Prediction Shows Kenyan Shilling Falling to 152 Against the Dollar - Money Weekly

Welcome to yet another edition of Money weekly from Money254. This week, the National Assembly slammed the brakes on the implementation of education reforms that have far-reaching effects for the sector, the shilling is set to weaken even further exacerbating the effects of the rising cost of living as tea farmers await a record high in bonus payments.

In banking, the CBK is being urged to further increase the base lending rate next week as bad loans rise; for the first time in 20 months, banks are shrinking lending even as the value of dollars held in commercial banks reached a new high. More Kenyans are keeping their savings in current accounts despite low returns as banks rake in profits trading currencies on the back of a sliding shilling. 

In insurance, Kenya’s first comprehensive cover for electric vehicles has been launched as well as a child-only cover targeting households without health insurance family packages. 

Meanwhile, the government is in the process of leasing out idle land held by public institutions to private investors, the KRA is deploying officers with paramilitary training to ensure door-to-door tax compliance as the Office of the Data Protection Commissioner puts companies breaching data privacy laws on notice with steep penalties. 

Let’s dive in.

|ECONOMY|

Pain as Shilling Tipped to Weaken Further 

The Kenya shilling is expected to continue sliding against the dollar compounding the effects of the rising costs of imports on the cost of living. This is according to a report by data analytics and intelligence firm, Stears.

Some of the key factors identified as the drivers of the loss in value for the Kenyan currency include reduced foreign exchange inflows and the US Fed's tightening monetary policy. The shilling has already depreciated by over 22% in the last 12 months.  

“The Kenyan shilling is expected to trade within the range of Ksh146 to Ksh152 per US dollar in the coming weeks,” the report reads in part indicating a need for businesses to adapt their strategies. 

Meanwhile, a comparison of fuel prices in Africa published by the Business Daily shows that Kenya has the 12th costliest fuel in the continent trailing only the Central African Republic (CAR), Malawi, Zimbabwe, Sierra Leone, and seven other countries.

In Kenya, a litre of diesel is going for Ksh200.99. This is compared to Ksh320.49 in CAR - which is the costliest - followed by Zimbabwe (Ksh256.39), Malawi (Ksh253.48) and Seychelles (Ksh247.65). 

In Nairobi, a litre of petrol is going for Ksh211.64. This is compared to Ksh260.67 in CAR, Ksh247.56 in Seychelles, Ksh240.37 in Zimbabwe and Ksh233 in Senegal. 

As the rising cost of living continues to bite households, it is emerging that a majority of the government-backed “Hustler Fund” borrowers are using the funds for consumption as opposed to business - for which it was primarily intended. 

The CBK’s FinAccess Micro and Small Enterprises Tracker survey shows about 68.6% of Hustler Fund borrowers used the funds for household purposes as compared to only 18.1% who channelled the money to business use. This is in the eight months between the launch and June 2023. A majority (77.3%) of those who indicated they used the money for household purposes say they paid for day-to-day expenses.

Parliament Blocks Implementation of Far-Reaching Education Reforms

The National Assembly this week put a halt to the implementation of recommendations by the Presidential Working Party on Education Reforms that have caused uproar from stakeholders in the education sector including the Teachers Service Commission (TSC). 

The far-reaching recommendations contained in a report released in early June include the scrapping of the categorisation of secondary schools and the removal of compulsory subjects for career choices, among others.

Others include; universities to be limited from offering Certificates and Diploma courses, varsity chancellors to be appointed by the president through the cabinet secretary, TSC to employ ECD teachers, stripping the TSC of its powers to regulate the teaching profession and leave it with only its human resource function, the already reformed higher education funding model and the collapsing of all bursaries and scholarships boards into one. 

“Nobody, and I repeat, can purport to make law because they have not the capacity to make any law,” National Assembly Speaker Moses Wetangula stated on Thursday. 

|BANKING|

Banks Urge CBK to Raise Interest Rates

The banking sector lobby, Kenya Bankers Association (KBA) is urging the Central Bank of Kenya (CBK) to further increase the base lending rate to arrest a worrying rise in non-performing loans. 

In a research note released on Wednesday, September 27, KBA said a further increase from the current benchmark lending rate, that was in August left at 10.5%, will lower demand for credit. This, it says, will prevent a further growth in bad loans. 

The Monetary Policy Committee (MPC) is scheduled to convene on October 3, at a time when the average bank loan is attracting a 65-month high of 13.5% with some lenders charging as high as 21% depending on the borrower’s perceived risk level. 

Read Also: Bank Loan Interest Rates Cross 20% 

“We argue that a further (moderate) monetary policy tightening would support measures taken previously to tame inflationary pressures and rising inflationary expectations, cool off credit demand and supply while averting a sharper build-up in non-performing loans,” the note reads in part.

Meanwhile, data from the CBK shows the amount of savings held in current accounts, as opposed to savings accounts, grew to Ksh1.7 trillion in the first seven months of 2023. This is growth of Ksh98.1 billion since January despite the low interest offered by banks on current accounts otherwise known as demand deposits. 

This, as the value of cash stored in dollar accounts by wealthy Kenyans rose by Ksh61 billion to set a new record of Ksh1.246 trillion ($8.47 billion) on account of a gradually weakening shilling. 

On the back of a sliding shilling, trading in foreign currencies is minting banks profits as they are earning margins as high as 10.5% as the demand for hard currencies shoots up. Top tier banks are putting a spread of between 3.4% and 10.5%. 

As the banks wait for interventions from the CBK to quell non-performing loans, it seems they have been cutting lending as defaults increased to Ksh586.2 billion by July 31. 

Data from the CBK shows the loan book of commercial banks shrunk for the first time in 20 months to Ksh3.975 trillion down from Ksh3.98 trillion in June marking the first month-over-month decline last registered in December 2021. 

Instead, commercial banks have been increasing their lending to the government as yields from Treasury Bonds and Treasury Bills continue to rise. 

|GOVERNMENT|

KRA Aggressively Pursuing Tax Evaders Door-to-Door

The Kenya Revenue Authority (KRA) has deployed over 1,400 Revenue Service Assistants (RSA) countrywide to ensure compliance. 

According to KRA, the officers who have undergone paramilitary training at the KDF Recruits Training School in Eldoret are supposed to help taxpayers with their compliance needs. 

The main aim of the programme is to facilitate online registration of trading businesses, verify taxpayers' details, support compliance with the TIMS/eTIMS regulations, support compliance with excise regulations and data collection, the authority stated in a notice to the public that indicates they will be moving from door to door. 

“The RSAs will provide on-site facilitation to taxpayers, which will involve physical visits to taxpayer premises within the country. KRA encourages the public to interact with the RSAs and let them know how they can assist you,” the notice reads in part. 

Govt to Lease Out Idle Land to Private Investors

President William Ruto this week revealed that the government was in the process of leasing out idle land held by public institutions to private investors to avail more land for agricultural use. 

This process that is under the Land Commercialisation Initiative, he says, will help step up food production in the country. 

”We have embarked on the focused execution of the plan to enhance productivity in several agricultural value chains to promote self-sufficiency and export competitiveness. We expect the fruits of these interventions to begin accruing shortly in the maize harvest season, through sustainable affordability of staple and other food commodities,” he added.

Data Commissioner Fines Microlender for Data Breach

In a move that is likely to signal a wake-up call for institutions not compliant with Kenya’s data protection laws, the Office of the Data Protection Commissioner (ODPC) has fined three firms a total of Ksh9.4 million for infringing on personal data. 

Among the three is a digital credit provider - Mulla Pride Ltd that operates KeCredit and Faircash. It was fined Ksh2.97 million for offences the ODPC described as using names and contacts obtained from third parties, and subsequently sent threatening messages and phone calls. 

“This penalty will ensure that digital lenders and financial institutions notify data subjects when collecting and processing their data, and the intention of processing the said data. 

“It will further ensure that the data controllers are limited to strictly dealing with data subjects who have consented to the collection and processing of their data,” a statement from the ODPC on Tuesday, September 26 reads in part. 

|INSURANCE|

Child-Only, Electric Insurance Covers Introduced

Britam has unveiled a standalone health insurance cover for children aged between 37 weeks and 18 years. The cover, dubbed Milele Junior, is aimed at households that do not have existing health insurance family packages that typically cover minors. 
According to the Kenya Demographic Health Survey (KDHS) 2022, only about 20.9% of children aged below 15 years have health insurance coverage. For Kenyans aged between 15 and 49, only 28.7% have health insurance. 

Meanwhile, Kenya’s first comprehensive electric vehicle (EV) insurance cover has been launched by GA Insurance as the adoption of EVs continues to rise. The government is championing electric mobility adoption with a target to have at least 5% of all newly registered vehicles to be electric by 2025.

In other news, the NCBA Group is on the brink of fully accruing AIG Kenya Insurance Company Limited as it moves to purchase an additional 66.67% stake in the insurer.

Record Ksh44 Billion Bonus for Tea Farmers 

Beginning next month, tea farmers will start receiving their share of the record Ksh44.15 billion payout from the green leaf supplied in the financial year ending June 2023. 

The ‘bonus’, which will be paid alongside dues for the tea farmers supplied in September, marks a 7.6% increase in farmer earnings that total Ksh67.7 billion as compared to Ksh62.89 billion in the previous financial year. 

About 600,000 farmers affiliated with Kenya Tea Development Agency (Holdings) Limited’s (KTDA) 54 factories countrywide receiving this much-anticipated payout have the increase in global tea prices to thank for the improved earnings.

The average selling price of tea in the international market increased to Ksh341 per kg as compared to Ksh311 per kg in the previous period. 

Tea farmers, who are being urged to explore other tea varieties, such as the Kenyan purple tea, will earn an average of Ksh59.02 per kg as compared to Ksh50.18 previously - a 17.6 improvement in per kilo earnings indicating a promising future for the Kenyan tea sector.