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Mobile loans feel the pinch of new 20pc excise duty

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Mobile loans feel the pinch of new 20pc excise duty


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The cost of mobile digital loans will increase by a larger margin compared to ordinary bank credit. FILE PHOTO | NMG

Borrowers of digital loans will bear the brunt of the 20 percent tax on fees and commissions earned on bank credit that took effect on July 1.

All or a significant portion of fees charges on mobile loans provided by KCB #ticker:KCB, NCBA #ticker:NCBA (M-Shwari), Absa Kenya #ticker:ABSA, Co-operative Bank #ticker:COOP and Equity #ticker:EQTY are considered as facilitation fees.

This means that the entire loan or a huge proportion of it will attract the 20 percent fee, increasing the cost of mobile digital advances by a larger margin compared to ordinary bank credit.

Fees that attract the excise duty in a normal bank loan such as processing charges account for an average 1.5 percent of the overall lending rate, reflecting an additional tax equivalent to 0.3 percent.

But the additional tax is higher for a facility like M-Shwari whose 7.5 percent facilitation fees will see its duty charges increase by 1.5 percentage points, pushing the monthly cost of the product to nine percent.

“The cost of mobile loans will be higher compared to the normal loans because charges for digital products are dominated by fees,” said a CEO of one of the top banks who sought anonymity.

KCB in text messages to its customers on Friday afternoon said that loans advanced through the KCB M-Pesa will now attract a fee of 8.64 percent, up from 7.35 percent.

The NCBA Group said that all loan-related fees and commission will be subjected to the 20 percent excise tax, including M-Shwari and the overdrafts feature Fuliza — products the bank co-owns with Safaricom #ticker:SCOM.

The increase of the loan fees comes a day after President Uhuru Kenyatta assented to the law returning the 20 percent tax on all fees and commissions, prompting banks to pass the increased cost to borrowers.

The excise duty on normal loan fees will see banks pay the Kenya Revenue Authority more than Sh7 billion annually, making credit costlier as lenders transfer the burden to borrowers.

But the taxman looks set to generate more from the digital loans because they generate bigger fees and are costlier than conventional credit.

Before the new tax, borrowers paid a facility fee of 7.5 percent for the M-Shwari loans, amounting to an annualised interest rate of 90 percent.

On Fuliza, the fee is 1.083 percent daily or 395.2 percent annualised, underlining the high cost of using the short-term credit services regularly.

The Central Bank of Kenya (CBK) quoted the average annual commercial bank lending rate at 12.08 percent in April.

The CBK will regulate monthly interest rates charged by the digital mobile lenders and borrowers’ non-performing loans if a proposed law before Parliament is adopted.

The regulator will, among other things, approve increases in digital lenders’ rates and other loan charges as well put a ceiling on non-performing loans at not more than twice the defaulted credit.

Tens of unregulated microlenders have invested in Kenya’s credit market in response to the growth in demand for quick loans. Their proliferation has saddled borrowers with high interest rates, which rise up to 520 percent when annualised, leading to mounting defaults and an ever-ballooning number of defaulters.

From having little or no access to credit, many Kenyans now find they can get loans in minutes via mobile phones. The push to control the activities of digital lenders comes nearly two years after Kenya removed the legal cap on commercial lending rates.

The cap, which was introduced in September 2016, slowed down private sector credit growth as commercial banks turned their backs on millions of low-income customers as well as small and medium-sized businesses deemed too risky to lend to.

The subsequent credit crunch triggered an appetite for digital loans, attracting unregulated microlenders to Kenya’s credit market.

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KQ resumes Mumbai flights after 4 months

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KQ resumes Mumbai flights after 4 months


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A Kenya Airways aircraft at JKIA. FILE PHOTO | NMG

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Summary

  • Kenya Airways will on Thursday resume flights to Mumbai, ending a four-month hiatus that was occasioned by increased cases of Covid-19 in the Asian state.
  • The airline in a notice to its customers yesterday said it will resume its operations on the route on September 16, 2021 with the first flight departing Jomo Kenyatta International Airport at 7am to arrive in Mumbai at 3:45 pm.

Kenya Airways #ticker:KQ will on Thursday resume flights to Mumbai, ending a four-month hiatus that was occasioned by increased cases of Covid-19 in the Asian state.

The airline in a notice to its customers Monday said it will resume its operations on the route on September 16, 2021 with the first flight departing Jomo Kenyatta International Airport at 7am to arrive in Mumbai at 3:45 pm.

The airline will then resume full operations on the route on September 20, flying three times per week on the Indian route, which is one of the most lucrative destinations on its network.

Passengers on the route will part with Sh46,000 ($419) for one-way air ticket on economy class seats from Nairobi to Mumbai- prices that are relatively the same compared to what it was charging before the Covid-19 pandemic.

“Welcome back onboard! Fly from Nairobi to Mumbai starting Thursday 16th September with normal schedules resuming from Monday 20th September 2021,” said the airline in a notice to its customers yesterday.

KQ Suspended passenger flights to and from Mumbai on April 30 until further notice, following a government directive on travel between India and Kenya due to a Covid-19 crisis in that country.

The airline said on Friday that passengers who had booked tickets after May 1, the date of the last flight from Mumbai to Nairobi, will have to change their plans.

Affected passengers, KQ said, could also take vouchers for the value of their fare for future travel within 12 months.

India has seen soaring infection rates in the recent days, since the discovery of a new virus variant. Last month, India put on lockdown one of the states following a spike in cases of Covid-19.

Other countries that have banned flights to India include France, the UK Bangladesh, Oman and Hong Kong that have banned travel to and from India or asked their nationals coming from the Asian country to isolate themselves in government-approved hotels.

India has so far detected 33,264,175 corona virus cases with the number of deaths hitting 442,874 as at September 13.

A large number of patients from Kenya also travel to India every year for specialised medical treatment, especially cancer care, helping to drive medical tourism in the densely populated country that boasts affordable and easily accessible healthcare.

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Lower import volumes push mitumba prices to new highs

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Lower import volumes push mitumba prices to new highs


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Man pulls a cart loaded with second-hand clothes at Gikomba Market in Nairobi. FILE PHOTO | NMG

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Summary

  • Traders paid Sh100,527 on average per tonne of the used clothes, popularly called mitumba, compared to Sh96,286 the previous year.
  • Kenya Bureau of Standards (Kebs) banned importation of the clothes from late March through mid-August in a bid to contain the spread of the life-threatening coronavirus infections.
  • Findings of the Economic Survey 2021 suggests dealers shipped in 121,778 tonnes of mitumba in 2020, a 34.02 percent fall compared with 2019 and the lowest volumes since 2015.

The average price of a tonne of second-hand clothing items imported into the country crossed the Sh100,000 mark for the first time last year on reduced volumes in the wake of safety protocols and guidelines to curb spread of coronavirus.

Traders paid Sh100,527 on average per tonne of the used clothes, popularly called mitumba, compared to Sh96,286 the previous year.

Kenya Bureau of Standards (Kebs) banned importation of the clothes from late March through mid-August in a bid to contain the spread of the life-threatening coronavirus infections.

Findings of the Economic Survey 2021 suggests dealers shipped in 121,778 tonnes of mitumba in 2020, a 34.02 percent fall compared with 2019 and the lowest volumes since 2015.

Last year’s drop was the first dip since 2011 when 76,533 tonnes were shipped in compared with 80,423 tonnes the previous year, the official data collated by the Kenya National Bureau of Statistics (KNBS) shows.

The import bill for the merchandise amounted to Sh12.24 billion, a drop of 31.11 percent, or Sh5.53 billion, year-on-year.

TIn imposing the temporary ban on used clothes, Kebs had applied a standard which prohibits buying second-hand clothes from countries experiencing epidemics to ensure disease-causing microorganisms are not imported into Kenya.

Higher quality and relatively lower prices for mitumba has continued to drive demand for used clothes at expense of locally-made products amid higher margins enjoyed by traders largely operating in informal markets.

The lucrative second-hand clothing market has seen traders from China —a key source market for the merchandise —open shops in Gikomba, Kenya’s largest informal market for mitumba, in recent years to cash in rising demand.

Earnings from exports of articles of apparel and clothing accessories fell 5.32 percent to Sh32.92 billion last year compared with 2019, data indicates.

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Court backs Atwoli union in horticulture membership feud

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Court backs Atwoli union in horticulture membership feud


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Cotu boss Francis Atwoli. FILE PHOTO | NMG

Summary

  • A trade union that is led by the long-serving Central Organisation of Trade Unions (Cotu) boss Francis Atwoli has survived an attempt to stop it from representing over 60,000 workers in the horticulture industry.
  • Newly registered Kenya Export, Floriculture, Horticulture, and Allied Workers Union (Kefhau) had filed as a case in the Employment and Labour seeking to bar the Atwoli-led Kenya Plantation and Agricultural Workers Union (KPAWU) from representing workers in the industry.

A trade union that is led by the long-serving Central Organisation of Trade Unions (Cotu) boss Francis Atwoli has survived an attempt to stop it from representing over 60,000 workers in the horticulture industry.

Newly registered Kenya Export, Floriculture, Horticulture, and Allied Workers Union (Kefhau) had filed as a case in the Employment and Labour seeking to bar the Atwoli-led Kenya Plantation and Agricultural Workers Union (KPAWU) from representing workers in the industry.

Mr Atwoli is the secretary-general of KPAWU. The rival union claimed KPAWU had encroached on its area of workers’ representation.

Justice James Rika, however, dismissed the claim and ruled that the dispute should have been taken through conciliation, and was therefore presented in court prematurely.

He also stated that Kefhau must go beyond its registration and recruit sufficient members from the employers, to be granted recognition and organisational rights.

“Registration on its own, does not afford the claimant (Kefhau) recognition. Until there is proof that Kefhau has satisfied Section 54 of the Labour Relations Act, the status quo must be maintained,” said the judge.

“Kefhau must recruit at least 50 percent plus one, of the unionisable employees in the floriculture and horticulture industry, members of the Agricultural Employers Association to be considered for recognition,” he stated.

He noted that there is a Recognition Agreement and CBA, binding Mr Atwoli’s union and Agricultural Employers Association, affecting 73 Flower Growers Group of employers, and over 60,000 employees.

“It is objectionable for Kefhau to be allowed organisational rights, and the legitimacy to receive trade union dues and agency fees, from over 60,000 employees, just on the strength of registration as a trade union,” said the judge.

Kefhau wanted the court to declare that it is the sole trade union, which is allowed by its constitution to carry out activities in the export floriculture and vegetable industry, and an order restraining Mr Atwoli’s from representing workers in that area.

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