ITS CHRISTMAS AGAIN…

Celebrating Christ, reciting Bible verses, blowing balloons, wearing new clothes and shoes was the order of the D-day when I used to be young (now am old)…..Simply, it was lots of fun, partying and merry making. Generation Y parties goes an extra mile when it comes to celebrating festive seasons. 

But is Christmas becoming an expensive burden? I talked with some of my friends over facebook over last week. Let’s get if all from our esteemed readers…

Linah Linzy Wanjiku 
21, Student

This season I will have the opportunity to be with my family, have fun with my siblings, go to church and party with my peers. I usually spent around 8000/= for my clothing, presents, traveling, which leaves me broke at the end of the festive season. This time I plan to work on my spending to ensure I got some cash as I resume school early next January.

Cyrus Mathecx
 25,Medical student

Christmas gives me a good break from books. I spent most of my time with mom at home. I will also go to church and have a day with my friends. Being a doctor to me is like a calling and so I can’t fail to extent love to the less fortunate. I usually spent over 20,000/= most of which is channeled to the needy. To me Christmas is more than a spending and parting spree. It’s a time to show love and love.

Fred Matheka

 22, student

“Christmas is day to remember birth of Christ. It comes with cerebrations, buying presents to loved ones as well as extending love to the underprivileged.  I plan to spent 5000/= over this period to offer an offering to my God, buy drinks to my friends, and also buy a present to mom, dad, shushu and girlfriend. Am exited dad has never failed to take us for some nyama choma and also slaughter a goat for us. I don’t plan to go to a new place due to financial constraints but I also plan to spend most of the time with my girlfriend.”

Flylynn Sweetbebz 
 22, student

To me, the Christmas season has never been long enough due to the many activities I plan for. Some of the activities I’d do is visit my grandparents and spent time with them after a whole year of being away. I will also go for church camps and other youth events
Places I’d visit are beautiful sceneries like the Rift valley, visit the country side to reduce the urban boredom, go partying with friends. I will also be taking food and clothes to the less fortunate, which to me is the greatest love I can show to anybody this season. I will also make sure I buy my closest friends a Christmas gift.. It doesn’t have to b expensive, do according to your capability to avoid going too much out of your way to please them yet u remain extremely broke...


whats your game plan this season?
lets tweet @fredbursar

On the New Traffic Laws

The New Traffic Amendment Act gazetted by the Minister for Transport, Amos Kimunya, took effect on Monday. 10 million shillings in traffic violation fines has been collected in little more than a week since the Act was gazetted.

It’s probably unsurprising then that the Act has elicited varied reactions from the public some: are in favour of it, others vehemently oppose the new traffic laws, and the more cynical see the laws as having the effect of increasing bribery.

The Act provides for steeper offenses for traffic violations. For instance driving under the influence of drugs or alcohol is an offense and upon conviction one is liable to imprisonment of up to ten years or a 500,000-shilling fine or both. A similar fine and term of imprisonment is also applicable to a person drinking while driving a public service vehicle.

The Act prohibits the driving of motor vehicles on the pavement for the purposes of avoiding traffic. This offense if one is convicted of it will incur a term of imprisonment of not less than three months (so it could be more) and a fine of not less than 30,000 shillings or both.

The Act also address speeding violations, the maximum number of passengers allowed on the various kinds of public service vehicles, the weight and type of goods allowed on various types of public service vehicles. The Act provides that if any public service vehicle carries more persons, baggage or goods than it is licensed to carry, the driver, the conductor and the owner of such vehicle; shall be upon conviction liable, to a fine of up to 20,000 shillings and an additional fine of 5,000 shillings for each person in excess of the licensed capacity.

Other provisions include the requirement for owners of public service vehicles to employ at least one driver and one conductor both of who a required to be holders of certificates of good conduct issued by the relevant authority. The penalty for the contravention of this provision is a fine of 10, 000 shillings and/or imprisonment not exceeding 12 months. The violation of the requirement for all passengers to wear helmets incurs the same penalty.

Most of the violations outlined in the new traffic law are already sanctioned in law, despite this  these offenses are committed with alarming regularity i.e. cars driving on pavements to avoid traffic, overloading of public service vehicles with both passengers, driving while under the influence etc. It is probably the impunity with which we break road rules and increasing incidents of road carnage that has necessitated stiffer penalties for traffic violations. But whether the new traffic laws will have the desired impact still remains to be seen.

Over the past week owners of, and public service vehicle operators have been on strike, or offering only intermittent services leaving hundreds of commuters stranded. Protestors want the law shelved for further consultation between the government and public service vehicle owners. In the meantime truck drivers have threatened to join the protest against the new laws.

What are your thoughts on the new traffic laws will the new stiffer penalties deter offenders, and reduce road carnage or are the new rules too punitive?

PROPERTY TAX

The last two weeks has seen a few signals on what seems to be untapped tax resources available to the Kenya Government from the real estate sector. During the recent controversial debate on taxation that ended with a move by parliamentarians to raise their own salaries, the issue of a capital gains tax on land & property was discussed, but set aside.

Despite that setback, the Kenya Revenue Authority has issued three notices in rapid succession.

First that all government taxes to be paid through either KCB, NBK, Co-Op, Equity or Central Bank. In past seminars, KCA has touted some of these banks as having online banking systems that share details of tax payers & payments directly to KRA - negating the need to fill out extra copies or make separate cumbersome periodic filings.

Then came another notice from KRA calling on tenants to provide information on who their landlords were - such as name, address, property location, rent amount, bank details etc.

Finally, there was another one with KRA seeking providers to supply a geographic information system to tie in property locations with Google Earth with tax  & property information and pictures or street maps.

Despite stamp duty being collected on property investments and transfers it remains to be seen how much more of that along with Value Added Tax (VAT) on rental income tax can be identified and collected from the new measures.

FOREIGN EXCHANGE MARKET

The foreign exchange market (forex, FX, or currency market) is a form of exchange for the global decentralized trading of international currencies. Financial centres around the world function as anchors of trading between a wide range of different types of buyers and sellers around the clock, with the exception of weekends. The foreign exchange market determines the relative values of different currencies.

The foreign exchange market assists international trade and investment by enabling currency conversion. For example, it permits a business in Kenya to import goods from the European Union member states especially Eurozone members and pay Euros, even though its income is in Kenya shillings. It also supports direct speculation in the value of currencies, and the carry trade, speculation based on the interest rate differential between two currencies.

In a typical foreign exchange transaction, a party purchases some quantity of one currency by paying some quantity of another currency. The modern foreign exchange market began forming during the 1970s after three decades of government restrictions on foreign exchange transactions (the Bretton Woods system of monetary management established the rules for commercial and financial relations among the world's major industrial states after World War II), when countries gradually switched to floating exchange rates from the previous exchange rate regime, which had remained fixed.

The foreign exchange market is unique because of the following characteristics:

• Its huge trading volume representing the largest asset class in the world leading to high liquidity;
• Its geographical dispersion;
• Its continuous operation: 24 hours a day except weekends,
• The variety of factors that affect exchange rates;
• The low margins of relative profit compared with other markets of fixed income; and
• The use of leverage to enhance profit and loss margins and with respect to account size.

As such, it has been referred to as the market closest to the ideal of perfect competition, notwithstanding currency intervention by central banks. According to the Bank for International Settlements, as of April 2010, average daily turnover in global foreign exchange markets is estimated at $3.98 trillion, a growth of approximately 20% over the $3.21 trillion daily volume as of April 2007. Some firms specializing on foreign exchange market had put the average daily turnover in excess of US$4 trillion.

The $3.98 trillion break-down is as follows:

• $1.490 trillion in spot transactions,
• $475 billion in outright forwards,
• $1.765 trillion in foreign exchange swaps,
• $43 billion currency swaps,
• $207 billion in options and other products.

INNOVATION: Sustaining a Competitive Advantage

I have passion for working in the banking industry.

Since May 1^st – July 31^st, 2012, I participated in the NSE investment challenge. I had the opportunity to follow live stock prices for different stocks (am a poor fellow I can’t afford daily signals) offered in the secondary market. I was impressed by various stocks, with a bias in bank stocks. Actually, I was in a self-guided stocks-tour of Kenya’s stocks and came back impressed by the innovation, social impact, and profitability of banking industry. Here is a short case study of Equity bank:

Equity Bank, a global leader in banking the unbanked with creativity and innovation. It’s the fastest growing bank in Kenya. It mainly focused on the un-banked and under-banked markets. At its launch, Equity’s management focused on answering a simple question: How can we lower the consumers’ cost of entry to banking? While the bank now has a broader range of offerings and products, with some strength in SME lending, 60% of new customers are still from the ranks of the unbanked. Now with 6.8 million customers, the bank has cut costs and improved access by offering a low cost, flexible back office system and a focus on mobile phone banking, whose costs are approximately a tenth the cost of a branch-originated transaction. Equity has also developed a low-cost agency system (Equity agents) to serve customers in rural areas. These agents are self-employed individuals (often operating out of their own retail stores) who are trained to provide Equity’s basic banking services (and also to gain more market share), particularly in deposit-taking and small balance lending. Equity bank was among the first banks to adopt mobile money transfer, infact, it came up with an account dubbed the M-Kesho.

Cost-Cutting Strategy

One if Equity’s cost cutting strategies is its employee’s selection. Equity bank employs young, high school graduates as its employees. Infact, its employee average age is 26 years, Generation Y!! Because of the low academic qualifications, these employees are paid little salaries compared to what a university graduate can earn. Through this, the bank actually saves millions of shillings hence increasing its profit.

How profitable are banks? Very! This publicly traded bank (Equity) has returns on equity exceeding 25% and show growth in both loans and earnings per share in excess of 40% annually. It showed a rapid growth through year-end 2011 and is still doing better.

Perhaps the most revolutionary banking product in decades is M-Pesa, transaction banking through simple 2-G mobile phones, which has spread like wildfire in Kenya. Following the introduction of M-Pesa by the mobile provider Safaricom in March 2007, it is now utilized by 14.9 million people, or 65% to 70% of the adult population. Equity easily adopted this technology and went to the extent of partnering with Safaricom to introduce the M-Kesho account.

And this is not the very limited mobile banking service found in the Kenya, but a full range of transaction services, including the purchase of goods and services, remittances, and bill-pay. For M-Pesa customers who link their phone to a bank, a full banking platform is available including interest-bearing savings accounts and credit.

Innovation is not limited to cell phone banking. Seventy percent of Kenya’s 41 million people work in agriculture, typically very small-scale farming. Historically, banks have lent little to this sector because of its high risks, in part due to the highly volatile nature of crop production and prices.

Currently, Equity and other banks are testing the use of index-based crop insurance, a low-cost insurance that will provide farmers a payout should total rainfall come in below some threshold level. This insurance, sometimes combined with forward purchase agreements for farmers’ crops by large financially sound buyers, will substantially reduce risks to borrowers and lenders, permitting an expansion of credit to this large sector.

New developments in mortgage lending are permitting lower income borrowers to build a roof over their heads. Incremental mortgages are structured to safely and soundly meet the repayment abilities of lower income consumers. The poor in much of Africa often build a home over years, first acquiring land, then building one room at a time with much of the labor provided by the owner. Now, some lenders are financing each stage, with each loan maturing in about two years and a new loan being granted only after the first is paid off. For example, a borrower may borrow enough to build the framing and roof, payoff that loan over time and then take out a new loan to finance the construction of outer walls. While it may take some years to finish the home, the financing never becomes overwhelming to the borrower. In addition, Equity Bank announced their partnership with a Kenyan building supply company. Equity Bank will provide micro-mortgages to enable borrowers to purchase building construction materials for as little as US$2,000.

Am very encouraged by THE Equity bank. Unlike banking in much of the other Kenyan banks, Equity bank and a few other financial institutions are designing and introducing products that meet the needs of their customer base. Because so much of that potential customer base has been un- and under-banked to date and because that base is so large, the bank (Equity) is having a huge positive social impact and have tremendous growth potential. It is really impressive to see what banking can be.

Advice to other banks…

Invent or perish!