Loans Will Be More Expensive - Money Weekly

Over the last week, a local commercial lender experienced a bank run that saw clients rushing to withdraw their money in fear of collapse. Over the same period, Kenya’s inflation rate once again went past the government’s recommended threshold.

This had a domino effect with CBK adjusting its lending rate, which could potentially lead to costlier loans for Kenyans.

Tuition fees at public universities could triple by the next intake as well. For this and more, let us look at money news that made the headlines over the last week and how this could affect your pocket.

First Community Bank Run

Monday, October 3, 2022, was a tense day at First Community Bank branches in Kenya following a bank run that nearly crippled the lender’s services.

A bank run occurs when a substantial number of clients withdraw their funds at once in fear that their bank may become insolvent.

According to the latest statement by the tier 3 bank, the panic withdrawals were triggered by malicious rumours, further stating that it was currently working alongside the Central Bank of Kenya (CBK) to ensure that all normal services are resumed.

The bank had earlier on issued a statement explaining that the limits placed on clearances and withdrawals came as a result of advice issued by the CBK.

Videos of hundreds of clients trying to withdraw their funds went viral on social media, with some saying that no one could withdraw more than Ksh10,000.

First Community Bank had Ksh22.2 billion in deposits as of June 2022 and ranked 27 among Kenya’s banks in terms of its market share of 0.38%.

Relief as New Tax on Fuel is Scrapped

Kenyan motorists have been spared from a new spike in fuel prices. This is after an appellate court denied the request from the Kenya Revenue Authority (KRA) to quash an earlier ruling that would have seen petroleum products affected by the latest increase in excise tax.

In December 2021, the Court of Appeal upheld a ruling by the High Court that froze an increase in excise duty on petroleum products, stating that this would place insurmountable pressure on the cost of living.

KRA Commissioner General – Githii Mburu, has since confirmed that fuel would not be subjected to the inflation adjustment tax that came into effect at the start of October 2022.

In his statement to the media, he explained that the inflation adjustment would affect all the other excisable products, acknowledging that the tax authority was conscious of the high cost of living prevalent in the country.

The 6.3% inflation adjustment rate which is now in effect has faced heavy opposition from manufacturers, who warned that they would be forced to lay off workers to stay afloat.

Universities Want Student Fees Tripled

A memo from the Ministry of Education has revealed a fresh push by Vice-chancellors from Kenya’s public universities to triple tuition fees.

The top university administrators argued that this was the only way to ensure that the public institutions remained open.

If approved, the next batch of first years (joining mid-next year) would have to pay Ksh48,000 in tuition fees, up from the current Ksh16,000.

The university officials had all convened for a meeting on September 23, 2022,  during which discussions on how to guarantee financial sustainability were held. It was then agreed that adjusting the tuition fees upwards was necessary.

They are now asking the State and University Funding Board (UFB) to approve their proposal. UFB is the body mandated to cost university courses and fees.

This comes at a time when public universities are under immense financial strain following steady dips in student enrollment over the last years.

Data from the Ministry of Education shows that some are even struggling to honour payroll taxes and retirement benefits for employees.

GMO Makes a Comeback!

Kenya has lifted a 10-year ban on genetically modified crops popularly known as GMOs (Genetically Modified Organisms).

This was welcome news for local research scientists as they firmly believe that this will lead to a significant drop in the cost of food in Kenya.

Genetically modified crops are created with a particular purpose that would enable them to withstand external stresses. For example, Kenyan scientists have already developed a maize variety that can withstand drought and pests.

This translates to optimal yield as well as reduced costs in terms of pesticides and other forms of chemicals farmers would typically use to combat crop diseases.

However, anti-GMO have already voiced their concerns over the health risks posed by GMO products. 

A 2012 journal that claimed that rats fed on GMOs developed cancerous tumours has since been discredited

4 Million Loan Defaulters To Be De-listed

At least 4 million loan defaulters are to be removed from Credit Reference Bureau (CRB) blacklists once a new plan by President William Ruto is effected.

In a bid to reform Kenya’s credit market, the President directed CBK to do away with blacklisting borrowers and instead go for a rating system.

Under his proposal borrowers would be graded, with defaulters getting a low grade as opposed to being shut out of the financial system completely.

He further explained that under this system, one could easily move up the grades based on their credit record, thereby helping the financial institution to price their loans effectively based on risk.

Kenya’s CRB data shows that individuals who defaulted on digital loans worth Ksh1,000 or less formed the bulk of the blacklisted borrowers.

Kenya's September 2022 Inflation Hits 9.2% 

The Kenya National Bureau of Statistics (KNBS) has revealed that the inflation rate in September 2022 stood at 9.2%, up from 8.5% a month earlier.

This is the fourth consecutive month in which the rate of inflation has gone beyond the State’s target of 2.5% – 7.5%, which is needed to maintain stability in domestic market prices.

According to KNBS, the spike in inflation was primarily due to surges in prices of commodities under food and non-alcoholic beverages, transport & housing, water, electricity, gas and other fuels.

CBK projects that this trend of increasing inflation will continue in the near term as the government scales down on some of its price support measures/subsidies.

Loans To Cost More?

The CBK’s Monetary Policy Committee (MPC) raised the Central Bank Rate (CBR) from 7.50% to 8.25%, a move that could result in costlier loans for Kenyans.

Simply put, the CBR is the interest a country’s central bank charges to its domestic banks to borrow money.

Once CBK, raises this rate (as they did over the week), it means that it is more costly for commercial banks to borrow money, these banks can in turn increase the interest rates they offer to households and businesses, thus making loans more costly for the ordinary Kenyan.

In a statement released to the press, the MPC cited rising inflation, global risks and its impact on the local economy as the reason behind the move to adjust the CBR upwards.

MPs Offered CDF Lifeline

President Ruto has offered legislators a lifeline in regards to the National Government – Constituencies Development Fund (NG-CDF).

Speaking at the National Assembly, the President advised the lawmakers to align the CDF to the requirements in order to save it.

This follows an earlier Supreme Court ruling that had declared the Ksh44.3 billion kitty illegal.

Chief Justice Martha Koome headed the 5-bench judge team that decreed that the CDF Act 2013 violated the principle of separation of powers, making it unconstitutional.

President Ruto told the Members of Parliament that he believed that all was not lost and that there had to be a way to align the kitty with the country’s laws.

He further reiterated the benefits that millions of Kenyans had enjoyed through NG-CDF over the years.

Crown Paints and I&M Bank Ink New Deal

I&M bank and Crown Paints announced a new deal that will see the commercial bank provide unsecured lending for Crown Paints dealers for orders up to Ksh10 million.

The tier-one bank said that the new partnership targets Small and Medium Enterprises (SMEs), and that is to help with solving working capital challenges, adding that the credit would be repaid after 60 days.

It was further revealed that the new package was available to customers with a limit of Ksh500,000, provided that the said customer buys exclusively from Crown Paints. This amount is also payable after 2 months.

In addition, any paint customers that are members of Crown Paints’ Sacco for painters known as Team Kubwa Sacco, will benefit from longer repayment periods of between 12 – 24 months.

How Much It Will Cost to Own a Govt House

Nairobians will pay between Ksh3,000 and Ksh10,000 monthly to own one of the government houses in Mukuru kwa Njenga.

Speaking while presiding over a ground-breaking ceremony of the affordable housing project in the area, President Ruto promised the local residents would be given the first priority to buy the houses.

He added that the rent paid by residents in the areas would be converted and used as a mortgage. He gave an example of how a tenant paying Ksh3,000 per month would be able to move into the new houses and maintain that rate in a form of a pay-to-own scheme.

He reiterated that his government was committed to ensuring that all Kenyans have access to an affordable rent-to-own mortgage plan.