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.
The Central Bank of Kenya (CBK) has levied bank fines against five institutions over transactions relating to their handling of payments and movement of funds sent from the scandal-plagued National Youth Service (NYS).
The banks are Diamond Trust which handled Kshs 162 million, and was fined Kshs 56 million, Co-operative Bank which handled 263 million (and was fined 20 million), KCB which handled Kshs 639 million (fined 149.5 million), Equity moves Kshs 886 million (89.5 million fine) and Standard Chartered which handled Kshs 1.63 billion from the NYS, and which was fined Kshs 77.5 million.
The CBK statement read that the bank fines followed investigations into failures at the banks including; not reporting large cash transactions, not doing due diligence on customers, lack of support documents for large transactions and lapses in reporting suspicious financial transactions to the Financial Reporting Centre (FRC).
Notably missing was Family Bank that featured heavily in a prominent series of transactions of funds that originated from procurements at the NYS. It has been previously sanctioned and branch and senior staff are being prosecuted.
All the banks which handled NYS funds had been named earlier and the CBK statement added that this was not the end, with an additional group of banks set to be identified and investigated.
The simultaneous release on Thursday morning of half-year results of Kenya’s three largest banks portrays a picture of the banks resuming their super profits streak even as the government looks set to repeal interest rate caps later this year.
But the results are deceptive in that the banks have all shown flat growth in loans, despite the growth in customers deposits which have increasingly been channelled towards funding government debt, at the expense of the private sector.
The results showed:
- Flat growth in loans: e.g while KCB deposits are up by Kshs 40 billion this year, net loans are actually lower than December 2017.
- Decline in assets and capital – as the banks noted that the adjusted capital ratios were due to CBK guidance on IFRS9.
- NPA’s up.
- Growth in the diaspora and the East Africa region.
- KCB is expected to complete the acquisition of Imperial Bank later this year
James Mwangi CEO of Equity spoke of the bank’s total income now being ahead of where they were in June 2016 before the interest rate caps were set by Parliament, and that the June 2018 results were achieved despite losing 40% of loan interest income in Kenya. Interest rate caps which were reintroduced in Kenya in 2016 were pushed at a time when large banks were recording “super profits” and which parliamentarians attributed to them charging high-interest rates to borrowers.
Another factor has been cost efficiency improvements through digitization and a move away from fixed investments in brick and mortar. Equity also reported that 97% of customer transactions were done outside branches and these accounted for 55% of the value of transactions, and their CEO said that in future, branches will be for high-value transactions, advisory services, and cross-selling products.
With the result of the three, along with that of Barclays and Stanbic earlier this month, we have results of five of the seven largest banks in Kenya and none from the smaller banks. Last year,, the top -ten banks took over 90% of the industry profits. What does IFRS9 portend for the smaller banks?
Agency banking which has been around
for seven years, is going to see a transformation of branch banking as banks roll out more products to alternative delivery channels.
Agency banking outlets extend banking services in Kenya.
According to Central Bank of Kenya statistics on the distribution of agents, 87% are with 3 banks – Equity Bank with 25,428 agents, Kenya Commercial Bank with 12,883 and Cooperative Bank with 8,856 agents. Bank customers in Kenya transacted Kshs 734 billion in 2016, up from 442 billion in 2015).
Agents are big and deliver dozens of services
that including SACCO transactions, payment of school fees, NHIF, KRA and utility bills – which bank customers can now do from their neighborhoods and which are accessible for longer hours than bank branches. While cash deposits and cash withdrawal are the bulk of the transactions, agents also processed Kshs 14 billion for payments of retirement and social benefits, and another Kshs 6 billion to utilities
Crucially, agents are the link between cash and the mobile banking/online banking worlds.
Last year Co-op reported that their branches did 15% of bank transactions with the rest being done on alternative channels, and yesterday Equity Bank disclosed that, this year, non-branch transactions are 91% of all monetary transactions – which are now happening on self-service and third-party platforms at variable costs – compared to the fixed costs of branches.
Equity is rolling out agency banking in Uganda, and the Central Bank of Kenya has had knowledge exchange partnerships with teams from Tanzania and Malayisa who were studying agency banking in Kenya. Equity CEO James Mwangi also said that Equity Bank agents share between Kshs 3-5 million in commissions every day as he pondered that the bank did not need new staff and could give probably back 70% of the physical space they currently have. Their next step will be to digitize corporate banking to enable services to be done on alternative channels, the way retail banking has been done.
The end of August marks the deadline for Kenyan banks to publish their unaudited half-year results (January to June 2017). Those of most banks are done and there are some trends, some concerns and some resilience areas seen in what’s been a challenging year for the sector that has for a long time been seen as one that earns super-profits for its shareholders.
The interest rate capping bill was signed last August, and while its initial impact was not fully seen in the 2016 results, one year later
these can now be interpreted. The law has had far-reaching impacts on different banks, their performance, operations and strategic directions. Overall, there has been a decline in bank results due to a mix of interest rate caps and digitization, as phones have taken over from branches as the main point for the bulk of customer transactions.