Banks adjust mobile phone loans

Mobile banking has really come of age in the last few years. As Carol Musyoka wrote CBA has moved from about 64,000 accounts before M-Shwari to 12.9 million accounts as at December 2015 primarily due to this virtual platform (i.e. M-shwari) without any exponential growth in its branch expansion.

The ability to save and borrow money just by using a few clicks on your phone has been revolutionary. Over at Equity Bank, CEO James Mwangi talks about the application for loans that start at 1 am, with approval being done in a few hours and the loans being disbursed to borrowers phones at 5 a.m. – long before the bank branch doors open at 8 a.m.

The interest rate-capping bill (Njomo) which covers loans has been deemed to cover all bank loans, but this has seen different interpretations at the leading banks that offer dedicated phones banking services:

Apply and get a loan directly on our phone

Apply and get a loan directly on our phone

  • CBA: Have insisted that the 7.5% fee that they charge is not interest, but a facility fee. This has been the case since M-shwari launched back in 2012. The are said to have issued Kshs 40 billion by the end of 2015, and across the border, CBA has got 60,000 mobile bank customers in Uganda in just two months in partnership with MTN (MoKash)
  • Coop Bank: Disburse mobile salary advance loans at 1.16% and business loans at 1.2%. They don’t charge any facilitation fees and loan are payable in 1 to 3 months. (Simply sial *667# to apply for a  #CoopMobileLoan). Coop are reported to be processing about 1,300 loan applications a day up from 250 per day before the rate cap. (70% of its new loan applications this month were requests for refinancing of existing loans). In 2015, the service had 2.7 million users, and 183,000 loans were disbursed.
  • Equity: Adjusted all their loans, including credit cards and mobile  bank loans to 14.5% (Previously “Eazzy Loan” and “Eazzy Loan Plus” products had an interest rate of between 2% and 10% per month) . The loans are said tp have a 1% facilitation fee
  • KCB resumed lending their m-pesa loans after a three-week technical hitch. They have adjust loan rates to 1.16% with a one-off negotiation fee of 2.55% resulting in a total of 3.66%  (including government excise duty tax) on loans. The loan duration has also been reduced to just one month – with no more 3 or 6 month loans.

More and More

France & Kenya and Renewable Energy

Yesterday there was forum on renewable energy in Nairobi. It was organized by the Embassy of France and the Kenya government to show executives from French energy companies opportunities to invest in renewables and other energy projects in Kenya and Africa. Aqylon, Engie, GreenYellow, Quadran,  Sogea Satom, Total , UrbaSolar, Vegrent, and Vinci representatives were part of the group.

French companies built hydro dams in Kenya

French companies built hydro dams in Kenya

Excerpts

  • Large silent corporations include Engie which produces 3 GW in Africa and Vinci which has EUR  800  million of revenue, and 14,000 staff in Africa.
  • SUNREF from AFD/KAM provides tailored finance for green energy to Kenyan companies through Bank of Africa,  CBA,  Diamond Trust and Cooperative Bank. 11 companies have now been financed, and some that have got SUNREF green energy finance include KTDA, Meru dairy, Strathmore University, and Redland Roses.
  • Kenya has 10 independe power producers (IPP’s) producing 650 MW (28%) of its electricity – shows how vibrant it is for investors.
  • Regional electricity sharing in future: Kenya produces 2,200 MW, Ethiopia 4,284 MW (90% from hydro), Tanzania 1,583 MW (65% from thermal), and Uganda 900 MW (80% from hydro)
  • GreenYellow works with factory, malls, hotels, to finance & build (heat/cold/solar/light) systems that reduce their energy costs by 30%
  • UrbaSolar is working with Kenyatta University on a 100% self-consumption plant that will reduce electricity bills by 80% (20% is night).
  • Total is constructing a 40 MW solar plant at Isiolo with Green Millenia, while Kenya’s rural electrification authority (REA) has got funding to do a 50 MW one near Garissa.
  • KenGen which provides 80% of Kenya’s electricity, has tendered for an Olkaria 5 plant, and will build an industrial park there.
  • There’s opportunity in Kenya off-grid & mini grid electricity, but there’s no legal framework for integrating with the national grid integration & projects sometimes face land acquisition or compensation delays.
  • Solar has not picked up in Kenya, but with drop of photovoltaic prices, there’s lots of interest here now – Energy Permanent Secretary J. Njoroge told the companies..  He also said renewable energy is intermittent – it can only be used up to a certain % of Kenya’s electricity grid supply. Later there was  mention of CSP solar plants which are more complex & expensive than traditional PV ones which but do give stable solar electricity.

Reading the Tea leaves at Centum, Kenya Airways, Safaricom – Part II

 Follow up from two years ago

Three companies that had their year-end in March 2016 have just published their annual reports which are now found on their individual websites. On Thursday both Centum and Kenya Airways boards will face their shareholders at the annual general meetings (AGM’s). Centum is ending a 9 year dividend drought, and Kenya Airways which had another a record-breaking loss, now believes the worst os now behind them. Meanwhile Safaricom will create 6 ‘mini-Safaricoms’ that operate in six Kenya regions and create more segment products like Blaze.

Centum:

  • Has a (massive 192) page annual report (up from 160 pages), and the company has 37,325 shareholders.
  • Will pay Kshs 665 million in dividend (1/= per share) ending a long dividend drought (since 2009)
  • Significant joint ventures are Amu Power (51%) and Two Rivers Lifestyle Center (50% – following a partial disposal). Old Mutual advanced Kshs 5.7 billion to Two Rivers with the debt convertible to 40% in the equity of Two Rivers, with shareholders loans previously held by AVIC and ICDC offset against the consideration. Further developments at Two Rivers  include luxury apartments, a five-star hotel and residences, a healthcare facility and additional structured parking. Property owners who have purchased plots at Two Rivers include  South Africa’s City Lodge Hotel group who are establishing a three star hotel; and Victoria Bank, who are constructing an office block.
  • The completion of the transaction on disposal of interest in Two Rivers and the acquisition of additional interest in Kilele, Sidian Bank and Almasi resulted in a net gain on disposal recorded in equity of Kshs 2.5 billion.
  • The half-year report will be available online to shareholders who register.
  • NAS, where they own 15% will continue diversifying its income streams by launching two Burger King restaurant franchise outlets in Kenya.
  • Will enter the healthcare business with a significant investment this year
  • Centrum plans to build 20 schools across Africa in the next three to five years, as part of a tripartite consortium with SABIS and Investbridge Capital. The consortium has acquired a suitable site along Kiambu Road that will host the first SABIS school in Sub-Saharan Africa, offering both 8-4-4 and K-12 education curricula with a capacity of up to 1,700 students.
  • In agri-business, Centum incorporated Greenblade Growers and acquired a 120 acre farm in Ol Kalou  that will be used for value addition and will have a capacity to process 10 tonnes of fresh produce per day, to key export markets of Netherlands and later the  UK.
  • Energy: to date, the company has invested Kshs 3.1 billion in the development of two landmark projects – Amu Power and Akiira One Geothermal.
  • At the AGM, Centum Chairman James Muguiyi, retires after 13 years and also the Principal Secretary – Ministry of Industry, Trade and Cooperatives, (representing the Kenya government) will retire from the board and not seek re-election.
  • Shareholders will be asked to approve the incorporation of Zohari Leasing, Rea Power Company,  Le Marina  (Uganda) and Two Rivers Development Phase Two. Also that the acquisition of 100% shares of Vipingo Estates and an additional 29% of Longhorn Publishers be ratified (they paid Kshs 393 million for the new shares).
  • Shareholders will also approve a name change from Centum Investment Ltd. to Centum Investment PLC.
  • Shareholders will approve an indemnity of the company directors .. against all relevant loss including any liability incurred by him (her) in defending any civil or criminal proceedings.. the directors may decide to purchase and maintain insurance, at the expense of the company.

Kenya Airways (KQ) kq-ticket-sleeve-old-style

  • The report is 149 pages (up from 130 pages) and KQ has 78,577 shareholders (a slight increase as  their share price has dipped)
  • The Group operates domestic flights and flies to 53 destinations in Africa, Middle East, Asia and Europe.
  • After their 31 March 2016 year-end, they received Kshs 10 billion from the Government of Kenya, (being the second and final tranche of the KShs 20 billion (US$ 200 million) bridge financing that has been on-lend from African Export–Import Bank (Afreximbank), and they sub-leased two Boeing 787 & three Boeing 777-300 aircraft as part of the turnaround initiatives in order to improve its liquidity position.
  •  JamboJet tax losses stood at Kshs 856 million, and Kenyan income tax laws allow for carry forward of tax losses for a maximum period of 10 years.
  • Short term facilities were drawn down from Equity Bank, Jamii Bora Bank, Kenya Commercial Bank, Commercial Bank of Africa, I & M Bank, Chase bank, National Bank of Kenya, Diamond Trust Bank, Co-operative Bank, NIC bank and Eco bank. During the year, the airline negotiated for extended repayment periods for all short-term loans ranging from 4 – 7 years except for Kenya Commercial bank. The Government of Kenya Loan is at 10.20% far much more than previous financing that was at 4-7%. Citi JP Morgan Kshs 78 billion is at 1.5% , Afrexim Bank 23 billion is at 4%, while other short-term Kshs 22 billion is at 9%
  • In addition to the Kenya government, KLM, and IFC, top 10 shareholders now include Mike Maina Kamau, Vijay Kumar Ratilal Shah, Gulamali Ismail and Galot International.
  • They implemented a business class upgrade system in January 2016, under which economy class passengers can bid & buy upgrades to fly on  business class.
  • A total of 63 bird strikes were reported in the year (down from 77 last year).

 Safaricom

  • The report is 172 pages (up from 136 pages) and the company has 600,000 shareholders (down from 660,000).
  • At the AGM a few weeks ago, shareholders approved payment of a dividend for Kshs 0.76 per share for 2016 and also a special bonus dividend of Kshs 0.68 per share.
  • According to a True Value report (they commissioned it, and it was done by KPMG), the total value the company contributed to Kenyan society in FY15 was Kshs 315 billion and they  sustained over 682,000 jobs.
  • Bonga points totaling Kshs 3.2 billion are a liability to be converted to revenue as customers utilize their points
  • Lent Kshs 500 million to Safaricom money transfer services, a subsidiary that derives revenue from international money transfer services.
  • The license  fee for M-pesa dropped from 10% to 5% from August 2015.
  • Donated Kshs 414 million to the Safaricom foundation
  • Spent Kshs 9.3 billion on the National Police Service communication project that’s now 92% complete.
  • They now require all new business partners to sign up to the “code of ethics for businesses in Kenya” during the on boarding process, and 269 companies have signed this.
  • They were fined Kshs 157 million by the Communications Authority of Kenya for not complying with its quality of service thresholds.

How banks are innovating around interest rate caps

fmshWith the capping of interest rates at 4% above the CBK rate comes an opportunity for banks to innovate and protect their income streams. They can do this through increased focus on mobile-based short term credit facilities as well as non-funded income streams.

More people can now afford loans. However, banks are reluctant to offer loans to existing customers who previously met their criteria. More requirements need to be met by customers in order to access the same services. Customers now have a tough time accessing credit cards and (un)secured loans. Perceptions on risk determine who gets the facility with riskier clients getting the short end of the stick.

An F-Type Jaguar at RMA Motors, Kenya

An F-Type Jaguar at RMA Motors, Kenya

Fixed and call deposit facilities are also now accessible to fewer people. New requirements such as that you need to hold an account for a certain amount of time with the bank in order to access fixed deposit services are restricting customers. Long tenures for fixed deposits have also been halved. Call deposits have been put on hold in some cases.

Banks are moving towards shielding themselves from the risk of default that will be brought about by a flood of people who can now afford to take out a loan. Collateral will become a requirement for credit facilities that did not have this requirement before. This is based on the real assumption that there will be a significant degree of default from this windfall.

Banks have also started investing more in Treasury Bills that are risk free and offer roughly the same return that they would by loaning funds to individual customers. This may be a short term move as banks wait for the waters that have been stirred up to settle. It is telling that the 364-day T-Bill is getting the most attention.

Mobile applications that increase accessibility and convenience for bank customers are currently not a significant source of funds. However, they offer an opportunity for lenders as they try to leverage on the volume of loans they have the potential to advance. MShwari-type loans could be the answer to protecting the banks’ funded income. More banks will be willing to join in advancing MShwari-type loans. This will keep people with low credit quality within the formal banking industry. Since most of them are from the unbanked population, they will be afforded some protection from predatory lending by shylocks as has been feared. Only people from selected (read known and established) companies are able to access the same loan facilities that were available to everyone. Likewise, entrepreneurs classified as less risky won’t see a significant change in their access to the facilities that they are used to. Banks have had to cut down on staff that was needed to sell credit facilities. With MShwari-type loans, some of these jobs can be saved.

More focus will be given to non-funded income streams that exist such as prepaid cards. Prepaid cards are touted as a secure way to carry cash. KCB and NIC Bank are two institutions that have put a lot of effort in making these cards mainstream.

Bankers also have the option of contesting this legislation using KBA. They can do this if they can prove that the new rates are making their business unprofitable. This could see interest rate revisions on new and existing credit facilities once in a while. An unseen consequence of this is the Monetary Policy Committee might lose its independence since they have to take into consideration bankers.

In summary, more focus will be given to customers who meet new requirements set by banks. Innovations will also be necessary to drive income growth going forward. After all, operating in white water creates opportunities in making great leaps.

Newton Kibiru, Business Development at Grant Thornton Kenya

Tea Farmers Bonuses & KTDA

There was a weekend discussion over this article by the standard which looked at the different prices paid by the Kenya Tea Development Agency (KTDA) as tea bonuses to farmers in different parts of the country. KTDA had just announced a record Kshs 84 billion earnings from small holder tea farmers for the year,  a 32%  increase of which 62 billion will be paid out to tea farmers ar a rate of Kshs 50 per kilo on average. (25% covers the costs of production). Few  could believe that farmers in Ketch, the widely accepted centre of Kenya’s tea could earn half of what farmers in other regions get.

ktda-tea-bonus-chart

(source: KTDA site)

The Standard had a  story had headline blame your tea for low pay, South Rift farmers told  and in it

  • Farmers in Kericho and Bomet have complained of low bonuses they expect (South Rift farmers will only receive Kshs 13 billion). KTDA’s region five comprises Kericho and Bomet counties with  seven tea factories and an equal number of satelite factories.  From the region, the highest paying factory, Momul, will give farmers Kshs 35 per kilo of green leaf as bonus, while the lowest paying, Litein and Chelal, will pay Kshs 26 per kilo. In the Eastern region, also known as Region Three, however, the highest paying Munuga Tea Factory will pay suppliers Kshs 48.35 per kilo of green leaves as bonus.
  • A farmer threatened that they would break away from KTDA and establish a new tea auction in Kericho. “There is no doubt that Mombasa Tea Auction is controlled by cartels who manipulate tea prices.
  • Kericho Governor Paul Chepkwony says they will source for tea markets in the US, UK, China and West Africa. “Our idea is the direct tea sale concept, which has been tried successfully by the management of Kokchaik Sacco which, through Finlay’s Tea Company, earns $3 (Kshs 303) per kilo. There is no reason at all why KTDA should pay farmers as low as Kshs 26 per kilo of tea as bonus,” says Chepkwony.
  • Richard Cheruiyot, a former KTDA executive operations director, lamented that..there were still numerous taxes and levies being charged on tea (which all amount to about Kshs 6.10 per kilo of tea annually)
tea-pie-chart

(source: KTDA site)

This is not the first time the variance has  been challenged and last year KTDA published a piece explaining the tea bonus calculation:

  • Each factory had a specific rate (bonus) which it pays to its farmers based on the factory directors’ approval.
  • KTDA is a tea marketing agency..owned by smallholder farmers who hold shares in their respective tea factories .. and 560,000 smallholder tea farmers in Kenya are shareholders of KTDA through their factories.
  • It is important to note that farmers receive monthly pay at the rate of Kshs 14 per kilogram of green leaf delivered to the factory in addition to the 2nd payment (bonus).
  • Factories process varied volumes of tea depending on the size of the catchment areas and the volumes of tea produced. This determines factory capacity utilisation and hence cost efficiency.
  • Teas from the factories also fetch different prices at the markets – either through the auction or direct markets. Consumer preferences also affect pricing, with some markets preferring teas from specific factories. The quality of green leaf is further determined by ecological and climatic features such as types of soil and quantity of rainfall, as well as the quality of farm management practices such as application of fertilizer, pruning and plucking. Further, the cost of production varies from factory to factory based on labour and energy efficiencies, cost of credit and investment income.
  • Factories with expansion projects that are financed by loans will incur higher finance costs than those which are not expanding. Given the current interest rates regime, such costs can be substantial. On the other hand, factories with healthy cash flows and which have no need to borrow will ultimately invest their surplus and earn more income. It is this combination of factors that determine what income individual factories pay their farmers.

An older article in the Nation on tea bonuses mentioned:

  • (that) Historically, factories around the Mt Kenya region have fetched higher payments than those in western Kenya based on a skewed marketing concept and buyer preferences at the auction.
  • (also that) Factories west of the Rift Valley are highly indebted to banks for loans to expand processing capacities to match increased acreage.
  • 11 factories in the Western Rift are satellites (do not enjoy full status) which means they cannot market their tea at the weekly Mombasa auction, and neither can they elect directors.

Finally, the 2016 Kenya Economic Survey noted that:

  • The area planted with tea increased by 3.2% from 203 thousand hectares in 2014 to 209 thousand hectares in 2015, primarily from small holders. Despite the increase in area under tea, production decreased significantly by 10.3% from 445.1 thousand tonnes in 2014 to 399.1 thousand tonnes in 2015.
  • The unit price of one Kilogram of tea recorded 42% increase to Kshs 293 in 2015 due to international supply constraints.
  • Tea was the leading source of foreign exchange with revenue from the commodity rising by 31% to Kshs 123 billion in 2015.

$1 = Kshs 101