Monday saw the conclusion of the receivership of Chase Bank as SBM Kenya, part of a Mauritius financial group, completed a carve out of assets, staff and branches of Chase Bank that was overseen by the Central Bank of Kenya and the Kenya Deposit Insurance Corporation.
CBK Governor Patrick Njoroge said this was a historic event in Africa, not just in Kenya, as previously when banks were shut down, they stayed closed – but that since Chase closed and was reopened in April 2016, 97% of its depositors had been paid in full, and the remaining (large) depositors could now get structured access to 75% of their deposits through SBM (including 50% of their deposits immediately) over a three-year period during which they will earn interest.
He said this had been accomplished as a private sector-led initiative, supported by KCB, and that the process had been transparent throughout, with a unique EOI (expression of interest), done to maximise value for depositors and stakeholders. He added the remaining 25% of the assets would remain with Chase Bank (in receivership) and that CBK and KDIC would continue working to pursue the full recovery of the assets that were illegally taken from Chase Bank.
Kee Chong Li Kwong Wing, Chairman of SBM Holdings, said that they would work with local staff and management of the bank, first to get it back to $1.5 billion assets it was before the closure and then to double in size in 3 to 5 years. He said the vision was for SBM Bank Kenya to have its own local investors, board and management and eventually be listed on the Nairobi Securities Exchange. He added that the model of managing overseas subsidiaries by remote control had not worked in Mozambique and Zimbabwe and that they would not repeat that in Kenya which had potential to be a key partner with Mauritius.
SBM Kenya now moves from being a Tier III to Tier II bank as SBM will also invest an additional $60 million (Ksh 6 billion) for the bank’s growth, taking its investments in Kenya to $86 million. The bank has taken on and rebranded 50 of 62 previous Chase branches and absorbed 825 staff into SBM Kenya.
Central Bank of Kenya (CBK) statistics from the first quarter of 2018 show that there are 120,000 locally issued credit cards and 18 million debit cards/ ATM cards. With interesting patterns of credit cards usage over the last few years, for various reasons, there are some new entrants out to take on ubiquitous Visa-branded cards in Kenya.
MasterCard:GT Bank Kenya is rolling out a series of World MasterCard credit cards. The Gold and Platinum cards come with perks of travel and rewards including international airport lounge access, complimentary nights at 175 Starwood Hotels, luxury apartment discounts and Hertz Gold Plus car rentals along with enhanced insurance benefits that are easy to claim and a 24/7 concierge who offers personalized travel services. There are also tailored dining offers for Diani, Kisumu, Malindi, Mombasa, Nairobi. Ukunda and Watamu as well as towns in Nigeria.
Previously, one of the most-popular MasterCards on the market was the prepaid global card by Nakumatt that was supplied by KCB and Diamond Trust banks. They have been inactive since early this year following Nakumatt’s difficulties that started before the supermarket chain went under voluntary administration.
American Express: Also, Equity Bank and American Express have just extended their 2013 partnership. The bank which issues the American Express Green Card and Gold Card is the sole issuers of the globally accepted American Express cards in East Africa. With the signing of a now exclusive merchant acquisition agreement, Equity will be the sole merchant acquirer of American Express card transactions and will manage all aspects of merchant relationships including acquisition, statements, and marketing. Equity Bank earned Kshs 278 million in AmEx commissions last year, a 54% increase from 2016. The Bank also issues Union Pay, Diners, and JCB cards in addition to Visa and MasterCard.
Kenya’s Treasury Cabinet Secretary Henry Rotich has signaled an end to interest rates capping, saying the interest rate controls have contributed to a slowdown in credit growth to the private sector and denied small businesses’ access to credit.
In his FY 2018/2019 $30.4 billion budget speech to the National Assembly on June 14, Rotich said the interest capping law had not had the intended effect but instead resulted in banks shying away from lending to riskier borrowers such as ordinary businesses and individuals who used to borrow at rates above the 14% that was set through an amendment of the banking law that was passed a year and a half ago.
Rotich observed that he would ask parliament to repeal section 33 (b) of the Act to enable banks to provide more credit to riskier borrowers. He added that the government was also proposing a credit guarantee scheme for micro, small, and medium enterprises, and new credit institutions through the creation of the Kenya Development Bank and Biashara Kenya Fund and other new laws to help protect consumers of financial products.
The interest rates debate continues next week with a session on Monday, June 18 at the Strathmore Business School that will facilitate debate on the impact of the interest rates ceiling and floor.
Organized by the Kenya Bankers Association (KBA), the Institute of Economic Affairs (IEA) and Fanaka Digital, among other partners, the televised session will feature perspectives from the Treasury Cabinet Secretary, MP’s Jude Njomo – who sponsored the 2016 banking amendment that capped interest rates, and Moses Kuria, who is a member of the Budget and Appropriations Committee.
This week saw the naming of Kenyan banks alleged to have received funds from the National Youth Service in an unfortunate sleigh of hand as suspects were also charged in courts over fraud and abuse of office at the NYS.
The list of banks includes virtually all the top banks in Kenya – KCB, Equity, Cooperative, Barclays, CFC-Stanbic, Diamond Trust, National and smaller ones such as Consolidated and SACCO’s such as Unaitas. These are all institutions that offer supplier financing/ LPO financing – a popular product sought by young entrepreneurs and companies that allows them to obtain financing to procure and supply goods, under contract, that are then paid for by reputable companies and government agencies, such as the NYS, directly to the banks to recover the amounts advanced.
At this stage it is not clear the depth of the suppliers’ relationship with the institutions, as the banks have all cited customer confidentiality and compliance with the law, but it is doubtful if any will have the peculiar banking arrangements seem in the earlier NYS scandal which resulted in fines and sanctions by the Central Bank and charges filed against senior staff of Family Bank.
The article states that banks had filed statutory reports with the Financial Reporting Centre (FRC) a government institution created with the principal objective being to assist in the identification of the proceeds of crime and the combating of money laundering. The problems are clearly NYS ones, not ones and if any contracts were fraudulent, the fraud is with NYS, not the banks.
It elicited a lot of comments on the cost of finance offers to Kenyans, since an interest capping law passed in 2016 that restrict banks to lend at a maximum of 14%, the lack of regulation of app loans who may be taking advance of Kenyans by charging usurious rates etc. It also led to a mention of a research report from Micro Save about the digital credit landscape in Kenya that was shared by one of the authors.
The Microsave Report (PDF) titled “Where Credit Is Due: Customer Experience of Digital Credit In Kenya” had lots of insights. It was drawn from feedback from 1,009 farmers located in 50 villages, equally split between Central Kenya and Western Kenya, and also with an equal number of men and women in the study.
At the end of it, the report makes some recommendations to the Communications Authority of Kenya and the Central Bank of Kenya – such as to control the type of messaging sent by text to consumers, and to require app loan companies to share information and to list all defaulters, respectively.
Habits of Borrowers
There is a preference for Chama’ s, SACCO’s and M-Shwari as a source of funding. App loan amounts are too small for significant investments.
Majority of the customers took up loans to smooth consumption, emergencies or to boost business.
They don’t understand terms and conditions of app loans and they don’t understand credit reference.
There are three types of borrowers: repayers (who pay loans on time), defaulters (who don’t understand the consequences of being listed), and jugglers who take both traditional and app loans – but if they are financially stretched, they are more likely to repay the traditional loans.
Customers have learned to game the system through timely repayment of loans and juggling multiple borrowers.
There is no extra “PIN” required to request and withdraw an app loan and some family members have done this in secret leading the phone owner to default on a loan.
Digital credit usage doubled in Kenya between 2015 and 2016, with awareness and usage of digital credit by far lower in rural Kenya.
Digital credit, which offers privacy, is replacing shop credit and family/ friends as financiers.
The simplicity of the loan application procedures matters; too much information requested or if there are too many variables that make it confusing, makes potential borrowers drop off.
Download a loan app or use USSd
App usage is rather low – and this probably related to lower usage of smartphones as their batteries rarely last a full day as compared to cheaper feature phones that retain battery charge for several days of use.
Phones are mainly used for money transfer, deposits, and withdrawals. There is little usage to get information or to browse the internet
64% of respondents in the survey had a basic phone (57% in 2015). Smartphones were 14%, growing slightly and off-setting feature phones which declined slightly to 26%.
Loss of a phone may result in a borrower defaulting on repayment.
Credit Reference Bureaus
Formal lenders require clearance from a credit reference bureau (CRB) which costs $22 (i.e Kshs 2,200) and that may exclude borrowers from formal finance. App loans don’t require this, e except that borrowers have not been black-listed.
One concern is there is little understanding of credit reference bureaus, and of channels for redress of any disputes.
Not all fintech’s report loans to credit reference bureaus.
App loan costs
High loan/interest charges are not a concern as they are comparable to other informal money lenders
At the time of the survey, M-Shwari issued 62 million loans (worth Kshs 1.3 trillion), while Equitel and KCB about 4 million each. In comments to accompany the release of their 2017 bank results last month, KCB had 13 million mobile customers, Equity Bank has 12.1 million, while a CBA statement noted that the bank also serves 33 million mobile savings & loans customers, in East Africa, in partnership with mobile money operators.