In this week's edition of Money Weekly, we look at what has been going on in the banking and finance sector and how it will affect your pocket, with CBK's bank rate hike causing jitters, Kenyans' borrowing spree continuing unabated, and other key money news from the past seven days.
Kenya has increased its benchmark lending rate by 50 basis points to combat rising living costs.
The hike is projected to raise the country's credit cost, which is already at an average of 14%. The Central Bank's Monetary Policy Committee(MPC) increased the Central Bank Rate (CBR) from 8.25% to 8.75% on Wednesday, the third time this year.
"The Committee highlighted the continued inflationary pressures, higher global concerns, and their potential impact on the local economy, and determined that there was space for additional tightening of monetary policy to anchor inflation expectations," said the CBK.
The MPC lifted the anchor rate by 50 basis points to 7.50 in May after maintaining it at 7.50 since April 2020 to provide an accommodative posture to the economy, which had been disrupted by the Covid-19 epidemic.
After the country's inflation rate surpassed the established limit of 7.5%, in September, the regulator increased the threshold to 8.25%.
Apex banks around the world utilise interest rates either as a gas pedal or a brake on the economy. They determine the short-term borrowing rate for banks, which is then passed on to consumers and businesses.
Inflation in the country reached a seven-year high of 9.6% in October 2022, up from 9.2% the previous month. This was due to the worldwide market's high cost of food and petroleum products. Traders are passing on the high import bill as a result of the local currency depreciation in the face of a strengthening US dollar.
According to CBK, the worldwide economic outlook has deteriorated further, reflecting the impact of rapid monetary policy tightening in industrialised countries, primarily the United States, the ongoing war in Ukraine, and the persistent pandemic-related disruptions, especially in China.
In the nine months to September, households borrowed Ksh213.5 million per day from commercial banks, microfinance banks, and Saccos, as the rising cost of living forces more individuals to seek loans to meet their daily obligations.
According to data from the Central Bank of Kenya (CBK), households borrowed Ksh58.3 billion from financial institutions between January and September, indicating increased demand for loans.
To highlight the rising appetite for private household loans, this is four times higher than the Ksh14.4 billion or Ksh52.7 million daily disbursement by lenders during the same period last year.
According to recent research, citizens of at least 17 counties are straining to repay debts, with at least a quarter of borrowers within those devolved units defaulting, including Marsabit, Garissa, and Samburu counties.
Households are finding it more difficult to pay for food, rent, power, fuel, and school fees, among other necessities, pushing many to seek emergency loans despite high interest rates.
Secondary School parents will have to dig deeper into their budgets to pay school fees beginning in January 2023.
This comes after the Ministry of Education eliminated a secondary school fee subsidy introduced in 2020. Because of the constrained school schedule caused by Covid 19, the ministry had decreased fees by Ksh8,500.
According to a ministry circular, parents would still have to pay Ksh53,554 for national schools, as they did before the cut.
National schools currently pay Ksh45,054, while Extra County and County schools pay Ksh35,035. However, from next year, students attending national and extra-county schools would pay Ksh53,554, an increase from the current Ksh45,054
Students in county and sub-county boarding secondary schools will have to pay Ksh40,535 per year, an increase from Ksh35,000.
"Parents will pay Ksh40,535 to cover the cost of boarding as well as maintenance and upkeep," the circular states.
This will apply to seven counties' national and extra-county schools. Early learning and basic education PS Julius Jwan signed the new rules, which were issued to all county directors of education.
The counties include Nairobi, Mombasa, Nakuru, Kisumu, Nyeri, Thika, and Eldoret, according to the circular.
The new policy applies to boarding schools. Day school parents will continue to pay lunch costs until the government settles their Ksh22,400 tuition charge and other costs.
Kenyans living and working abroad remitted Ksh40.6 billion home in October, a 1.5% decrease from Ksh41.2 billion in the same month last year.
Nonetheless, diaspora remittances have increased year on year to Ksh405.7 billion ($3.325 billion) in 10 months.
Inflows have increased by 9.1% year on year, from Ksh371.8 billion ($3.047 billion) in the previous ten months.
Remittances continue to support the current account and the foreign exchange market, according to the Central Bank of Kenya (CBK).
Remittances and higher export profits have been critical in anchoring the country's exchange rate this year, helping to offset some of the depreciation observed in the Kenyan Shilling, which dipped below the Ksh122 mark on Thursday last week.
In October, the US was the largest provider of remittances into Kenya, accounting for 57.6% of total flows.
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The Central Bank of Kenya's (CBK) new regulations requiring appropriate registration of all digital lending apps gained traction when Google instructed that all apps first obtain a CBK licence before displaying on its Play Store open-source platform.
Google stated in Policy Updates announced on Wednesday, November 16, 2022, that apps already available on the Play Store have a grace period of 30 days to adhere to the new policy.
"Digital Credit Providers (DCPs) should complete the DCP registration process and get a licence from the Central Bank of Kenya (CBK). As part of your declaration, you must supply a copy of your CBK licence," a statement by Google reads in part.
The adjustments come as CBK works to clean up an industry that has been operating with various regulatory flaws. Cases of data abuse and harassment by digital lenders have aroused concerns among Kenyans before the legislation's implementation, prompting the CBK to order all unregulated digital lenders to suspend operations.
The Office of Data Protection Commission (ODPC) launched inquiries on 40 digital lenders in October, alleging misuse of personal data.
CBK has yet to update the full list of licensed Kenyan operators. The most recent communication was in September when the industry regulator reported that just 10 applications had been successfully registered as Digital Credit Providers (DCPs), with others in various stages of registration.
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