TOUGH TIMES: Food, Cooking Gas, Loans Get More Expensive - Money Weekly 

The cost of living is set to rise even higher in coming months, making life tougher for the average Kenyan. From higher cost of credit and return of bank-to-mobile transfer charges to increased cost of everyday goods, here are the top stories from the last 7 days that will affect how you spend the money in your purse. 

Loans to Get More Expensive as CBK Lifts Bank Lending Rates Freeze

After a long standoff, the Central Bank of Kenya (CBK) has finally approved a risk-based loan pricing model, allowing banks to charge different interest rates on loans depending on a customer’s risk profile. 

This move essentially does away with loan cost caps, setting the stage for a higher cost of borrowing for Kenyans. Banks have already started changing their lending rates after the freeze was lifted, with Equity Bank being the first to disclose the move to this model.

The bank announced that CBK has already given a nod to its risk-based pricing formula, which will see the lender price its loans at between 13% and 18.5%. Currently, the average interest rate on loans stands at 13%. 

Under the new pricing model, Equity Bank will charge small businesses between 14% and 16% interest on loans, while the cost of unsecured loans could be as high as 18%. Blue chip firms and other top corporations, on the other hand, might be able to access loans for as low as 13%. 

Equity Bank’s new pricing structure will see the bank use the sovereign risk (13%) as a base. Other risks will then be added based on the sector the borrower operates in, their individual risk, as well as the bank’s operational costs. 

Other banks are yet to go public about their applications for lending rate reviews. 

Banks Push For Reinstatement of Bank-to-Mobile Transfer Charges

Equity Bank is at the forefront of banks pushing CBK to reintroduce charges on money transfers from bank accounts to mobile money wallets. 

The government barred banks from charging transaction fees on bank to mobile transfers starting from March 16, 2020, in a bid to encourage the use of cashless payments. This was one among the raft of measures introduced by the government in 2020 to curb the spread of Covid-19. 

However, with the government having lifted similar measures for mobile money providers and micro lenders, Equity Bank boss James Mwangi argues that reinstating the bank to mobile transfer charges will level the playing field between them and other players in the financial space. 

The freeze on transfer charges from banks to mobile wallets led to a significant fall in the fees and commissions that banks earned from these transactions. For instance, KCB Group lost over Ksh1.5 billion in 2020 that it would have earned from the free bank to mobile wallet transfers. Banks hope that the reinstatement of these charges will help them boost their non-interest revenue. 

According to Mr. Mwangi, with the government having lifted other measures, such as free M-Pesa transactions for amounts up to Ksh1,000 and charges between microfinance institutions and mobile wallets, it is only fair that CBK does the same for bank to mobile wallet transactions. 

Cost of Cooking Gas Hits All-Time High Following Russia Ukraine Conflict

The cost of living for most Kenyans is set to rise even higher following the skyrocketing of cooking gas prices earlier this week. 

Rubis Energy announced that starting from Monday, March 7, refilling a 13Kg gas cylinder will now cost Ksh3,340. Those using the 6Kg cylinder will now pay Ksh1,560, while refilling the 35kg cylinder will now cost Ksh8,760. 

Many other cooking gas dealers have also silently increased their prices. The average cost of refilling a 13kg cylinder now stands at Ksh3,200. 

The price increase comes following the increase of the landed cost of LPG at the port of Mombasa, largely due to the ongoing war between Russia and Ukraine. Russia is the world’s largest producer of natural gas, and with the ongoing war, supply of natural gas from Russia has been affected. 

The rise in the cost of cooking gas is pushing Kenyans to cheaper alternatives like charcoal, but even these are not offering much reprieve. Today, a bag of charcoal costs Ksh2,800 compared to Ksh2,300 in February last year. A 2kg container of charcoal now costs Ksh100, up from Ksh60 in July 2021.

The increase in the cost of LPG and other energy sources is going to put a strain on Kenyans and further push up the already high cost of living. 

Uncertainty in State Subsidy Threatens to Push Petrol Price to Ksh150

A state subsidy has kept the prices of fuel unchanged over the last four months, cushioning Kenyans from the rising global oil prices. However, there are fears that the subsidy is on its deathbed, raising fears that the price of a litre of petrol could skyrocket to Ksh150 from the current Ksh129.72. 

The government, through Petroleum Principal Secretary Andrew Kamau, announced last month that the funds sustaining the subsidy were fast being depleted following the global rally in crude prices. 

Following the Russia-Ukraine crisis, global crude prices have risen to a high last seen in 2008. With the conflict still ongoing and delays in the Iranian nuclear talks, it’s very likely that the price of oil will continue rising. 

In a closed door meeting held on Tuesday, Oil Marketing Companies (OMCs) agreed to hold fresh negotiations with the state amid fears that the government might not have enough funds to continue offering the subsidy. According to the marketers, the state needs Ksh10 billion to cover the subsidy between February and March, and the Ksh15 billion required for March to April. 

Without the subsidy, Kenyans would currently be paying Ksh144.25, Ksh133.89, and Ksh119.42 for a litre of petrol, diesel, and kerosene, respectively. 

In the event that the state and the OMCs fail to come to an agreement, the price of petrol could jump to an all-time high of Ksh150 per litre. 

Cost of Cooking Oil, Fertiliser, and Animal Feeds to Go Up Further

Kenyans should brace themselves for increased prices for goods like cooking oil, wheat flour, fertiliser, and animal feeds due to various global trade factors, including the Russia-Ukraine war and the weakening Kenyan shilling. 

Ukraine, which is currently at war with Russia, is the world’s largest exporter of sunflower, followed by Russia. The war has impacted the supply of sunflower oil from these two countries, forcing manufacturers to rely solely on crude palm oil to produce cooking oil and fats pushing up the prices. 

Meanwhile, sanctions and global supply disruptions due to the war, as well as shortage of nitrogen gas have also led to an increase in the price of fertiliser. Global prices of DAP fertiliser went up by 25% this week. This could push the price of a bag of DAP to Ksh5,600 within the next month, up from Ksh2,500 in February last year. Kenya imports most of its fertiliser from China and Russia.

Meanwhile, the price of wheat has shot up by over 33% due to supply disruptions in Ukraine, which is a major producer of wheat. This could result in the price of a 400g loaf of bread increasing to about Ksh60-67, up from the current Ksh55. 

Farmers should also expect to pay more for animal feeds as prices hit an all-time high. At the moment, Ukraine is the only producer of non-GMO yellow maize, which is approved in Kenya for the production of animal feeds. With the war in Ukraine, however, this market has become inaccessible to Kenyans. 

As a result, animal feeds have become very expensive. Today, a 70Kg bag of dairy meal is retailing at Ksh3,400, up from Ksh2,500 in August last year. A bag of layers’ mash is retailing at Ksh3,800, up from Ksh3,100, while the cost of a bag of chick mash has increased from Ksh3,250 to Ksh4,200. 

The cost of freight has also contributed to the increasing prices of imported goods. Today, it costs about $10,000 (Ksh1.1 million) to import a container to Kenya, up from just $1,500 (Ksh171,000). 

Other Money News

• The Kenyan shilling hit an all-time low of 114 units to the green buck this week. The weakening of the shilling has been pushed by skyrocketing oil prices due to the Russia-Ukraine war, a widening current account deficit, and interests on foreign currency debt. 
  

• After 2 years without paying dividends, Savings and Credit Co-operative Societies (Saccos) are now back to paying dividends to their members. This comes following reduced economic uncertainty, increased loan repayments, and higher earnings. Kenya Police Sacco declared 17% dividends on share capital and 10.8% interest on deposits, while Ukulima Co-operative Savings and Credit Society paid out 9% interest on deposits. Stima Sacco paid 14% dividends on share capital, while Harambee Sacco declared 7% dividends on shares and 8% interest on deposits. 
  

• Data by CBK shows that credit to traders in 2021 grew to Ksh41.5 billion, a 136% increase compared to 2020, signalling increasing consumer demand. Meanwhile, home loans and other real estate credit decreased by 92% to 2.6 billion. Salary loans and other income-based loans also decreased 11% to Ksh17 billion, while those secured with office equipment, furniture, home appliances and other consumer durables fell by 2% to Ksh43.7 billion. 
  ‍
• Safaricom's M-PESA today crossed 30 million customers using the service every month in Kenya. The milestone comes a few days after M-PESA marked its 15th year since its launch on March 6, 2007. Kenya remains M-PESA’s most active market accounting for more than 30 million of the service’s 51 million customers across Kenya, Tanzania, the Democratic Republic of Congo, Mozambique, Lesotho, Ghana and Egypt.