Category Archives: credit reference in Kenya

Water Moment: Understanding Nairobi Water Bills

Have you been getting more and more visits from the water meter crews from Nairobi Water (NCWSC), demanding payment?

For years, I’ve been paying every month the same amount of about Kshs 500 (~$5), without seeing my bill, but of late, the bill has always remained over Kshs 1,000 even when I have paid twice within the month. One day they even came around with a bulldozer which they told area people was to yank out meters from people who have not paid.

So I had some tweet chats and went  to the NCWSC offices and found out some stuff:

  • They no longer send out statements or hardly do. They have cut back on mailing statements via the post office. They won’t even issue you with a bill event at the office
  • They increased their rates at the end of 2015. The guy who came with the bulldozer and another at the NCWSC office said the rates doubled at the beginning of the year.
  • They have instituted a charge of Kshs 1,000 on every unpaid or overdue bill. This means even if you’re late on a Kshs 204 bill (the lowest bill you can get), you get charged Kshs 1,000.
  • You can check your bill via *888# on your phone. Sometimes the SMS comes through without information but you still get charged Kshs 10 for the service.
  • They have an online platform for one to check bills but not ready. Alternately there is a There is a Jambopay Water Bill checker that’s  free to check your bill. It is accurate, but often offline.
  • It costs Kshs 33 to pay your water bill via M-Pesa (assuming Kshs  30 goes to Safaricom and Kshs 3 excise tax charge of the financial service.
  • The due dates for bills vary in the month, depending on when the water readers come round to read or estimate the amounts.
  • Water, electricity and other utility companies can now report customers to credit reference bureaus over unpaid bills.. but who is the customer to be reported? The person who pays the bill? This is often a tenant of a house or building. Or the registered owner of a property with a meter? Sometimes this is the landlord or the contractor who put up the building.

waterOther water tales:

  •  A few years ago, IBM Research in Nairobi gave a talk on the water situation in Nairobi. There are 3,000 known boreholes in Nairobi and it can cost $10,000 to drill one as you have to go deeper than 400 meters instead of 200 in the past.
  • IBM also reported that 40 – 50% of water sourced is lost (just doesn’t get to consumers) AND that 50% of hospital visits in Kenya may be water/sanitation related.
  • A feel good story about water supply and the World Bank in Kenya.
  • Are water charges going up again? – Not sure if these are even more new charges from October 2016
  • Adding value to waterHow the business of bottled water went mad ..How did a substance that falls from the air, springs from the earth and comes out of your tap become a hyperactive multibillion-dollar business? (The Guardian)

Even with the new water rates, getting water from the NCWSC is a lesser evil than paying for your lorries, but…

$ = Kshs 101

Bad Debts in 2016

According to the Central Bank’s Q1 summary,  non–performing loans at commercial banks have increased this year by 15% to Kshs 171 billion in March 2016..Real estate sector recorded the highest increase over the quarter by 42% – attributable to slow uptake of housing units. apartment blockPersonal/household sector registered increases of 21% as a result of negative macroeconomic drivers such as job losses and delayed salaries. The manufacturing sector had an increase of 15% due to slow down in business leading to failure to generate enough cash flows to meet all financial obligations. Transport and communication, agriculture and mining and quarrying economic sectors registered decreases in non-perfomign loans between December 2015 and March 2016. 

Non-performing loans are still only about 6%, but the report also excluded Charterhouse, Chase and Imperial banks.

End Credit Reference in Kenya?

A well-meaning Kenyan has taken a petition to parliament, asking it to disband credit reference bureaus. He complains that they  have listed more than 700,000 individuals in their database as defaulters..causing a lot of anguish to the listed individuals as they are unable to access financial facilities from local banks

Parliament hansard from mzalendo.com

Credit reference petition to parliament

Credit reference bureaus have been operating in Kenya for about five now, and this petition comes at a time when many banks have heavily increased their provisions for bad debts in the year 2015.

 

SME Lending in Kenya

The Central Bank of Kenya, Financial Sector Deepening Trust Kenya and the World Bank, have published a study on bank financing of Small and Medium Enterprises (SMEs) in Kenya ($1=Kshs 100). Excerpts

  • The total SME lending portfolio in December 2013 was estimated at Kshs. 332 billion, representing 23.4% of all banks’ total loan portfolio
  • Donor Support: Nearly all of the banks interviewed received some form of donor support or were in discussions with donors for support directly related to financing of SMEs. In several cases there were banks with support from as many as four donors at a time.
  • Limited Government Intervention: In 2010 The Government (though the Treasury) established a special SME scheme, called the MSE Fund, but since 2012 no new loans have been approved by the fund. According to Treasury, the scheme was discontinued because “the intention was not for the Government to lend, but to create an incentive for banks to engage with SMEs”. After only a year of the fund’s operation, banks started to lend more to SMEs from their own books, especially Equity Bank, and therefore Treasury did not see any reason for the continued operation of the fund. In addition to the MSE fund, the Government set up a Youth Fund and a Women Entrepreneur Fund, in which a number of banks are participating. The Government is also contemplating a partial credit guarantee for agricultural loans.
  • Courts Not Good at Dispute Resolution:  Enforcement of secured claims appears to be slow and costly, affecting the cost of credit. It takes 4.5 years, costs 22% of the value of the debtor’s estate, and only yields 30% of what is owed
  • PE & VC’s: The majority of around 15–20 active private equity funds focused primarily on SMEs with a perceived financing gap of typically between US$50,000 and $5 million. The funds target deal sizes of around $1–3 million, which is still at the high-end of the SME segment and is therefore out of reach for most SMEs in Kenya. The venture capital industry is still nascent with about 10 venture capital type funds, but interest from international firms, as well as local ones, especially in the emerging ICT industry, has recently been on the increase. There are several incubators which have been set up to help build the pipeline for such deals, but the sector is still at an early stage of development
  • 3 Kinds of Banks: Banks target the market segments they are most effectively able to service. There are 1. Corporate oriented (Barclays, CfC Stanbic, Standard Chartered)  2. Supply-chain oriented (BoA, Chase, DTB, Ecobank, FINA, I&M, NIC) 3. Micro-oriented (Co-op, Equity, Family, KCB, KREP, Jamii Bora)
  • Overdrafts are Bad: The most interesting finding from this analysis is arguably the central role played by overdrafts in SME lending in Kenya. While overdrafts can be useful to meet immediate liquidity needs and to avoid firms having to turn to informal lenders or shadow banking, a problem arises when firms use overdrafts to fund specific working capital or investment financing needs. Overdrafts tend to be very expensive and inefficient in addressing specific business funding needs. Banks, on the other hand, may have limited incentives to reduce firms’ reliance on overdrafts, as the overdrafts usually provide high profit margins. Nonetheless, during the interviews some bank managers confirmed that over-reliance on overdrafts can be a major hindrance to the development of SME finance in Kenya: overdrafts are a financial ‘black box’ because they do not reveal why firms are borrowing nor how the loans are used.
  • Interest Rates: The average annual interest rate is 20.6%  for microenterprises, 18.5% for small enterprises, 17.4% for medium enterprises and 15.3% for large enterprises.
  • Potential 20 Million Credit Reports: As of 31 December 2014, a total of 5.2 million credit reports were requested by banks, compared with 2.3 million as of December 2012. Adding the information from the over 20 million registered mobile money/mobile financial services users would lead to a significant expansion of the underlying information base.

New Credit Cards from NIC and Equity banks

This week, NIC Bank launched a platinum credit card and Equity Bank formally announced their expanded their impressive card portfolio that now includes American Express

The NIC Bank Visa Platinum credit will be offered to a select few clients like professionals, senior government employees, business leaders, and entrepreneurs. The card comes with a variety of privileges in terms of shopping discounts, priority pass access to 600 VIP airport lounges in 100 countries (with complimentary snacks, free internet at many, and card holders can bring in companions), a portfolio relationship manager, and purchase protection for 90 days. 

For frequent travelers around the world, it also provides useful facilitation in emergencies like payment of hospital deposits of up to $2500,  and arranges for emergency evacuation, legal advice, transport of companions or children.  
The annual fee is Kshs 6,000 (~$70) and there is no joining fee. NIC will also have a rights issue and a bond issue that shareholders will kick-off next week at an EGM.

Equity Bank is signing up merchants to accept American Express cards – for which they are the exclusive card issuer in Kenya. They have already signed on Nakumatt,  ArtCaffé, Heritage Hotels, Best Westernm Laico Regency, Leopard Beach, Boma and some other hotels.

Speaking when he confirmed the development, Equity Bank Managing Director, James Mwangi, said the bank is now a partner for American Express, Visa, MasterCard, PayPal, Google, China Union Pay, SWIFT, JCB, VFX (Equity Direct) and Diners Club.

As per Central Bank stats, Kenya had about 162,000 locally issued credit cards as at February 2014, compared to 114,000, three years ago.