Thursday, 24 May 2018

The digital lending space

I recently heard an advert in a local vernacular media station of how one does not require a credit officer in a lending institution anymore with the availability of lending options available at the palm of your hands on your phone. The self-appraisal and ease of access was the catch phrase and the enthusiastic radio presenter was surely doing a good job on that advert.  

A quick show of how the digital space has come with several opportunities. The thought of increased liquidity and availability of small business loans and the convenience of accessing monies without the hassle of the informal money lenders are indeed exciting.
We most likely have seen an advert somewhere of applications one can download on a mobile phone, provide personal details and after a review of one’s phone transactions, social media profile and contacts one gets a feedback of some credit limit that can be accessed with the promise to increase the limit on successful payment of loans.  
The offers

Digital loans are packaged quick turnaround applications and have indeed come handy for their users. The need for monies is insatiable at all levels hence the expanding market for the apps.

Onboarding requires one to create a profile and provide an identity document. This can easily be verified through the integrated population register system. Further the apps require one to respond to a simple questionnaire on his or her income abilities and maybe link his or her social media profile to the application.
There is rapid increase of the number of apps offering digital credit. Below is a sample of the lending platforms common in the market.  

Interest Rate in %
Amounts Offered in KShs.
Other Fees in %
Annual Rate
250 - 50,000
12% - 170%
5 Onwards
1,000 - 30,000
63% Onwards
100 - 20,000
KCB Mpesa
50 - 1,000,000
27% Onwards
5 Onwards
Not Defined
63% Onwards
50 - 1,000,000
27% Onwards
Pesa Pata
1,000 - +
5 Onwards
100 - 1,000,000
63% Onwards
Okoa Stima
100 - 1,000

The price of the convenience comes at a high cost to the borrowers. The lenders have also taken a risk with their capital and have heavily invested to have the apps running efficiently.

Apart from the nominal rates charged, the apps charge undisclosed amounts in the event of a default. The loans are rolled over and new rates apply to the new amounts in case of a default in the payment time. From the sample above, it’s clear that the loans are costly.

The apps are unregulated businesses, they are thus not required to report in any credit information sharing platform. This increases the potential of multiple borrowing by their customers. Instances of a borrower borrowing from one app to repay another cannot be ruled out.

The lenders have also gone a step further and market their platforms in several ways. An SMS to your phone, a pop up when you login to check mails or catch up with social media. The lenders just know how to create presence.

With the ever expanding digital space in Kenya, Digital credit growth will continue. Whether their practices are ethical or not is yet to get any scrutiny. The markets are moving faster than the regulators. Digital credit has the potential to benefit the consumers but requires regulation to avoid the many risks it comes with.

Kahugu Muiruri
May 24, 2018

Saturday, 12 May 2018

Credit Information Sharing developments in Kenya

Year 2008 saw the amendment to the Banking Act spearheaded by the Central Bank of Kenya to create an enabling environment for credit information sharing in the banking sector. This was premised on creating stability in the financial services sector.

The amendment created a forum for permission to share credit information and the regulations to be followed in the sharing mechanism. The legal and regulatory framework came into place in the year 2009.

With the market being wider than what commercial bank covers there have been developments towards having additional players brought on board and subsequent amendments to the Sacco Societies Act and the Microfinance Act also being brought into conformity to the information sharing mechanism.

The Operational Space

The Central Bank licenses the Credit Reference Bureaus (CRB’s) as information custodians and participating institutions submit to and get information from the CRBs about their potential and existing borrowers. There are agreed formats and rules of engagement for sharing credit information. We currently have 3 licensed bureaus.

The immediate shortcomings once the sharing platform commenced in 2009 was that institutions were initially sharing the negative information meaning if customers who were up to date in their payments their full credit information was not available.

Year 2013 saw the expansion of the regulations to net in the full credit profiles for the borrowers. This meant that the participating institutions had to share both positive and negative information. The changes also netted in Regulated Micro-finance institutions. The CRBs business was expanded to include credit scoring, permitted CRBs to collect information from Third party legal institutions like Company registries, Court registries, land registries, licensing authorities among others.

Also, subject to consent, third parties may also obtain information from Bureaus for purposes of their decision making. It’s also important to note that the Bureaus are under strict supervision of the Central Bank of Kenya.

Credit information is private information and we all have a right to privacy. The amendment to the banking act is clear on the objectivity of the need for the information. Banks, lenders and all legal entity requiring the credit information must engage within the rules. Credit profile information is not public information.

There exist safeguards on what can be shared. Information that is mandatory for the purpose is limited to the objective content required for decision making on the subject matter involved. For example, the identity prior to disclosure the most common is the national identity document as the unique identifier. Information is only shared and obtained through licensed CRBs by authorized sources.  

The public is also given the right to information by having any person whose information is to be shared to be informed through a pre-listing and a post-listing notice. The information providers should provide the correct information to the bureaus. All players are required to have competent personnel to handle and explain information where required. A listed entity has a right to a free copy of the information annually, access to information and in case of a dispute to have the information corrected in a defined procedure.

With time the challenges that the mechanism has encountered are matters that can be resolved without acrimony since our supreme law provides for alternative dispute resolutions before court actions. Proper record keeping and competence and timely resolution of the disputes that may arise is helping a great deal in the sharing mechanism settling in.

The Shortcomings and future development areas

Despite the developments for the information sharing mechanism, there are challenges in the framework. For example, there is absence on a uniform regulatory system, there lacks clarity on the participation of third parties, more inclusivity needed in the regulations and credit reports are not homogeneous pointing to a need of solid validation rules to be adopted by the bureaus. The legal anchoring of the framework is not solid and even in cases where listed parties have gone to court we need develop jurisprudence on the same.
As mentioned earlier, the market is wide and has many players with interest in participation. There is lots of legislation needed on the existing Credit information sharing framework. Considering the scope of the profile we would want to create and as the law is expansive there is need to net the various lenders outside the coverage of the framework like Saccos, Government lending initiatives, Agriculture Finance companies, Utility companies, Venture Capital providers.

Lenders are also known to use for the last few years the credit profile reports from CRBs as a basis for lending to new and existing borrowers. Curiously though is the fact that despite the information available to lenders and more so regulated lending institutions, the volumes of non-performing loans in increased from KShs. 207 Billion in year 2016 to KShs. 272 Billion in year 2017 as per the 2017 CBK summary reports. Are we making good use of the credit information available as lenders?  

Kahugu Muiruri
May 12, 2018

Sunday, 17 September 2017

The price of convenience in our politics

As we await the Supreme Court full judgement that led to the nullification of the 2017 Presidential results, some of us are keen to see the findings that informed the decisions. The integrity of the electoral process matters just as the outcome.

Of interest are the developments we have gone through in the last five years. The country is politically vibrant and hence our economic performance is thus related to the same. Competition for political supremacy has largely defined our social fabric. 

My one desire is the day the country will go beyond the ethnic factor and agree to pursue interests with common benefit to all. Every single citizen is concerned of the rut we are in, poverty and mediocrity affects all of us. 

Our Political System

Whereas we gifted ourselves a constitution in August 2010 that seeks to create working systems that will serve all of us. We have taken an unpredictable path of politicizing everything. This is dangerous. From general observation the space for professionalism and objective criteria in Government has remained shallow.

With observation it baffles me how, when it’s convenient for us, we have taken to defending what is the opinion of our political leaders, even when the position may not be objective. A good observation is the remarks of our recently elected leadership and interested parties on furthering the position of their preferred side of politics as opposed to the right and objective position. Ours are politics of convenience. 

On reflection, I’m of the opinion that we have become people who are going to act on convenience. What is convenient becomes right. This does not create stability in our society.

If the law is for all of us, why are we failing to invest ourselves heavily in creating pre-determined laws (as the supreme law requires us to) so that we can then remain safe within the law as opposed to remaining safe in convenience?

The electoral disputes

As law required, political leadership in the country will be attained through competition in an electoral process with the majority carrying the day. The process to achieve that is now proving a liability to the country and we are handling it to our convenience.

The last seven years have seen us form an electoral body, gone through an election that has left us badly divided and conveniently dealt with the outcome from it. 

The two major political players are not helping the situation either. Their actions have not been for the interest of the nation but their own.

Whereas we for good intent did laws establishing the electoral body with independence, we in the years last two years went against the law and acted in convenience in dismantling it. 

We took a political process (for convenience) leaving the law intact in handling our dissatisfaction with the conduct of the electoral body. We had all the time since the elections in 2013 to deal with the electoral body on the account of its breaches, some which were proven. If we were objective we would have done it well for the interest of longevity starting with the 2017 elections.

We did set a wrong precedent that we can set the law aside and act in convenience. Kenya Shall we all say “Mea culpa, mea culpa, mea maxima culpa”  indicting our leaders, The President and the opposition leader failed to honestly follow the law in handling the disbanding of the IEBC. 

Our unfaithfulness to the general requirements of the law has opened up issues that should be disturbing to all those who are genuine patriots. We have been treated to secessionist talk. The judiciary has been thrown mud at for not agreeing with the executive and the majority in legislature may be used to smear more mud. Will we be looking at political or convenient processes to undermine other rights and institutions? These conveniences are costly. 

The two competing sides have different positions as to how we should conduct the elections. The incumbency favouring the status quo as the law requires on the conduct of elections while the opposition is looking at having a reformed referee before the repeat poll. What is the most convenient way of solving this impasse? 

The country awaits the repeat of the presidential elections. As a Kenyan looking at the economic outlook of the country we are fatigued and cannot afford to have a lot of time in anxiety. We need the elections as soon as now so that we can move on with our lives.

What lessons should we learn from the situation we are in? It does not matter how many times we reform the laws and regulations in the conduct of elections, what we perhaps need to review are our credibility parameters as a Country, Individually and collectively.

Kahugu Muiruri
September 17, 2017   

Monday, 7 August 2017

As We Vote

I have over a number of months been looking for materials documenting my country's history, political and economic. Few of present day persons I have spoken to give consistent account of the political struggle for independence. Some tend to align it with the modern day politics. Ours being a polarized nation, I hope to one day get objective information.

We are going into the sixth general election as a multiparty state, and a second one in a devolved system of Government. We are a nation seeking to determine ourselves through democratic processes.

In the beginning

A century ago the British having established our commercial viability declared Kenya a protectorate. An order that was ruthlessly enforced, land taken away from us and commercial exploitation on the same started under white settlers.

Kenyan communities were crushed and forced into restrictive lives . This led them to coalesce and resist the British rule in their own ways. Over time it led to rising dissent to force the British to listen to their issues. The main agenda was to get their lands back. The Maasai are said to have opted for legal means. Kalejins and Gema communities went for open violent resistance.

Negotiations for land return or representation of Kenyans in legislative establishment was hard to come by since only numbered Africans got the chance. The British did pass laws to legitimize their occupation of the country.

After years of struggle, torture, deaths and losses we finally got our independence. Our self rule started fifty plus years ago.

The same letter of the law that legitimized the land grab by the whites was used by the Kenyan elites in position and with means then to acquire and retain lands to themselves. How we dealt with question of land there after is debatable, it however remains emotive to date.

The national psyche

Various administrations have had to determine our politics and economic direction. We have over time coalesced as communities behind enigmatic figures who have galvanized us into tribes to the detriment of our nation socially and economically.

Our unity and engagement efforts are all tribal informed.

Our common problems despite our ethnic diversity are basic and similar. It's the economic challenge. Our potential is largely hindered by our tribalism and leadership.

The 2017 general elections campaigns have exposed several notable issues. There is a serious need for Civic education on our identity and aspirations as Kenya.

Our political competition has been shown to be pursued for personal economic gains. Despite our devolved system of Government, ethnicity is still a dominant factor. You either play the politics of trust and obey, and should you question your tribal leader, your aspirations are dimmed.

Brood of vipers

Collectively, our leadership integrity threshold is wanting. A baggage of known economic and even criminal offences are rendered void if one ascends into office through the ballot.

With the political class knowing the economic depression the majority populace are in, they have promised goodies to attract attention. We have dutifully flocked venues be it churches, open grounds, social halls to listen mostly to ethnic calculation, and aspirants pledge allegiances to “mtu wetu”.

To the politician, promised goodies will assure audience since poverty is common place.

Recent scandals like the NYS pilferage showed us the loot was shared among the two divides of the political formations. The Karen land grab benefited all in the political formations.

The sad reality is that even the leadership too stands on no ground. The brotherhood pledge by two top political antagonists on public forums changes into vitriol on campaign platforms. Who is the lesser evil?

Our national psyche for a better nation has been betrayed by the outgoing leaders from the two formations.

The unpopular choice

Despite our limitations, I think we have a national duty individually. A duty to maintain peace with our real freedom heroes by choosing the right direction as the current citizens and prepare right for the future.

Are we willing to vote ourselves leaders in office who are not afraid of creating and supporting a system of laws and not men? Who will take their responsibilities seriously by acting on good principles and policies to solve challenging questions of our time and nation?

Will we get ourselves leaders willing to embrace the openness of the day to listen and consult all the arrays of interest on matters of public interests?

Will we vote ourselves leaders  widely recognised for their work ethics, industry, integrity, excellence and even handedness?

We fought hard for pluralism, let's raise the bar on the same at the ballot.

God Bless Kenya.

Kahugu Muiruri

Sunday, 18 June 2017

SGR experience, observations and my take

June 6, 2017 my hassle was taking me to Mombasa. It was an opportunity for me to save a coin and take the promotional offer to ride on the SGR train. I was at the CBD Railways terminus for a free bus to connect to Syokimau, the Nairobi SGR terminus.
Getting to the terminus was a fairly smooth ride, however it did not escape me that Nairobi CBD inbound traffic had started at Mlolongo. If one is travelling with the morning train be on time otherwise you may miss it as you sit in traffic.

At the terminus getting a ticket is fairly easy. No form of identification was required. They should be able to identify us in a worst case. A lost ticket simply has no owner... The security check is similar to what is at some small airports. However they need invest in a carousel, I found my backpack on the floor among many others. I found the waiting lounge full. The boarding call was made and everyone seemed to be rushing to board. Passengers who had heavy luggage had to struggle with it. Luggage were not tagged.

The train left at 0900 hrs. In the coach the seats are comfortable…. A face me experience…. A group of men next to me are all full of entitlement how the Government has worked so well… one can tell which side of the politics they belong to.

1115 hrs we are at Mtito Andei. The Train from Mombasa arrived as well. The countryside is green thanks to the recent rains. We saw herds of elephants, zebras, antelopes and a lion. A game drive it was.

A small cup of tea goes for Sh. 100.

1350 hrs we arrive at the Mombasa Terminus. We find the free transfer bus has left and we had to wait for 45 minutes for it to be back.

The train cafeteria had a Chinese hostess. Among the ushers in the two terminals were Chinese nationals. At the Mombasa Terminus I saw on a display board that by 2027 only 10% of the human capital will be foreign. 2017 has a 40% foreign human capital component. Chinese must be slow teachers or we are slow learners...

Taxis are asking for Sh. 1200 there was no Uber or Little Cab available in the station at that moment. The terminus is largely empty, finishing construction work still ongoing. I never saw a shop where I'd buy water. I pray there will be enough business to keep these stations active during off peak hours. I noted a cartel like behaviour where the cab guys could probably be restricted from the terminus since i tried hailing one and on phone he said I have to meet him at the main road, he did not want to come to the terminus.

The access road to the station is under construction, it goes through an ancient estate that is evidence of neglect. As one approaches the Mombasa CBD the roadside is all littered with heaps of uncollected garbage whose stench was really a discomfort in the hot weather. What do the counties do?

SGR is a new right of way but is running parallel to the century old railway. Same as Nairobi, Emali, Voi and Mombasa, rusty wagons and train engines dot the old railway stations. It begs the question what will we do with the assets of the old railway? Do we have the same hands that run down the old rail doing the errands for SGR?

The Economics … and Politics

Transport both cargo and passengers is key to growth. We were told that we need the train to decongest our main highway, move cargo fast and efficiently, move passengers cheaply and safely.

To do the railway we borrowed USD 1.6 Billion @ 2% for a 20 year tenor with a grace period of 7 years. Further we borrowed USD 1.633 Billion @ 360 points plus LIBOR (total roughly 4%) for a 15 year tenor 5 of which are a grace period. The second loan attracts insurance at 6.93% that was payable as one installment. During the grace period Interests will be payable and the principal spread for the rest of the tenor. (I stand corrected, Government data is hard to collect lately)

The total amounts payable principal, interests and costs at the end of the 20th year will be USD 4.97 Billion. Breaking that into smaller numbers we need to raise USD 0.25 Billion net annually for 20 years. Assuming that the rail is a business concern, that it should meet its costs fully, we should have business giving us Sh. 69 million to pay the financiers. Adding the other running costs and a return to the citizens we are talking of business worth more than Sh. 100 Million a day.

With fares at Sh. 700 for second class and a capacity of 2500 passengers daily that will only generate Sh. 50 million a month. I noted very small numbers going into the premier classes. Even with the growth of the passenger numbers, it's notable that passenger business is just an add on…. Many are in advanced ages and have never travelled to coast. We travel on purpose and holiday is a luxury in the present economy.

Our port has reported handling sightly below a million containers. Assuming we have a half of that on the rail annually at the announced price. Sh. 50,000 will generate Sh. 25 Billion. What are the running costs…. These fares were and remain politically motivated.

The settlements along the railway line is in towns. I do make observations that the towns can grow into small industrial towns. Mazeras doing construction materials, Emali doing Horticulture value addition. We need more of business for this railway even as we borrow more to extend it to Western Kenya.

My experience of Mombasa is that it's hard to come across fresh cabbage or potatoes. I feel for the farmer in Ndaragwa, Nyandarua whose milk and cabbages never fetch him or her a better price owing to transport infrastructure challenges. I feel for the peasant herder whose roof is a plastic polythene along the SGR who is next to a fence to keep him off the rail line, does he identify with this pricey asset?

Madaraka in my little understanding is the right to self determine. Will this project determine our future economically as touted? Or was it a legacy for the political leadership of the day.

My listening to fellow passengers talking about the incomes from one passenger train trip is so much… I think a Million and Billion mean the same to some.

The ride was smooth, I saved time. The business case for the SGR is deep, and not for the minnows in economic thoughts.

Kahugu Muiruri
June 6, 2017

Saturday, 17 September 2016

The intricacies of Agriculture financing (Part 2)

The value chains should aim at creating an environment to allow production of adequate harvest to meet market needs. The value chain should deliver on protecting and growing the margins for the players. Security of the supply, support growth of the value chain and create safety and sustainability of the engagement. 

Cooperation between various players if worked well will bring in added benefits like enhancing reputation of the brand value chain, improve productivity, improve access to capital and access new markets for the produce. 

The Kenyan farmer is fragmented and made of small holder farmers and hence the task of bringing farmers together is one challenge for any value chain. Any value chain should be as an enabler to access to innovation, capital and having a trusted advisor. 

The Kenyan farmer has had a history of value hyped agriculture with no proper structures and control. Farmers have lost resources to con business persons. A recent one was one importing high yielding dairy cows from South Africa and milk being a trading commodity in high demand many farmers paid for dairy cows that were never delivered. 

Historically, farmers in many other areas have unpaid dues for their produce supplied to processors. From Pyrethrum, Sugarcane, Tea, Coffee among others. This has distorted markets and hence structuring agriculture into value chains has not been successful or has been met with skepticism.
Government interventions in bailing out failing processors of agricultural produce by injecting monies into them is welcome. But the common issue among all the processors is that they owe their suppliers, the farmers, substantial sums of funds of unpaid supplies. Production systems are aged and hence inefficient thus ending up with a high priced final product.  

The market for food produce has been flooded since the country has an open door policy to trading with other countries whose markets we also need to access. 

Notably the imported produce is retailing at competitive prices and hence that has opened another insight into our production cost. It’s clear that as a country we are not optimally using our resources in land, capital and agronomy. 

Borrowing form our earlier quoted cases and making an assumption that the entire of the land areas in the three countries is arable our efficiency in land use in agricultural production is below the two countries. India has an area of 3.287 Million Sq Km and a population of 1.4 Billion people translating to almost 0.5 acres per person. Israel has a land area of 20,970 Sq Km and a population of 10 Million translating to 0.5 acres per person. Kenya has an area of 581,309 Sq Km and an estimated population of 45 Million translating to 3.2 Acres per person. India and Israel have made huge strides in Agriculture both in mechanization and production compared to what Kenya achieves. They are food secure and exporting to the world whereas Kenya is not. 

Above 70% of the Kenyan population live in rural areas and as said earlier are engaged in one way or another in agricultural activities. Marketing of food produce is informal for the common food stuff and the high value food produce requiring value addition before going to the market.  

The situation is not bad though. The farmer despite the heavy investment in time, resources and energy the gain is not felt. The middle men in supply chain have been links to the market which have responded to the customer needs. 

An example is the raw milk market, most farmers will prefer to sell their milk to middle men who will supply it to the retailers as opposed to going through an organized farmer association as a marketer. Value addition and packaging will greatly increase the milk price but the infrastructure is lacking. 

How do we revive Agriculture?

The Kenyan farmer is still willing to make agriculture successful however there is need to address several factors affecting the farmer. 

The services adapted to the agriculture production cycle are in need of serious reforms. The supply of quality seeds and related inputs is still a challenge to the farmer. The government subsidizes the cost of fertilizer to the farmers but the supply chain of the same is not functional. Many are the reported media cases of Government fertilizer in the wrong hands. 

There is considerable investment in building dams to collect water that can be used for commercial agriculture in crop and livestock production. The next frontier is to have climate smart agriculture that is not weather reliant so as to create consistency. 

Ensuring that the devolved agriculture functions are felt on the ground. Extension officers to help build the farmers capacity through training and availing related services.
As an incentive to the farmers, the cost of inputs should be subsidize as well to reduce the production cost. 

Legal reforms and legislation needs to be in place to address any legal challenge the farmers or business desirous of engaging in any agriculture value addition business.

Agricultural credit should be looked at. An idea of a farmer’s bank and seeking partnerships will help. The objective being to avail well thought and structured agriculture credit. The current irrigation schemes the Government has engaged in are welcome to produce more food but the small holder farmer should also be facilitated to participate in food production for the country.

Another incentive is in commercialization of agricultural process to boost economic benefits. This will be in aiding the encouraging of value addition to secure more gains to the farmers. The process should be product and people empowerment centered.  

Kenya belongs to a community of nations. We thus have to keep watch of the happenings in the food and agriculture sector. Price volatility on agriculture related products will affect us. There are shifting market power and margins. The world and indeed Kenya population has a growing food need that has to be met. 

Agriculture cuts across boarders in matters trade, environment and development. Food demand and supply is a trade opportunity between countries, through this trade there will be diplomacy and social development and relations between nations. 

Other important agenda’s affected by agriculture is the nation’s population basic need in food and health eating. Agriculture is also a contributor to the energy and environmental sector.

As one of the speakers said, the policies affecting agriculture is an unfinished business, seizing the moment and making the promise of functional agriculture happen is the tough task ahead. We need leave the podiums and boardrooms and get to work.

Kahugu Muiruri
September 17, 2016