Category Archives: CBK

Kenya unveils new currency banknotes with a demonetization shock

The President of Kenya unveiled new generation currency notes at the 2019 Madaraka Day Celebrations in Narok on June 1.

This was after a speech by the Governor of the Central Bank and comes after a case last year cleared the way for bank notes to be printed and also a few months after new coins had been unveiled. The Governor mentioned that there had been extensive public participation in the process which led to the themes of green energy, agriculture, social services, tourism and governance (an image of Parliament!) on the new notes.

The Governor also mentioned that Central Bank had observed that the Kshs 1,000 note (equivalent to about $10) was being used to illicit financial flows and is being counterfeited. They had therefore moved to withdraw the old Kshs 1,000 notes by October 1, 2019, after which they will no longer be legal to use.

Going by the recent wave of a government moves in Kenya, we can probably expect a few challenges to the decision in the Courts and Parliament that will delay the new notes rollout over issues like:

  • The image of a statue of the First President of Kenya remains prominent on every new note.
  • On the demonetization of old 1,000 shilling notes, Parliament’s Committee on Delegated Legislation will say that it should have approval over such a radical move.

EDIT  On Tuesday, June 3, the Governor of the CBK held a press conference where he announced modalities for the transition to the new currency which is already being issued to commercial banks:

  • Persons exchanging currency notes for amounts not exceeding Ksh.1 million of the withdrawn currency notes will exchange at their Commercial banks, CBK Branches and Currency Centres, or any nearest commercial bank. 
  • Bank customers exchanging currency notes for amounts Ksh.1 million to Ksh.5 million of the withdrawn currency notes will exchange at their respective commercial banks, under the normal procedures and requirements. 
  • Persons without bank accounts exchanging currency notes for amounts exceeding Ksh.1 million will require an endorsement from CBK. 
  • Persons exchanging currency notes for amounts exceeding Ksh.5 million (bulk exchange) will require an endorsement from CBK.

CBK launches Stawi SME pilot credit facility

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.

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%.

Other features of Stawi:

  • 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.

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.

Top Imperial Bank Depositors to received end with 35% of funds

EDIT April 5, 2019: CBK and KDIC announced that they have accepted a final and revised offer from KCB for Imperial Bank that is 19.7% over and above the 35% recovery announced in December 2018. The remaining depositors of Imperial will be paid 12.5% of the funds with the signing of the agreement, 12.5% on the first anniversary and then 25% over the subsequent three years during which their funds will earn interest.

KCB will take over five branches of Imperial as KDIC and CBK will explore further options for the remaining branches (Earlier it been announced that NIC bank would take over Imperial’ s branches). The deal excludes Kshs 36 billion (~$360 million) of loans that are being pursued through litigation in the courts.

Original December 16, 2018: The Central Bank of Kenya (CBK) and the Kenya Deposit Insurance Corporation announced the conclusion of the Imperial Bank receivership that will probably not satisfy customers who still had vast sums deposited at the bank that was suddenly closed in 2015.

KDIC and CBK announced  they had accepted a modified biding offer from KCB, Kenya’s largest bank for Imperial Bank (in receivership) that comes with a payment of 12.7% of the balances that were owed to the remaining depositors.

Since making a first payment in three years ago through KCB and Diamond Trust, of up to Kshs one million that took care of most of teh small depositors, further payments have been availed  to larger depositors. But with the acceptance of the offer today, they will have only accessed 35% of the deposits held in the bank when it was placed under receivership, with the balance of the funds now uncertain.

A loan verification process will be done through teh first quarter of 2019 after which depositors may be able to receive more of their funds

The collapse of the bank started in the days after the the sudden death of its Managing Director, after which revelations of fraudulent accounts he managed, secret off-the-book loans, fishy undocumented cash transfers came to light.

EDIT: In September 2020, the Competition Authority of Kenya approved a transaction transferring of listed assets, including Kshs 31.7 billion of deposits, loans and securities together with all rights, titles and interests to KCB Bank Kenya.

EDIT: December 9 2021: The Central Bank of Kenya (CBK) has appointed the Kenya Deposit Insurance Corporation (KDIC) to liquidate Imperial Bank (in Receivership). CBK noted that 45,700 (92%) of Imperial’s 50,000 customers had been compensated in full over four years and that a recent audit report commissioned by KDIC had concluded with a recommendation that they proceed to wind down Imperial and pay depositors in due course. 

New Generation Coins in Kenya

This morning at the Central Bank of Kenya, President Uhuru Kenyatta launched a new generation of coins in Kenya.

This follows the 2010 constitution which barred the image of any person, (Notes and coins issued by the Central Bank of Kenya may bear images that depict or symbolise Kenya or an aspect of Kenya but shall not bear the portrait of any individual) appearing on Kenya’s currency, a practice that has happened since independence, primarily with images of the first and second presidents’, Jomo Kenyatta and Daniel arap Moi.

The main theme of the coins, which the President said is “Kenya reborn and prosperity” follows the conclusion in October, of a series of long-running cases that had held up the procurement and printing of new currency by De La Rue.  The President said that the new currency has features that make them accessible to visually impaired people.

Mortgage Refinance and Amendments to The CBK Act, 1966

Via a legal alert from Oraro & Company Advocates: The Finance Act, 2018 which was assented to on September 21, 2018, amended the Central Bank of Kenya (CBK) Act, 1966 to regulate Mortgage Finance Businesses (the business). The amendments include having new definitions and the introduction of new powers to the CBK. These amendments came into effect on 1st October, 2018.

New Definitions

  • A Mortgage Refinance Business is defined as the business of providing long-term financing to primary mortgage lenders for housing finance and any other activity that the bank may prescribe from time to time;
  • Mortgage Refinance Company means a non deposit-taking company established under the Companies Act of 2015 and licensed by the CBK to conduct mortgage refinance business;
  • Specified Mortgage Refinance Company means a licensed mortgage refinance company licensed under the CBK Act.

Increased CBK powers

With the introduction of new sections, CBK will now have the power to license and supervise the business. This includes:

  • Determining capital adequacy requirements;
  • Prescribe minimum liquidity requirements and permissible investments for the business;
  • Supervise the business by conducting both on and off-site supervision;
  • Assess the professional capacities of persons managing the business;
  • Approving the board management of the business;
  • Approving the appointment of external auditors;
  • Collecting regular data from the business;
  • Approving the annual audited accounts of the business before publication and presentation at the AGM;
  • Revoke or suspend a license;
  • Receiving reports from the Mortgage Refinance Business.

These are extracts from other documents from Oraro & Company with detailed implications of the passing and presidential assent of the Finance Bill 2018.