People are certainly broke, and with the rampant layoffs, it is most likely that even the taxman might miss out on PAYE
BY VICTOR ADAR
For a long time, the national debt that has touched Sh50trn, which is a 15% above the recommendations set by the International Monetary Fund, has denied Kenyans peace of mind.
Even though the current annual borrowing of nearly $2b has financed big infrastructure projects, paid some loans and helped plug other government expenditure, the state of the economy in general in any given month is bleak, and unsustainable.
In numerous ways, with more state debts and projects revolving around loans, it is the people, if not business ventures, that will feel the heat. Excessive borrowing puts the country between a rock and a hard place. Rebecca Mbithi, Family Bank CEO says that a slowdown has really been felt in the last four years.
“It is a case of mixed fortunes for the economy, but I wouldn’t say it is all in an absolute stand still,” she says. “I think a Kenyan and especially the business person would probably need a bank that really understands their needs, that walks with them through the various journeys, and the challenges they have.”
More recently, interest rate cap law was removed after President Uhuru Kenyatta signed into law the Finance Bill 2019. The law, introduced in September 2016, fell short, it is said. It locked out tiny players from accessing loans. The Government and larger businesses, so it seems, were safe borrowers as compared to individuals and start-ups. The law had a big impact on the micro, small and medium scale enterprise sector.
It is against this predicament that hundreds of loan sharks especially digital lending apps seized the moment to provide quick cash to the masses, albeit through inflated interest rates. This threatened the stability of not only companies but also individuals with the bulk of borrowers’ names ending up on credit reference bureaus. There was even some anxiety after Safaricom’s overdraft facility dubbed Fuliza lent out over Sh1 billion within its first 8 days amidst growing popularity of mobile loans. Good news is that some institutions were determined to improve welfare of their customers, an indication that credit is a force that cannot be ignored.
“There are no two ways about rate capping,” she says. “We all admit that it constraints credit to the market. We could see the challenges it caused to the economy and customers at large. That’s something we always had to grapple with.”
Ms Mbithi vividly remembers how one of her customers walked to her to find out what their future is in terms of borrowing. “You can see that genuine concern about the public. It makes you to rethink. Over the years, conquering markets has proved tough. But there is always room to move forward,” she points out, adding, that is how her bank looked for ways that would help make credit access possible.
In 2015 when she joined the bank as the company secretary and director, legal services, a position she held for four years, little did she know that the big space they were lending to would dwindle. She took up that position when the industry had gone through its own challenges including interest cap regulation. Somehow, she has been able to charter the waters. She is managing a bank that has been aggressively investing in digital solutions as the industry makes a steady move towards financial technology to supplement brick and mortar banking.
“As a responsible lender you want to build sustainability, and I wouldn’t say profits for now but we want to make sure that even the practices you have now guarantee you to provide credit for years to come. We ensure we build sustainable lending practices that enable customers to grow with us,” she says.
Individuals are worried about safety of their cash opting for financial institutions believed to have strong financial muscles. Just to show the scale of pinch and how the movers of money are trying to cope, data from Central Bank of Kenya comes in handy – top nine large banks added 333,004 accounts with more than Sh100, 000 in savings from January 2016 and December 2018.
Besides, small banks witnessed a dip of 175,477 accounts from 305,688 during the same period. These figures raise a question. Are Kenyans still standing strong in terms of financial stability? What’s making economy tough? How is such a shift impacting on economy?
Ultimately, things are ugly or beautiful depending on where you sit. Reality on the ground show that this is the time people need rules of investing if things are to change for the better. It has reached a point in time when things are not moving. Companies are restricting, and guys are losing their jobs. People are certainly broke, and with the rampant layoffs, it is most likely that even the taxman might miss out on Pay As You Earn.
In 2018, projections by World Bank in terms of how the economy has grown show that Kenya’s real gross product growth (GDP) will increase to 6% in 2020 compared to this year’s 5.8%. Today, there is a decline. This year, the economy has grown at 5.6% compared to 6.4% by second quarter and most of it is attributable to the deceleration of growth in the agriculture sector.
Looking at global economy too with a focus on China and the US, you can tell what temperature is like – China’s policy on the US is a tad salty with experts really afraid that a trade deal will most likely not be achieved. Major concern is that as more and more global activities are said to be unfavourable, people try to thrive through other weird ways. Come to think of ventures thriving because of tax evasion, or wheeler dealings that lead to loss of public funds.
“Absolutely zero chance now of a deal,” Aly-Khan Satchu, an active investor at the Nairobi Stock Exchange, twitted.
Going digital
According to a survey by FSD-Kenya, in partnership with the Central Bank of Kenya, Kenya National Bureau of Statistics and CGAP, more than one in four Kenyans has taken a digital loan with the most common reasons for digital borrowing among Kenyan adults being for business and day-to-day needs. But is there some truth to it?
“I think the future is with us now. This is it. People can only now build up on what is already there. The days of manual processes is way behind us as everybody is striving towards gaining efficiency. Technology is here to stay, even if not in the banking sector it is there in all facets of our life. I think we’ve on-boarded ourselves in technology more than perhaps other sectors. As a bank we’ve always been first in terms of mobile technology,” she says.
Sectors that were traditionally propelling Kenya’s economy, and are really touching the common man on a daily basis include agriculture, banking, manufacturing, tourism, real estate, transport and even technology. Ms Mbithi says that agriculture sector dipped because of the prolonged drought – the rains have not come as expected –, and the slow down in the real estate which is another major area of investments for Kenyans might be a major contributor to the economic pinch that is currently being felt. However, other sectors like manufacturing, tourism, and technology have grown.
Further, Ms Mbithi argues that factors, which might cause the failures of small and medium-sized businesses who form “around 50%” of their customers, and are “movers of money”, should be addressed. For many years, this lot was previously constrained in terms of credit. Products that are co-created with customers (customising for each particular SME) can go along way.
Opportunities can also be created through opening lines of credit which involves a category of things where common ones include trade finance, invoice financing and supply bonds targeted at those in the supply sector, guarantees, letters of credit, import of duty financing.
The informal sector
Experts say that entrepreneurial potential of the informal sector is not a fallacy. In fact, the informal sector is said to constitute the bulk of employment especially in African countries with figures from the International Labour Organization showing that more than 66% of total employment in Sub-Saharan Africa is from the informal sector.
As always the case, informal economies are characterised by low productivity and non-exportable goods and services. On the other hand, the sector also provides crucial livelihoods to the most vulnerable of the urban poor. It is projected that the informal sector is likely to absorb many of the continent’s young employment seekers who are mainly today’s millennial digital natives – educated, learned and very adaptive to global trends.
It is at the back of this that in November 2019 when the Inter Region Economic Network (IREN) held its 18th Africa Resource Bank Forum themed The future of Africa’s informal industry in the era of digitalization in Nairobi in collaboration with the Friedrich Naumann Foundation for Freedom (FNF), participants encouraged countries to identify ways in which Africa’s informal sector can leverage emerging digital technologies to meet market needs.
If you attended this forum you would understand why managing a portfolio that’s full of the informal lot in tough times calls for smart tactics otherwise it might earn you a bald head. It was evident that informality has been increasing in many countries. Hawkers are, unfortunately, in this group.
Selling second hand clothes, running a makeshift shoe polishing stall, coffee or tea vending, and even engaging in the business of selling eggs and sausages in the Central Business Districts has never been for the faint hearted. For these ventures to perform well, non-punitive regulatory measures must be put in place to enforce formalization. When economy is slow it is the time when small players (city vendors) should be in the development agenda. For such entrepreneurs to thrive, there is not only need for a fundamental shift but also need to embrace digitalization.
“The emerging economic informality operators are vastly different from traditional informal economy actors. Economic informality is no longer synonymous to street vending. The street is now Facebook, Twitter etc,” says James Shikwati, IREN director and founder.
Tobias Alando, who is in charge of membership and board affairs at Kenya Association of Manufacturers emphasizes that as businesses and individuals go through tough times, digitalization is one of the approaches that might help. In a nutshell, ignore new trends at your own peril.
“Digital technologies are opening up new opportunities for the informal sector to innovate and grow. It is important we foster inclusive multi-sectoral collaboration to tap into the opportunities of this sector,” says Alando.
