No Interest Cap for Digital Loans, Food Prices Rise Double Digit

The final month of 2021 is finally here. Aside from making merry, it should be a time for you to reflect on what you’ve achieved this year, and start making plans for 2022. 

Even as we slowly start switching to the holiday mood, it’s still important to keep an eye on your finances, which is why I’m still here to give you your dose of Money Weekly. With that, here are some of the most significant money news from the last 7 days. 

CBK Will Not Fix Rate Caps For Digital Lenders

Central Bank of Kenya (CBK) Governor Patrick Njoroge announced that the Central Bank would not fix a lending rate cap for digital lenders even after they come under the regulation of the CBK. 

Instead, the lenders will be free to determine their own lending rates in accordance with the same loan pricing guidelines that apply to banks and other lending institutions. 

Earlier this year, the Central Bank Amendment Bill 2021 was approved by the parliamentary committee on Finance and National Planning, placing digital lenders under the regulation of the Central Bank, and giving Central Bank the powers to determine how digital loans are priced.

This created fears among digital lenders that CBK would move to put a cap on digital loan interest rates in a bid to put a lid on what has been exceptionally high lending rates. CBK has however clarified that it will not do so. 

This is not to say that digital lenders will be free to set interest rates as they please. Their rates will still have to be approved by CBK, and like banks and other lending institutions, digital lenders will be required to justify their lending rates before they are approved. 

Kenyans Spend Over Half Of Their Monthly Income On Christmas Expenses

It’s totally normal for shops and malls to be filled with shoppers as we head into Christmas, but have you ever wondered how much the average Kenyan spends over Christmas?

Well, according to a new survey by WorldRemit, the average Kenyan spends 54% of their monthly income on Christmas holiday expenses. This includes food items, gifts, decorations, and travel. 

If you thought Kenyans are extravagant, you’re yet to meet Rwandans. The survey shows that Christmas expenses for the average Rwandan amount to 708% of their monthly income, or more than half of their annual income. 

Other countries where people spend more than 100% of their monthly income on Christmas include Nigeria, Philippines, Lebanon, Cameroon, and Mexico. 

The urge to splurge on the Christmas holidays forces many households to borrow, dip into savings, or get support from family and friends living in diaspora in the form of remittances. 

Kenyans Decry High Food Prices As We Head Into Christmas

The prices of food and other basic commodities have risen sharply over the last few months, dragging up with them the cost of living as we head to Christmas. 

Following the lifting of several Covid-19 containment measures, including the countrywide dusk-to-dawn curfew, Kenyans had hopes that the prices of food items like sugar, milk, and cooking oil would fall. However, things have taken a turn for the worse, with soaring prices forcing people to brace for a tough Christmas. 

Over the last one month, the prices of essential food items have increased by between 10% and 50%. For instance, a litre of cooking oil is now retailing at an average of Ksh300, a 30% increase from Ksh230 a month ago. Meanwhile, Kenyans are spending up to Ksh150 for a kilogram of sugar, up from around Ksh110 a month ago. 

Traders have attributed the rising food prices to the upcoming general elections slated for August 2022, as well as increased borrowing by the government. 

Funding Gap Deepens University Crisis

Cash-strapped public universities are in for an even tougher time as the funding deficit for students in public universities rose to Ksh27 billion, up from Ksh13 billion in 2019. 

The doubling of the funding deficit saw the capitation per student fall from Ksh170,861.63 in June 2020 to Ksh135,244.88 in 2021. 

Higher education laws require the government to cater for 80% of the tuition cost per student under the government-sponsored programme, with the remaining costs being catered for by students and universities. However, the current allocation of Ksh135,244.88 per student caters for only 49.51% of the tuition costs. 

This funding deficit has raised fears that universities could respond by raising fees charged to students to cover the deficit. 

Already, the University of Nairobi has raised its tuition and accommodation fees earlier this year in a bid to ease its cash flow woes. Other universities have been forced to shut down some of their campuses. 

The University of Nairobi raised its accommodation fees for third and final year students from Ksh3,150 per semester to Ksh21.525. Students in rooms shared by four saw their accommodation fees increased from Ksh2,730 to Ksh15,120. 

Fresh students who joined the institution in September had to pay Ksh19,635 per semester for rooms shared by two. Before the increase, such students would have only paid Ksh2,835 per semester. 

The funding deficit to public universities has been attributed by pundits to the government’s debt payment obligations, as well as revenue shortfalls. 

Ksh1 Million Cash Reporting Cap Up For Review

President Uhuru Kenyatta announced during the State of the Nation Address on November 30, that the review of the Ksh1 million reporting threshold for cash deposits and withdrawals was at an advanced stage. 

The President had earlier in October issued a directive urging CBK to review the reporting threshold, claiming that the Ksh1 million was too low and punitive to businesses that routinely rely on cash transactions. 

In a separate event, CBK Governor Patrick Njoroge also mentioned that CBK was dealing with the review and addressing concerns that would arise from the review.

Dr. Njoroge also emphasized the need for banks to consider other factors, such as a client’s banking transactions history when flagging suspicious transactions so they don’t end up victimizing customers who regularly transact huge amounts. 

Currently, financial institutions are required by law to maintain records of cash transactions exceeding Ksh1 million and report to the Financial Reporting Center (FRC) any transactions they deem to be suspicious. 

ID No Longer Required For HELB Loans In New Bill

To be eligible for higher education loans, one is required to provide their national identity card. While this requirement is sensible due to the need to identify borrowers, it locks out learners who are below the age of 18 from getting access to the education loans. 

However, a new bill seeks to scrap this requirement, allowing minors joining tertiary institutions to qualify for HELB loans. Under the Higher Education Loans (Amendment) Bill 2021, students who are yet to get their national identity cards can still apply for HELB loans by having their parents or guardians as co-signatories. 

Other Money News This Week

• In a bid to attract more investors, Centum Investment Company recently announced a new policy that will see the firm pay out 30% of investment income to shareholders every year. 
• The cost of remittances to Kenya stands at 7%, which is way above the target of 3%, but slightly lower than the 8% average for sub-Saharan Africa. This means that for the Ksh34.3 billion monthly average sent home by Kenyans in diaspora in the 10 months to October 2021, about Ksh2.4 billion was spent in transaction costs. 
• Banking sector shareholders are set to reap big in the form of dividends after the industry raked in huge profits. The banking industry earned more profits in the first seven months of 2021 than it did the whole of 2020. The 7-month earnings were also higher than profits earned in a similar period in 2019. 
• The European Investment Bank (EIB), through the Co-operative Bank of Kenya is giving out a €50 million (Ksh6.3 billion) credit facility aimed at supporting small and medium enterprises affected by the Covid-19 pandemic. The credit facility is open to businesses employing up to a maximum of 250 people.