Greetings and welcome to the fifth Money Weekly Roundup of 2024! 

This week, a directive requiring parents to pay school fees via the eCitizen portal was halted by the High Court bringing into focus the controversial “convenience fee” charged for transactions on the platform. 

This comes as a new survey shows that nearly 50% of Kenyans are in dire financial distress with their incomes having stagnated or shrunk since 2019. This has pushed many into a debt trap even as the Central Bank rate (CBR) continues to rise to the highest level in 12 years. 

As always, we’ve included some of our favourite personal finance articles in our finance tips section below.

Let’s dive in!

NEWS RECAP

What happened this week

 ✋ Govt’s “Unstoppable” Migration to eCitizen

On Wednesday this week, the High Court in Nairobi put a temporary halt to a government directive requiring parents to mandatorily pay school fees through the eCitizen platform. 

This is coming about six months since the government consolidated over 3,000 PayBill numbers used to pay for public services. President William Ruto, who last year promised to digitise all government services, says the transition to eCitizen is “unstoppable”. 

Here are a few things to know:

• Govt Transition to eCitizen: President ordered the closure of existing government PayBill numbers, making 222222 the sole payment number for State services starting August 8, 2023.

• Revenue Generation and Expansion: Daily revenue collection on eCitizen reached Ksh281 million in November. In December 2023, it saw a record collection of Ksh900 million in one day, and a daily average of Ksh300 million. The govt projected to collect Ksh4.2 billion daily by December 2024.

• School Fee and Meal Payment Directive: In January, parents were directed to pay public school fees through eCitizen. The University of Nairobi also mandated meal payments through eCitizen. 

• Debate Over Convenience Fee: Concerns have emerged over the Ksh50 convenience fee charged for eCitizen services including regarding the identity of the recipient and its legality. In a petition filed by Senator Stewart Madzayo, “convenience fee” collected was estimated to amount to Ksh36 billion annually.

• President Ruto’s Defence: By mandating school fee payments through eCitizen, the President says the government aims to eradicate illegal levies imposed by certain schools, ensuring that parents are not burdened with additional financial obligations.

• Benefits and Rationale: President Ruto emphasises on the benefits of digital payments, including transparency and accountability. He highlighted technology's role in eliminating corruption in cash payments.

• “Cartels” Blamed: Head of State says resistance to the transition is coming from corrupt entities who benefit from the traditional cash payment system, making the case for the necessity of pushing forward with digitisation efforts.

• Response from Stakeholders: Council of Governors (CoG) calls for proper structures before implementation. CoG is calling for organised directives to avoid disruptions.

• Implementation Plan: Payment system - now halted - was to be rolled out in phases, starting with national schools.

😰 Half of Kenyans Financially Stressed - Report

A recent study conducted by the Old Mutual Financial Services Monitor (OMFSM) in Kenya reveals that nearly half of employed Kenyans feel overwhelmed or highly stressed by their financial situation. 

• High Prevalence of Debt: Nearly 70% of Kenyan consumers have some form of  personal loan. This surpasses debt levels in other surveyed African markets like Ghana, Namibia, and South Africa.

• Financial Stress: 48% of Kenyans or about 9.5 million in both formal and informal employment say they are experiencing considerable financial stress.

• Stagnated Incomes: Nine out of 10 Kenyans currently earn less than, or the same as they did prior to onset of Covid-19 in March 2020. Only 10% report higher incomes compared to pre-pandemic levels.

• Financial Priorities: Top priorities for Kenyans include income security, expense reduction, and debt repayment. More Kenyans now are foregoing key financial choices such as insurance, savings and short-term investments.

• Retirement Planning: Only 26% of Kenyans are actively saving for retirement, the lowest among surveyed markets. Nearly 90% say they are not confident they have sufficient retirement savings.

• Entrepreneurial Spirit: Over 50% of Kenyans own micro-businesses. At least one in every five employed Kenyans (22%) is engaged in "polyjobbing" to supplement their regular income.

• Economic Confidence: Kenyan economic confidence stands at 16%, trailing behind other surveyed African nations such as South Africa (27%) and Namibia (24%), and but is on par with Ghana (17%).

📈 CBK Hikes Benchmark Rate to 13%

The Central Bank of Kenya has increased the base lending rate from 12.5% to 13% - the highest in 12 years. This decision aims to address inflation and exchange rate concerns, reflecting challenges in the economy. The move suggests potential challenges for private sector borrowing and may impact loan default rates. Read More.

• Implications on Credit Cost: Credit may become costlier by a similar margin, affecting borrowers servicing bank loans.  Potential spike in loan defaults anticipated due to increased cost of financing.

• Banking Sector Dynamics: Despite increasing rates, there has been a notable reduction in Non-performing loans (NPLs) especially in specific sectors like energy, water, and manufacturing. Overall loan default rate dropped from 15.3% to 14.8% between October 2023 and January 2024.

💡 Electricity Prices Drop by Ksh3.44 Per Unit

In some better news - from Thursday, February 8, the cost of a unit of electricity in Kenya was reduced by Ksh3.44. According to the Ministry of Energy, this is attributed to a significant reduction in the foreign exchange adjustment rate and a marginal decrease in the Fuel Energy Cost

Prepaid users will immediately see the change, while postpaid users will experience lower bills by the end of February. Read More.

📱 Govt’s Plan Curb Trade of Counterfeit Mobile Phones

The Communications Authority of Kenya (CA) plans to combat the prevalence of fake mobile phones in the country by developing an online platform for users to verify the authenticity of their devices. 

Counterfeit phones, which account for 30-40% of mobile devices in Kenya, are often distributed through informal channels and lack safety standards. This initiative aims to address consumer safety concerns, prevent revenue loss, and promote growth in the mobile phone industry.

Factors Contributing to Counterfeits:

• High cost of genuine phones.

• Weak enforcement of intellectual property laws.

• Lack of consumer awareness.

Want more details? Check our full weekly update here:

MONEY TIPS & TOOLS

This week’s finance tips

Welcome to Money254's Money Tips! Here, we share quick and easy tips that make understanding and managing your money a breeze. We break down the tricky parts of your finances and the financial landscape, making it simple and clear for you. Stay tuned for helpful tips every week.

MONEY254 #MONEYTOK OF THE WEEK

Opening Up Dollar Accounts

Ever wondered about the benefits and process of opening a dollar account especially now that the Shilling has been losing against the dollar? Look no further! In this week’s video, our spotlight is on the advantages and key steps of establishing a dollar account in Kenya.

@money254hq

Opening a Dollar Bank Account in Kenya #Money254 #Dollar #Dollaraccount #Savings #Investments #Fyp #Moneytok

That’s a wrap for this week’s Money Weekly!

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Eric and the Money254 editorial team.