The Competition Authority of Kenya (CAK) had its annual symposium in Nairobi last week with sessions on competition, regulation, policy and consumer protection.
On the final day, Director General Wang’ombe Kariuki who is retiring after twelve years had a Q&A talk where he spoke about leading the growth of what was a new institution in government, one which not many Kenyans understood its initial purpose but came to appreciate/enjoy its effects of lower prices. Some of his advice was:
When you lobby for resources, go with critical evidence and itemized budgets as requests for large sums with no breakdown will not be responded to. So be guided by prioritization and do what you can with what you have.
Align with international partners and fellow agencies in government and show examples that are relevant e.g. this has worked in Uganda or Tanzania, so let’s do it. But in learning from global peers (OECD, South Africa), adapt stuff for local conditions and do not blindly transplant regulations from developed economies.
Put your organization in the performance contracts of leaders: (the CAK) was lucky) in that, it was starting up under a new government that appreciated the need to have a strong competition agency as part of the economic recovery strategy (ERS) – so they set out to ensure that as the Treasury implements its ERS, the CAK was a deliverable item in it.
Identify champions to help you build an agency: In their case, it was the Head of the Civil Service Joseph Kinyua and (then) Finance Minister Uhuru Kenya as champions. They ensure you are fully funded and protect you in Parliament. With the counties, they engaged with the Senate and worked to create champions to address issues like cess which affects farmers, traders and markets.
Understand your industry: they started by profiling what reduces competition i.e is it a behaviour of firms or government regulations? They did 13 market enquiries and prioritized sectors for the government to make interventions; e.g. they updated archaic tea industry laws in which farmers had to get approval to plant or cut tea from one competitor (KTDA) and this resulted in many new tea companies springing up and creating new employment, with higher prices for farmers. Another study of mobile money payments resulted in consumers being able to see charges before they transact, and not after, as was the case before the CAK intervention to create price competition.
You don’t have to influence the government: It has ears; so do your research that shows advantages to the common man, and the government will listen. Work with the press to highlight studies/work that you have done .. the government may get worried and run with the solutions you have recommended.
Significant interventions by the CAK over the years include: (i) During covid-19, some supermarkets doubled the prices of sanitizer products but the CAK asked them to refund consumers, (ii) With USSD they brought down the price of phone messages sent from Kshs 10 to 1 during Covid (iii) they also opened up thousands of mobile money agents to serve all telecommunications companies (though whether Safaricom’s competitors took up the opportunity is another story!)
The Central Bank of Kenya has launched a pilot credit facility targeting informal unbanked traders in partnership with local institutions. This will be through an app, marketed under the name “Stawi”, that will initially be managed by five banks – Commercial Bank of Africa, Cooperative Bank, Diamond Trust, KCB Bank and NIC Group.
The pilot phase lasts two weeks and will involve 3,500 traders without bank accounts, who have turnover of Kshs 30,000 to Kshs 250,000 (~$2,500) per month and who are at least six months old. To register, besides providing their ID details, traders will need a valid business permit and an email address to create an account – this is an unusual as mobile apps just require a national ID number to match with the phone number of the loan applicant.
Under the leadership of the CBK Governor @njorogep, DTB joined hands with four other banks to provide a mobile based lending solution known as Stawi. Stawi, which we piloted today at Gikomba market, seeks to address the financing challenges MSME's in Kenya face. pic.twitter.com/lxKCWjpF7T
The businesses will be able to borrow between loans of Kshs 30,000 to 250,000 (~$2,500). Loan charges are at an interest of 9% per annum, plus a facility fee of 4%, insurance fee of 0.7% and excise tax on the facility fee – all adding up to about 14.5%.
"We saw an opportunity to offer neglected yet viable Kenyan-based business additional financing options to continue day-to-day operations, and provide additional capital to maintain and establish long term growth,” KCB Group CEO @JoshuaOigara during the launch of Stawi. pic.twitter.com/TBveQkfYv4
Loans are repayable between 1 – 12 month and borrowers can top up loans once 80% has been repaid. Loans are only disbursed through the app as will all repayments be done.
The loan rates are not cheap, but they are mild, and this program is targeted at the unregulated lenders who charge as much as 300% p.a. There was a draft financial markets conduct bill formulated to protect consumers from such practices.
There are also transfer fees and Stawi customers can also link up with Pesalink which allows much greater daily transfer amounts (up to Kshs 1 million) than the mobile money wallets.
For now, there is no Stawi in the Google store as the program is still in a test phase. (There is an app called Stawika that has no affiliation)
A second round of the pilot will target 10,000 other traders.
Glad to be part of the upcoming lending solution called #STAWI which is an interbank platform that will enable customers to access more funding for their businesses. pic.twitter.com/O6vMzTOp1U
While trying to forestall the arrival of interest rate caps back in 2016, banks, through their umbrella Kenya Bankers Association committed to set aside Kshs 30 billion for lending to SME’s including Kshs 10 billion to micro-enterprises owned by women and youth and lend to them at no more than 14%. They also committed to rank borrowers by high, medium and low risk and to work to reward low-risk borrowers with low-interest rates. To date, the credit reference bureaus piling up data on loan defaulters which good borrowing records are ignored or not rewarded with lower interest rates.
The President of Kenya signed the Finance Bill 2018 after a stormy debate in Parliament last week that saw chaotic arguments about vote procedure methods used and actual vote counting mainly with regards to VAT on petrol products.
I have signed into law the Finance Bill 2018. I give my commitment that I will ensure proper utilisation of public resources for a better Kenya. I will not relent on the war against Corruption. @WilliamsRutopic.twitter.com/oDPNc8ElVG
Some of the earlier clauses in the Finance Bill had been highlighted and KPMG, which has done a series of articles, has provided a further update on aspects of the laws in Kenya and which they termed “..the changes present an unprecedented disruption of the tax regime that will impact the economy and citizenry for years to come.”
Their perspective on the signed Finance Bill implications:
Excise duty on services: The President accepted Parliament’s decision to drop a Robin Hood tax of 0.05% on money transfers above Kshs 500,000 (~$5,000). But the shortfall was replaced by an increase in taxes on all telephone and internet data services, fees on mobile money transfers, and all other fees charged by financial institutions which all now go up by 50% – and which KPMG writes may have a negative impact on financial inclusion.
A national housing development levy was approved. With the country’s wage bill of Kshs 1.6 trillion, KPMG estimates that government can potentially collect Kshs 48 billion a year (~$480 million) from the levy, (Kshs 24 billion of which will be from employers) – a massive amount when compared to the Kshs 12.8 billion that NSSF – the National Social Security Fund collects in a year. Regulations for the National Housing Development Levy Fund (NHDF) have not been set, other than that the payments are due by the 9th of the following month. For employees who qualify for affordable housing, they can use that to offset housing costs but for those who don’t qualify, they will get a portion of their contributions back after 15 years.
Petroleum VAT: KPMG says that a significant portion of the government’s tax targets for 2018/19 was dependent on value-added tax (VAT) on petroleum products and that is why they have been insistent on having this implemented. Sectors that supply exempt services such as passenger transport (PSV’) and agriculture producers are expected to raise their charges to customers as they are unable to claim back the 8% VAT tax.
Kerosene, which is used by low-cost households, takes a double hit with the introduction of VAT as well as an anti-adulteration tax of Kshs 18 per litre. Already kerosene now costs more than diesel in some towns around the country.
3.4 million households in Kenya depend on kerosene and charcoal as their main sources of cooking fuel.
High prices in the two commodities in the recent past are affecting millions of households. Actual people. pic.twitter.com/VWevTzev4T
Excise duty on sugar confectionery, while opposed by sugar industry groups, was reinstated in a move similar to other countries that are trying to address lifestyle diseases by introducing taxes on sugar products.
The betting industry, whose survival which was at stake, gets a reprieve as the gaming and lotteries taxes, introduced on January 1, were reduced from 35% to 15%. Many of the prominent betting companies had scaled back their advertising and sponsorship and had turned to engage in serious lobbying efforts ever since. Also, an effective 20% tax on winnings has now been introduced. The earlier tax law allowed bettors to claim some deductions if they kept records, but that has been removed altogether.
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.
Today, loan interest rates are capped at 14%, but what were they like twenty years ago? Here are excerpts from a Weekly Review magazine issue from December 1997 a time of pre-election jitters, election financing, donor funding cutoffs, high inflation after Goldenberg, a depressed property market, and collapsing banks. This was after the move to streamline the sector through a universal banking law which led more financial institutions to convert into commercial banks, and later to merge.
Commercial bank base lending rates
Habib Bank 25%
Kenya Commercial Bank
Equatorial Commercial Bank
Co-Op Merchant Bank
Credit Agricole Indosuez
National Bank of Kenya
Fidelity Commercial Bank
Barclays Bank of Kenya
Investment & Mortgages Bank
Consolidated Bank of Kenya
City Finance Bank
Habib A.G. Zurich
Bank of Baroda
Habib African Bank
Standard Chartered Bank
Bank of India
First American Bank
Interest rates, from a Weekly Review magazine, December 1997
Commercial Bank of Africa
ABN Amro Bank
African Banking Corporation
Middle East Bank
First National Fin. Bank
National Industrial Credit Bank
Ari Bank Corporation
Southern Credit Bank
Diamond Trust Bank