1% Equals 20% and Other Bank Tales

The Central Bank of Kenya’s Monetary Policy Committee has launched a KBRR a.k.a. the Kenya Bank Reference Rate and set it at 9.13%. All commercial banks and mortgage institutions are expected to price all their loan products around this. e.g Lend finance to customers at a rate of KBRR (+) or (-) “X” e.g. a loan rate of 15% will be known as KBRR +5.87%. This first rate of the KBRR set at 9.13%, will run from July 2014 to January 2015. 

The KBRR will help end the confusion that customers face with all manner of loans and rates at myriad banks. Different loans are pegged on interest rates that may be flat, fixed, variable, reducing balance etc and are marketed as the same without customers knowing what these measures mean. Yet a fixed loan rate of 1% per month (which some asset finance loans are marketed as) can be equivalent to a loan of 20% that is calculated using the reducing balance method.

The next step on the cards will be for Kenyan banks to adopt an APR (an annual percentage rate calculation) that not only includes the lending rate, but also factors in bank charges like commitment fees, facility fees, and third-party costs like legal charges, mortgage insurance, as well as a standard loan repayment schedule format for all loans.

Diamond Trust: Fourth Rights

Diamond Trust Bank is back for a fourth rights issue in recent years from its 11,136 shareholders at a rate of (Kshs 165) $1.95 per share, with each shareholder entitled to buy 1 share for every 10 held. This follows others done in 2006, 2007,  2012  and now this one.
Contrasting the four issues 
Year – Nov-06 ; Nov-07 ;  Jul-12 : Jul-14
Target (Kshs M) – 735 ; 1,600 ; 1,809 : 3,631
New shares (M) – 15.5 ; 23.3 ; 24.4 : 22.0
Price (Kshs)  – 50 ; 70 ; 74 ; 165
Ratio  –  1:8 ; 1;6 ; 1;8 : 1:10
Budget (Kshs M) 41.6 ;  54.7 ; 57.6: 100.1
  • The IFC remains as a principal funder and shareholder for the bank.
  • Diversification has paid off with the bank having 30% of assets and 19% of profits from outside Kenya. While 77% of Diamond Trust’s $61 million after-tax profit is from Kenya, the Tanzania and Uganda operations contributed about $7 million each of profit with Burundi trailing at ~$150,000 
  • They have extended traditional banking services in the mobile and card age by having M-Pesa at all their ATM machines. They also issue prepaid cards  for NationHela, NakumattGlobal and MiCard and handle remittances/money transfer for WesternUnion, MoneyGram and XpressMoney
  • Other institutions that may need to have rights issues or raise capital this year include ABC, Commercial Bank of Africa, Consolidated and Equatorial banks. 

E-Government Moment: Part II

Stuff happening on the e-government sidelines
  • July 1 is the deadline for Matatu’s and other Public Service Vehicles (PSV’s) to switch to cashless payments of accepting fares, in lieu of hard currency. PSV’s are meant to have signed on to services like Google & Equity’s – BebaPay or be in breach of the law.  It’s not expected to be smooth sailing considering the slow uptake of cashless systems among smaller matatus within  Nairobi, and it’s possible that after taxes, the minimum fare will be more than Kshs 30.
  • June 30, (today) is also the deadline for Kenyans to file their tax returns. This had been a largely academic exercise of submitting paper forms that the revenue authority (KRA) was unlikely to ever go through, and had even been discarded. But in rejecting a bill, parliament re-opened this tiresome exercise. This year, KRA has advertised its website, as the only way for Kenyans to file their taxes – but the site and service still has many challenges, including inaccessibility. 

  • While the schools laptop project seems to have stalled at the procurement stage, some $200 million has been allocated in the 2014/15 budget to procure some laptops. More visible in terms of making the government digital, has been the procurement by by county governments and parliament of iPad’s and other devices for leaders to use.
  • In the banking sector, June was a turning point for the migration to debit and credit cards to Chip-and-PIN enabled cards. While the benefits to consumers appear negligible (less fraud identity than swipe cards) and there is a cost of about $1.80 to 3.20, there has now been a liability shift, and going forward, costs associated with fraud involving non-EMV compliant cards will be borne by the issuing bank (currently they are borne by the acquirer/merchant).
  • In terms of digital television, there’s one year left for the analogue to digital migration in Africa. However, most countries are unlikely to make this deadline. Read more.
EDIT
  • The Kenya Government has automated registration of companies by launching a one-day registration of companies system to improve efficiency at the state law office.

Centonomy: Making Smart Sense of your Finances

Some days ago, Waceke Nduati, founder of Centonomy, a personal finance series that helps people get a grip of their finances and deal with money problems (that are often self-inflicted), gave a brief talk ahead of the new Centomy class period.

Centonomy’s eleven-week course has just resumed with classes (total 3 hours a week) repeated on Tuesday, Wednesday, Thursday and Saturday from June to August. This is useful as some people may be busy on some days in a week, but can catch a repeat on any of the other days, and they are both in Westlands and downtown Nairobi.  

These include sessions on personal money management (setting goals, monitoring plans), living abundantly, investment planning (choosing an advisor, stock exchanges, valuing private companies), the psychology of spending, money & relationships, time value of money, good vs. bad debt, managing cash reserves and irregular incomes, property investing, taxes, and estate planning (wills, family companies, succession).

Some tips she cited: 

  • If you want to grow wealth, don’t hang with people who just sit around and complain about things like government. Instead read, learn, and be with uplifting voices.
  • Use your free time. Do free-lance stuff like writing on Saturday morning or drive around to check up on opportunities. e.g new houses.
  • If you buy a Range Rover for attention, you may be doing it at the wrong time in your life. Also, you’ll have to keep upgrading that car to keep impressing the same people.
  • The skills you have are assets; improve them, instead of buying the latest phone (the world will never run out of things to spend money on).
  • Realise that half your income in a year goes to taxes and rent. Also, we earn money 5 days a week but spend 7 days a week.
  • When you retire, whatever your built will have to go back to paying for your lifestyle.
  • Hidden savings – cutting back on your Kshs 300 per day lunch may equal Kshs 108,000 in December – enough for a land down payment, school fees or a (well deserved) holiday. 
  • It’s a myth that you can only save/invest when you earn a lot. Start with whatever you have, and saving Kshs 200 a day at 10 % can be Kshs 1.2 million in 10 years.

Kenya: We Are One

This morning, KEPSA – the Kenya Private Sector Alliance had a meeting with business and religious leaders to revive the  ‘We are One’ campaign for Kenya at a time when terror and insecurity appears to be a growing threat to the country. 

Excerpts 
  • Safaricom Bob Collymore spoke about an investment banker who was comfortable traveling to Abuja for the World Economic Forum, but not to Nairobi which is now considered insecure. He then said the perception of Kenya was not good out there, and that the recently launch Kenya EuroBond was oversubscribed because it had a nice yield. He urged Kenyans to focus, not on politics, but on addressing the youth bulge and insecurity.
  • KEPSA CEO Carole Kariuki urged Kenyans to help rebuild Mpeketoni, Baringo and Mandera by donating building materials or by channeling funds through the Kenya Red Cross.
  • Some disclosures & concerns discussed included political (and religious) leaders who speak carelessly on national TV or who engage in double speak before different tribal and religious audiences, arming of communities, and targeting of properties of some communities. 
  • University students are resisting pressure to demonstrate (throw stones) on behalf of politicians 
  • The police are doing their part but what are ordinary Kenyans doing to promote peace. They were urged not to speculate on facts, and not to re-send / share propaganda that is found on social media .
  • The morning ended with the national anthem, as a prayer.