Sharp Rise in Loan Charges as Kenya Tops World in Crypto Adoption

It’s been yet another busy week, with lots of happenings in the financial sector. From Kenya topping global P2P crypto transactions and a spike in mobile money transactions to increased loan interest charges, dwindling forex reserves and reprieve for Cytonn investors, here are some of the biggest financial news from the last 7 days.

2021 Sees 48% Increase in Mobile Money Transactions

Kenyans transacted Ksh3.8 trillion in the first seven months of 2021, a 48% increase from the Ksh2.6 trillion transacted in a similar period in 2020 - an indicator of an economy recovering from the financial hardships brought about by the Covid-19 pandemic.

This comes as the country continues easing the Covid-19 restrictions imposed last year, with the economic growth being driven by recovering construction, manufacturing, transport, and hospitality sectors, as well as the reopening of schools from March.

The growing number of mobile money transactions was also boosted by the push for cashless transactions to minimize the use of hard cash, which could contribute to spreading the virus. 

Demand for mobile money outlets has also been growing steadily. In July, there were 303,718 active M-Pesa, Airtel Money and T-Kash agents in the country, up from 287,410 in January 2021.

The switch to mobile transactions has led to decreased demand for Automated Teller Machines (ATMs). As of July 2021, the number of ATMs in the country stood at 2,393 machines, which is the lowest number of ATMs the country has had in 8 years.

Despite the demand for ATMs decreasing, the demand for debit cards has been growing steadily. As of July 2021, Kenyans held 10.8 million debit cards, an increase from the 10.3 million held in July last year. The number of Point of Sale (POS) machines has also grown from 45,759 in July 2020 to 48,877 in July this year.

Kenyans to Pay More In Loan Interest Charges

A resurgent economy has improved demand for credit, pushing the interest rates charged on loans to levels last seen before the first case of Covid hit the country in March last year.

According to data from CBK, the lending rate as of July 2021 stood at 12.09%, which is seven basis points higher than the lending rate for June 2021, which stood at 12.02%. 

As more and more sectors recover from the downturn caused by Covid-19 lockdowns, it is expected that loan interest charges might rise even higher.  

This increase in the lending rate, coupled with the 20% excise duty on loan fees and commissions implemented by the government from July 1st will see Kenyans pay significantly more in order to access credit.

Kenya Emerges Top In Global P2P Crypto Transactions

According to the Chainalysis Global Crypto Adoption Index 2021, Kenya is the leading country in the world when it comes to peer-to-peer (P2P) cryptocurrency transaction volumes.

In the rankings, which are weighted by the number of internet users in each country and each country’s purchasing power parity per capita, Kenya emerged top ahead of 154 other countries surveyed. Other countries that ranked high in the index include Togo, Vietnam, Nigeria, and Venezuela.

In the month of August 2021, Kenyans made transactions worth over $16.2 million (Ksh1.76 billion) on Localbitcoins and Paxful, two popular cryptocurrency trading platforms. This is a 54.28% increase from the $10.5 million (Ksh1.15 billion) transacted in July this year.

The high rate of cryptocurrency adoption in Kenya can be attributed to efforts by tech-savvy Kenyans to preserve their savings in the face of a Kenyan Shilling that has been continually weakening against the dollar. Kenyans also use cryptocurrency to carry out international transactions and send and receive remittances.

In spite of the high cryptocurrency awareness and adoption in the country, the Central Bank of Kenya (CBK) has previously spoken against cryptocurrencies and issued circulars refraining Kenyan banks from engaging in business with crypto-based businesses.

However, the banking sector regulator has expressed interest in entering the digital currency space. 

“We are already having discussions with other global players, in various ways, around the introduction of Central Bank Digital Currencies. The push comes as a result of mushrooming of private cryptocurrencies and we are already feeling left out and need to create our own space,” CBK Governor Dr Patrick Njoroge said in June.

Cytonn Puts Up Ksh2.5 Billion Alternative Homes Offer For Aggrieved Investors

After a months-long standoff, temporal relief is on the way for investors who had put their money into the Cytonn Project Notes (CPN) and Cytonn High Yield Solutions (CHYS) investment products.

After failing to honor payments to investors who put their money into the funds, the investment firm has given the investors the option to recoup their investments by taking up housing units under the firm’s real estate projects.

In order to take up this alternative offer, however, some of the investors will have to make cash top-ups in order to bring the value of their investments to the same level as the housing units on offer. The company is yet to disclose the number of housing units taken under the offer, or the number of investors who have taken up the offer.

The standoff began in June last year when Cytonn requested to roll over invested funds for an extra year, invoking the force majeure (act of God) clause and claiming that its operations had been negatively impacted by the Covid-19 pandemic.

The housing units offered in the alternative offer are worth Ksh2.5 billion, which is 20% of the Ksh12.5 billion that Cytonn owes investors who had put their money into the two funds.

Kenya’s Forex Reserves Hit 8-Week Low

For the first time in 8 weeks, the forex reserves held by CBK dropped below the $9 billion (Ksh988.65 trillion) mark. As of August 26, Kenya’s forex reserves stood at $8.986 billion (Ksh987.1 trillion), a $203 million (Ksh22.3 trillion) decrease from the $9.189 billion (Ksh1,009 trillion) held by CBK as of August 19.

CBK reports that these forex reserves are enough to cover over 5.49 months of imports. Statutory requirements state that CBK needs to maintain forex reserves that are capable of covering at least 4 months of imports. This decrease in forex reserves comes following sustained weakening of the Kenya Shilling against major international and regional currencies.

Despite the weakening of the Kenya shilling and decreasing forex reserves, Kenya has maintained a steady current account deficit of 5.4% of GDP between July 2020 and July 2021. 

Increased inflows brought about by higher horticulture earnings and remittances cancelled out with outflows from increased imports and a tourism sector that is yet to recover from the impact of the pandemic.

CBK Collects Ksh23.871 Billion At Weekly T-Bills Auction

In the weekly treasury bills auction that concluded on September 2, CBK collected Ksh23.871 billion, which is a 99.48% performance rate from the Ksh23.874 billion received in bids.

The 91-day T-Bills were the highest performing. CBK collected Ksh4,028.51 million for the 91-day T-Bills against bids worth Ksh4,031.46 million, which represents a 100.79% performance rate.

Meanwhile, the 182-day T-Bills had a performance rate of 99.49%, which Ksh9,948.78 million collected against bids worth Ksh9,948.96 million. The 364-day T-Bills raised Ksh9,894.44 million, against bids worth Ksh9,894.53 million.

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