Category Archives: bank service

Naming banks is a sideshow to NYS

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.

Digital App Loans: Understanding Borrower Behavior

An Interesting conversation was started by a tweet by Francis Waithaka on the true borrowing of costs of app loans that hundreds of Kenyans take every day by making a few clicks on their phones.

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.

Phone Types 

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.

SBM takes Chase Bank deposits to conclude speedy receivership

EDIT August 24 via SBM Bank Kenya: If you have been transacting with the bank in the last 60 days, you have 6 months to update your documentation #KYC.

 

EDIT August 15 2018:  As part of the transition of Chase to SBM, cheques and EFT’s will be temporarily halted from Thursday 16th August to resume at new SBM counters on Monday, August 20, 2018. Also, it appears, Chase Bank customers will be required to fill out new account opening forms for personal & corporate accounts, wire transfers, chequebooks, cards (debit & credit) and to access digital banking services. This is in line with “know your customer” and to condemn the identity, authenticity and validity of Chase customers being integrated into SBM.

Chase debit /ATM cards cease to work on Friday, August 17 and customers have been asked to collect new SBM cards from their “home” branches. Chase Bank chequebooks also cease effect on that date and customers will be issued with new SBM Kenya chequebooks, with the first being free of charge). Users of the popular Chase Bank Mfukoni app will be prompted to update it and to download a new SBM Kenya app – which has familiar features including airtime purchase, utility bill payments, account statements, chequebook requests and Mobile2bank / M-Pesa transfers of up to Kshs 500,000 ($5,000).

April 18 2018: Yesterday an agreement was signed to conclude the transfer of 75% of the deposits held in Chase Bank that was placed under receivership in April 2016, to the State Bank of Mauritius (operating as SBM Kenya), with the balance remaining at Chase (in receivership) that is being managed by the Central Bank of Kenya (CBK) and the Kenya Deposit Insurance Corporation (KDIC).

The agreement enables customers of Chase Bank to immediately access 25% of their deposits that will be placed in current accounts at SBM, and another 25% that will be placed at savings account at SBM that will earn 6.65% interest per annum. The balance of funds being transferred from Chase will be placed in fixed deposits at SBM that mature over three years with one-third becoming available to Chase depositors on the anniversary date of the agreement for each of the next three years, in what CBK states this represents a substantial resolution of for the depositors of Chase Bank.

SBM Kenya is part of SBM Holdings that is controlled by the Government of Mauritius and has $5.8 billion assets and is the third largest company on the Mauritius stock exchange with a market capitalization of $680 million.

EDIT; July 6: CBK announced that SBM has commenced the acquisition of certain assets and assumption of certain liabilities of Chase Bank in line with the announcement of April 17, 2018, and following approval from the CBK on June 13, and the Kenya’s Cabinet Secretary, National Treasury on June 28, with a goal to complete the  acquisition and assumption process on August 17, 2018.

Kenya law review to boost microfinance banks

The Central Bank of Kenya (CBK) has published a consultative paper on a review of the country’s microfinance bank laws. It notes that since the first microfinance bank (MFB) was licensed in May 2009 (which was Faulu), the number of licensed MFB’s in the microfinance industry space has increased to thirteen – including Faulu Kenya MFB, Kenya Women MFB, SMEP MFB, REMU MFB, Rafiki MFB, Century MFB, SUMAC MFB, Caritas MFB, Maisha MFB, Uwezo MFB and U&I MFB, with two more – Daraja MFB and Choice MFB – being community-based MFBs.

The thirteen  MFB’s had a total of 114 branches as at December 2017 but there was a drop in performance as their assets declined by 4.6% to Kshs 69 billion at the end of 2017,  with their loans and deposits also taking a dip between 2016 and 2017. The last three years have also seen a decline in their profitability (overall profit of Kshs 549 million in 2015, followed by a loss of KShs 377 million in 2016 and a steeper one of Kshs 731 million in 2017) with the 2017 loss attributed to a reduction in financial income.

CBK found that microfinance banks face various challenges including; they need better governance & structures, have inadequate capital & liquidity, face increased credit risk & non-performing loans, are reliant on deposits & expensive borrowings, and face more impact  from fintech company innovations, and Kenya’s interest rate caps law (2016) as well as IFRS9.

CBK has made proposals for microfinance banks including improving their corporate governance (through vetting, setting duties & tenure of the board of directors and having more independent directors), having a single license for MFB’s (no more national or community distinctions), increasing the minimum capital for existing and new MFB’s, and vetting of MFB shareholders. Other proposals are around risk classification which will shift from the current assumption that loans are repaid weekly, to the reality that they are repaid monthly, and that microfinance loans now have a longer-term outlook

Members of the public are invited to give views by March 15 (email: fin@centralbank.go.ke) and these will be incorporated into a microfinance amendment bill (2018) that will later go to Kenya’s Parliament around June this year.

$1 = Kshs 101

Fintech Companies to Watch and Influencers in 2018

Companies: Last November, KPMG and H2 Ventures released a report listing their fourth annual fintech innovators (‘Fintech100’)  comprising 50 established companies and 50 emerging companies to watch in Fintech.  The companies are innovation across sector like banking, payments, remittances, spending, artificial intelligence, data management, and insurance.
They noted that China continues to dominate the fintech landscape, with 5 of the top 10 companies on the list. Digital or new banks in the list include Solaris Bank, Nu Bank, and Atom Bank.
Some notable companies on the list;
  • ZhongAn (online property insurance)
  • Stripe (frictionless financial transactions)
  • OurCrowd provides an equity crowdfunding platform for accredited investors to access and invest in Israeli companies)
  • Circle (free international remittance via email)
  • Xapo allows users to utilize their bitcoins while Xapo safely stores them)
  • Future Finance (gives students loans of 2,000 to 40,000 pound,  within 24 hours that can be paid over 5 years)
  • Coinbase (enables digital currency transactions)
  • AfterPay Touch (from Australia gives online shopping users an option to spread purchases across four equal installments)
  • Robinhood (free stock trading of US stock and ETF’s)
  • Alan (Europe’s  first digital health insurance company)
  • Bud (enables users to combine bank accounts and get personalised insights from a single source)
  • Capital Float (from India provides collateral-free working capital loans to small businesses within 3 days)
  • Cuvva (provides short-term,  flexible car insurance to consumer groups, including taxi- drivers that range from 1 hour to 28 days)
  • Flutterwave (from Nigeria, is in over 36 African countries, enables individuals and businesses to accept online and offline payments)
  • GrassRoots Bima (from Kenya matches customers with micro-insurance products – known as WazInsure)
  • KredX (from India matches SMEs seeking working capital with investors looking for above-average yield on short-term investments)
  • Leveris (banking platform for digital retail banks)
  • Riby (Nigeria cooperatives enabler)
  • Sensibill (allows bank customers to get their receipts in a few different ways)
  • SoCash (addresses cash logistics issues for banks)
  • Token (an API banking platform)
  • Valiant Finance (an online broking platform for SME’s) 
Influencers: Also, Jay Palter has a list of 195 fintech influencers for the year 2018; have only heard of a few – Brett King (who visited and spoke in Nairobi in January 2017), Yann Ranchere, Elon Musk and Vinod Khosla, but will check out the rest.
EDIT
 
Also,  the new CB Insights report on fintech observations and trends to watch in 2018 cites:
  • No billion-dollar fintech M&A in 2017
  • Chinese firms drove fintech IPOs in 2017
  • Europe saw record for fintech investing in 2017, as Asia and the US saw fintech funding recede
  • Amazon gets more aggressive in fintech — outside of the US, but Amazon’s US efforts are a far cry from Tencent and Ant Financial’s global fintech forays in China
  • The largest deals in 2017 went to companies providing insurance…
  • Startups are allowing Chinese investors to access overseas securities and In 2017, Ant Financial’s Yu’e Bao became the largest money market fund in the world
  • Banks forgo partnering in favor of fighting fintech with fintechÂ