enterprises Grapple with Loan Default Crisis

A recent survey conducted by the Central Bank of Kenya (CBK) in collaboration with the Kenya National Bureau of Statistics (KNBS) and the Financial Sector Deepening (FSD) Kenya has unveiled a host of difficulties faced by Micro and Small Enterprises (MSEs) in Kenya. 

These challenges have led to a significant increase in the default loan rate for MSEs, rising from 42.8% to 60.7% as of June 2023.

The MSE Tracker Survey points to several factors contributing to the struggles of these micro-businesses. Tough business conditions, escalating interest rates, and inflation are identified as key culprits. 

The findings of the survey shed light on the fact that many MSEs grappled with inconsistent cash flows due to the high cost of doing business, which had a detrimental impact on their profitability and market connections, ultimately hindering their growth prospects.

To weather these financial storms, many cash-strapped micro-enterprises resorted to taking out loans to stay afloat. Unfortunately, the persistent harsh economic conditions resulted in a substantial number of them defaulting on their loan repayment obligations, whether by making late payments, missing payments, or paying less than the expected amount.

The timely repayment of loans is crucial for maintaining a positive credit score and bolstering a borrower's credibility. However, the CBK Survey findings reveal that the proportion of micro-enterprises using their savings to repay loans decreased from 64.3% in October 2022 to 52.9% in June 2023. 

Similarly, the percentage of micro-enterprises reducing household expenditures to repay loans and those resorting to taking additional loans to settle existing ones declined from 59.8% and 53.6% in October 2022 to 34.7% and 30.5% in June 2023, respectively.

Notably, among micro-enterprises borrowing from digital credit providers, only 9.3% defaulted on their loan obligations, either by missing payments, paying late, or offering less than the required amount. 

In terms of gender, male-owned businesses exhibited a higher default rate at 11.6% compared to female-owned businesses. 

Urban-based MSEs reported higher default levels at 10.4% compared to rural-based MSEs at 8.3%. 

Among different age groups, the 26-35 years age group reported the highest default rate at 13%.

Read Also: How to Get the Most Out of Your Loan

Reprieve for Civil Servants as MPs Reject Bill Targeting Acting Allowances

Civil servants can breathe a sigh of relief as Members of Parliament (MPs) firmly rejected a proposed bill that posed a threat to acting allowances. 

An acting allowance is an allowance entitled to an employee who temporarily performs the functions and responsibilities of a higher post when the post becomes vacant or the officeholder is on leave or taking up other official duties elsewhere in a temporary capacity.

The bill in question, the Public Service Commission (Amendment) Bill 2023, sought to cap the length of time a public officer can hold office in an acting capacity to a maximum of six months.

The rejection by the National Assembly’s Labor Committee was based on the grounds that the bill's provisions were seen as unfair labour practices and a form of discrimination and on the argument that such a proposal would run counter to the Constitution and the Employment Act, which requires equal remuneration for work of equal value. 

Instead, the committee recommended that the maximum duration an officer can serve in an acting capacity is 12 months before the position must be declared vacant and competitively filled. Beyond this period, individuals would not be entitled to an acting allowance.

The bill, championed by Embakasi Central MP Benjamin Gathiru, sought to amend section 34 of the Employment Act to prohibit the payment of acting allowances beyond six months. 

The MP argued that six months is a sufficient time frame for any organisation to recruit a suitable candidate for the position, as the retirement dates of civil servants are typically known in advance. The proposal stated that a person could be appointed in an acting capacity for a minimum of 30 days but not exceeding six months.

However, the Public Service Commission (PSC) opposed the amendment, highlighting situations where officers on secondment, those on leave of absence granted to a spouse of a Foreign Service officer posted abroad, and university staff on sabbatical leave for studies may need to be appointed in acting capacities. 

The PSC stressed that the primary objective of such appointments is to ensure continuity of service delivery, rather than simply earning an allowance.

While the Employment Act recognizes the concept of "Appointment of an Employee in an Acting Capacity," and the Public Service Commission Act stipulates a maximum period of six months for such appointments, it's common for officers, especially in parastatals, to serve in acting capacities for extended periods, sometimes even up to three years.

Read Also: 10 Financial Planning Mistakes You Must Avoid

Surge in New Car Prices Over 35% Import Duty and Weakening Shilling

With dwindling sales and the imposition of a 35% import duty, dealers are cautioning consumers to brace themselves for a significant increase of at least 10% in new car prices. 

This development follows the East African Community's (EAC) approval of Kenya's request to raise motor vehicle duties under the Common External Tariff (CET), marking a substantial increase from the previous 25% duty rate.

‍Read Also: Is It a Good Idea to Buy a Locally Used Car?

Both new and used cars are feeling the impact of these revised import duties, particularly as the new tax rates took effect for used motor vehicles starting July 1, 2023.

These price hikes compound the challenges brought about by the persistent depreciation of the Kenyan Shilling against the US Dollar which has driven up costs on imported fully-built vehicles and knocked down kits, ultimately impacting the final price paid by buyers. 

Read Also: How the Price of New Cars Will Change as Import Duty Increases From 25 to 35%

M-PESA to Roll Out Standing Orders

Safaricom is set to enhance its mobile money product, M-PESA, by introducing a groundbreaking feature - standing orders. This strategic move aims to strengthen M-PESA's position as a leader in the mobile financial services industry. 

While standing orders are a familiar concept in traditional banking and neo-banking sectors, their introduction to M-PESA marks a significant milestone.

George Njuguna, Safaricom's Chief Information Officer, shared this development via X (formerly Twitter). He highlighted that this innovation would establish M-PESA as the world's first mobile money platform to offer standing orders, setting it apart not only in Africa but on a global scale. 

Read Also: Ksh100K Interest-Free Loan via M-Pesa Unveiled

The introduction of standing orders on M-PESA is poised to revolutionise how users manage recurring payments and transfers. This feature will empower M-PESA users to schedule automatic payments from their mobile money accounts to specific recipients, whether they are individuals, businesses, or service providers. 

It promises a seamless and convenient method for settling regular bills, rent, and other repetitive financial obligations, ensuring prompt and hassle-free transactions. 

‍Read Also: How to Automate Your Finances in Kenya

Saccos Bolster Growth with 3,430 Agents on Board

In a strategic move aimed at expanding their reach and services while reducing operational costs, Savings and Credit Cooperative Societies (Saccos) have onboarded 3,430 agents. 

These agents have been strategically positioned in various towns to facilitate cash deposits and withdrawals for Sacco members.

This initiative harks back to Kenya's pioneering introduction of agency banking in May 2010, allowing commercial banks to engage third-party agents to offer specific financial services such as cash transactions and balance inquiries. The resounding success of this approach has revolutionised access to banking services for millions of customers.

Now, Saccos are embracing this innovative model to broaden their service footprint and cater to a more extensive membership base. According to the recently released Sacco Supervision Report for 2022 by the Sacco Societies Regulatory Authority (SASRA), approximately 36 deposit-taking Saccos have strategically enlisted 3,430 agents to manage customer transactions.

SASRA, responsible for licensing 176 deposit-taking Saccos and 183 non-withdrawable deposit-taking Saccos, reported that these agents collectively conducted 1.89 million transactions in 2022, with a total value of Ksh26.50 billion. 

This reflects the growing significance of agency banking in enhancing financial inclusivity and efficiency within the Sacco sector.

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