Kenya Insights

Category: Business

  • Love Affair Between KPMG CEO And Junior Staff Costing The Firm Sh375M

    Love Affair Between KPMG CEO And Junior Staff Costing The Firm Sh375M

    A call from a jilted lover inflamed what was initially just a clash of egos between two of the most powerful partners at a giant audit firm into one of the bloodiest legal fights seen in Kenya’s corporate world.

    The call was made around September 2016 to then chief executive and senior partner at KPMG East Africa, Josephat Mwaura, according to court documents.

    The subject of the call was GJK (not her real name), then a personal assistant at the firm’s tax department.

    Around the time that Mr Mwaura received what he said was an anonymous call, GJK’s estranged spouse, AM (also not his real name), had told her that he had been reliably informed that she was having a romantic affair with her boss.

    The boss in question was Richard Ndung’u, then the head of the tax department.

    Earlier, between 2004 and 2008, Mr Ndung’u had worn two other hats – as the CEO and senior partner at KPMG East Africa. But in a world where people only move up and out, he decided to stay after leaving the C-suite of the audit firm in 2008.

    That might have been a mistake.

    Mwaura, who has since left the partnership, replaced Ndung’u at the helm of the audit firm.

    Their leadership styles were a contrast. While Mwaura was a dyed-in-wool KPMG man, Ndung’u had crossed over from another audit giant, PwC, and never quite shed its garb.

    At PwC, which Ndung’u left for KPMG in 1998, you are only as good as your last result. At KPMG, the pervasive culture is such that it is far more important to be kind than to be right.

    There was also a certain degree of closeness and coziness that Ndung’u had with his team that might have been at odds with the prevailing culture at KPMG.

    For example, when GJK requested Ndung’u for two days’ leave to go and see her husband who was in hospital with a severe headache, Ndung’u asked in a message jokingly (according to GJK), if a chiropractor was required to remedy the situation.

    A chiropractor is a healthcare professional who treats neuromuscular disorders.

    GJK also sent her immediate boss a birthday message, to the amusement of Mwaura, according to the court documents.

    At the time that the ‘anonymous’ call was made to Mwaura, GJK was going through bitter divorce proceedings. Her husband, who she said had tried and failed to woo her back, believed that she was leaving him for her boss.

    AM, she said, also believed that it was Ndung’u who was financing what appeared like her new expensive lifestyle, and paying her legal fees.

    After receiving the call, Mwaura decided to do some discreet inquiry. It was while doing this that he got a second call, with the caller pleading with him to ask Ndung’u to leave GJK alone or he would take extreme action.

    The threat by the caller spurred the CEO into action as he “did not want the prospect of anybody coming to harm on account of this conduct,” he said in a witness statement before an arbitrator, John Ohaga.

    To their clients, audit firms are supposed to be above reproach like Caesar’s wife. This was Mwaura’s endeavour when he launched the investigation on October 3, 2016.

    Unfortunately, there have also been several lawsuits which, rather than showing how accounting firms are paragons of probity, have only offered a rare peek into the witch hunt, chicanery and backstabbing in the boardrooms of the Big Four audit firms.

    GJK, who would later on be fired before she moved to court and was reinstated, might just have been a pawn in a high-octane power struggle at KPMG East Africa.

    And so from 2.30pm on October 3, 2016 to 1am the next day, she remained in a meeting room at ABC Place in Westlands, Nairobi, as she had been instructed.

    Between 3.30pm, when Mwaura showed up and 5pm when he left, GJK fielded questions, some touching on her divorce proceedings, from her interrogators.

    Besides Mwaura, there was also Chief Operating Officer Jane Mugo in the room.

    At the end of the interrogation, GJK was asked not to leave the room until she got back her personal phone. She would be alone in the room till early morning, cut off from the outside world and her three-year-old daughter.

    Her personal and official phones as well as her laptop had been taken away by the IT regional manager, for ‘mapping of messages’ from her email and social media accounts, GJK said in her personal statement.

    The IT team combed through her text and WhatsApp messages, emails, M-Pesa and bank transactions, searching for anything that reeked of a love affair between her and her boss.

    Meanwhile, the IT manager was doing the same with Ndung’u’s phones and laptop.

    Unlike GJK, though, Ndung’u only stayed in the CEO’s office for about two hours. Rather than being made to wait, he left behind his phones and laptop for mapping.

    He was also told to stay away from the office for two days so as not to interfere with the investigation.

    Hours before the meeting with GJK, Mwaura had invited Ndung’u to his office and revealed to him the allegations of an inappropriate relationship with his personal assistant, letting him know of his intention to undertake a discreet investigation.

    Ndung’u, according to Mwaura in the court documents, said there was no truth to the allegation, but admitted that he had gifted GJK a honeymoon paid for by the firm.

    “He (Ndung’u) agreed to fully co-operate in the preliminary investigation and agreed that while he had been culpable in other incidents, that I would find him innocent in this one,” remembered Mwaura.

    That came to pass, but Ndung’u was kicked out of the KPGM East Africa partnership anyway.

    The incidents Ndung’u was alluding to included one in which, as the CEO, he had vouched for the company to purchase and build an office in Riverside, Nairobi.

    That deal was mired in controversy and he was forced to resign as the CEO and senior partner.

    “I have always been and will always be grateful for your past positive exercise of discretion, but in this case you will find that I am truly innocent of any alleged impropriety or purported extra-marital affair,” Ndung’u said in a letter to the CEO.

    Mwaura also told the Ohaga-led tribunal that there had earlier been several complaints of sexual harassment at the tax department, all of which happened under Ndung’u’s watch. Some of the complaints, said Mwaura, were actually leveled against Ndung’u. Again, he was cleared of these allegations.

    Nonetheless, due to the allegations, and in light of the enactment of the Sexual Offences Act, the audit firm came up with a non-fraternisation policy, said Mwaura.

    Under the policy “romantic relationships between staff members, especially where one individual has influence over the other’s conditions of employment (were) inappropriate.”

    “Where staff engages in such relationships, both parties will be asked to leave the firm as soon as possible,” reads part of the KPMG’s Staff Handbook.

    While Ndung’u was told that the probe, which eventually found no evidence of an inappropriate relationship between him and his personal assistant, was to take at most two days, it took two weeks.

    Suspecting victimisation, Ndung’u decided to tell on his boss. He sent a complaint to the CEO of KPMG, Southern Africa, Trevor Hoole decrying the course of the investigation.

    In his complaint, he said he feared that he was not going to get justice from Mwaura, and was afraid that the CEO, with whom he had crossed a number of times, was intimidating him.

    Mr Hoole then escalated the matter to KPMG International, who in turn dispatched two senior officers to look into the complaint.

    KPMG International draws at least $1 million (Sh111.8 million) annually in royalty fees for the use of its brand.

    While KPMG East Africa is an independent partnership, there is a code of ethics at the global level that its affiliates are expected to comply with to protect the brand.

    One of the two officers who landed in Nairobi to investigate two complaints against Mwaura was Andrew Cranston.

    Hoole had already let Mwaura know that he had received a complaint from Ndung’u against him.

    That is when what had initially been an investigation on an alleged love affair took a new twist.

    After learning that Ndung’u had raised a complaint against him, Mwaura decided to launch what High Court judge Francis Tuiyott described as a retrial of Ndung’u’s past indiscretions.

    Mwaura laid bare some of Ndung’u’s past conduct, most of which he had already dealt with, before the executive committee of KPMG East Africa.

    But Justice Tuiyott, in a judgment on January 2, 2021, wondered: “The question to be asked is whether Richard Bora Ndung’u would have faced a ‘retrial’ on those past discretions had he not lodged a complaint against Mwaura.”

    In an emotional meeting on December 16, 2016, Ndung’u faced his partners, suspecting that his fate was about to be sealed.

    “He asked partners to consider the past, how he worked and collaborated with them and left his fate in their hands,” read part of the meeting’s minutes.

    He put up a spirited fight, but Mwaura, using his influence as the chairman of the executive committee, outfoxed him. He adjourned the December 16 meeting to January 13, 2017.

    Ndung’u was neither invited nor given notice of the agenda for the second meeting. Without giving Ndung’u an opportunity to prepare his defense, the partners voted to eject him from the firm.

    Both the arbitrator, Ohaga, and Tuiyott found that Ndung’u’s ouster from the partnership of KPMG East Africa was “unprocedural, unfair and unlawful.”

    Ndung’u would have the last laugh. After launching a lawsuit against the firm, he was awarded close to Sh500 million in damages by the arbitrator for wrongful dismissal, before the court reduced it marginally.

    And he is not done yet.

    Ndung’u, who unsuccessfully applied to be Kenya Revenue Authority commissioner-general in 2019, has in a separate suit accused KPMG International of encouraging its KPMG East Africa and KPMG Kenya to take retaliatory action against him on account of “raising” his hand.

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  • Collapsing Mulleys Supermarket Under Probe For Tax Evasion

    Collapsing Mulleys Supermarket Under Probe For Tax Evasion

    Mulleys Supermarket in Machakos County is in the eye of a storm over alleged widespread tax evasion fraud claims. On Friday last week, the retailer closed down its branch situated at the Machakos bus stage in an effort to ward off the instigators from accessing their books of accounts.

    The pioneer locally owned supermarket in Machakos was at one time one of the fastest-growing retailers in the region but seems to have fallen back on tax returns, sources have revealed. Top KRA investigators have been tasked to probe the chain’s weekly returns at a local bank.

    KRA Investigators are said to have unearthed a massive tax evasion racket at the supermarket

    The supermarket is conveniently located opposite the said bank on the way to Machakos town center. According to sources, KRA is probing claims that senior managers at the bank are involved in a massive cover-up in the tax evasion racket. KRA Anti-fraud unit and ICT experts are also investigating a senior Nairobi based auditor who has been blacklisted as a “tax scammer” aiding several firms to evade paying taxes.

    The retailer operates another branch at Mulolongo and is said to owe KRA up to Kshs 300 million in taxes during the period of 2019-2021. The supermarket stocks goods ranging from home furniture, Electronics, Home appliances, Clothes, Home crafts, Farm fresh, Home use products, wines and spirits products.

    The supermarket also retails all basic essential commodities like maize flour, milk, bread, snacks, and domestic cutlery.

    In the latest development, Mulleys Supermarket has announced the closure of five of its 10 branches, in a shock downsizing plan that has seen hundreds of staff laid off.

    The supermarket which had presence in four counties of Nairobi, Machakos, Kitui and Makueni shut down half of its branch network as it struggled to stay afloat amid mounting debts and empty shelves.

    In an ambitious expansion programme that may have gone wrong, the supermarket closed two of its main branches in Machakos town – Mulleys Express near Machakos bus station and Mulleys Pioneer situated opposite Machakos General Hospital.

    Also affected were the Mulleys Kitui branch, Mulleys Highway in Mlolongo market and Mulleys Tala branch.

    According to a notice posted at the entrances of the closed outlets, the supermarket management said their business was undergoing a necessary restructuring and reorganisation process.

    DEBT BURDEN

    “We highly regret all the inconveniences caused by this occurrence but do kindly request you bear with us. We shall keep you updated on new developments along the way” read the notice.

    The management announced that its operations will continue in Mulleys Embakasi in Nairobi, Mulleys Mtaani in Mlolongo, Mulleys Masaa in Machakos, Mulleys Jibambe in Tala and Mulleys Emali in Makueni County.

    Signs that the debt-ridden retail chain was struggling with possible cash flow problems became evident six months ago when their shelves became empty.

  • Elon Musk Sells $5B In Tesla Stock After Twitter Poll

    Elon Musk Sells $5B In Tesla Stock After Twitter Poll

    Tesla chief executive Elon Musk has sold around $5bn (£3.7bn) of shares in the electric carmaker.

    It comes days after he asked his 63 million Twitter followers whether he should sell 10% of his stake in Tesla.

    The company’s shares fell by around 16% in the two days after the poll came out in favour of him selling shares, before regaining some ground on Wednesday.

    Tesla is the world’s most valuable carmaker, with a stock market valuation of more than $1tn.

    Mr Musk’s trust sold almost 3.6 million shares in Tesla, worth around $4bn.

    He also sold another 934,000 shares for about $1.1bn after exercising options to acquire nearly 2.2 million shares, according to filings with the US stock market regulator.

    The documents showed that the sale of about a fifth of the shares was made based on a pre-arranged trading plan set up in September, long before Mr Musk’s social media posts at the weekend about selling some of his shares.

    However, the regulatory filings also showed that the sale of the remainder of the shares had not been scheduled.

    On Saturday, Mr Musk posted a Twitter poll asking his followers to vote on whether he should sell part of his stake in Tesla to meet his tax obligations.

    “Much is made lately of unrealised gains being a means of tax avoidance, so I propose selling 10% of my Tesla stock,” he tweeted.

    “I will abide by the results of this poll, whichever way it goes.”

    The poll attracted more than 3.5 million votes, with nearly 58% voting in favour of the share sale.

    Mr Musk also highlighted that he is not paid in cash by Tesla: “I only have stock, thus the only way for me to pay taxes personally is to sell stock.”

    Part of the latest transaction saw him exercising stock options that he was awarded by the carmaker in 2012 as part of his pay package.

    Such transactions trigger income taxes, which are typically settled using money raised from immediately selling some of the newly acquired shares.

    It was his first sale of shares since 2016, when he last exercised stock options. At the time he also sold some of the shares to cover an income tax bill of close to $600m.

    Mr Musk is the world’s richest personworld’s richest person, with a personal fortune estimated to be more than $280bn.

  • Betting And Borrowing Amplified Safaricom’s Huge Profits

    Betting And Borrowing Amplified Safaricom’s Huge Profits

    Telco operator Safaricom Plc. Wednesday announced an improved performance, posting 12.1 percent growth in net earnings in the first six months of the year, despite the Covid-19 concerns.

    The firm saw net profit grow to Sh37.1 billion covering the period between April and September compared to Sh33 billion it announced in a similar period last year.

    It attributed that growth to increased borrowing through Fuliza and improved transactions via Lipa Na Mpesa – avenues that drove M-Pesa revenues.

    M-PESA revenue recorded strong performance growing 45.8 percent following the return of person to person and Lipa Na M-PESA transactions below Sh1, 000 beginning January 2021. Total transaction value grew 51.5 percent to Sh 13.7trillion.

    In March last year, the country’s apex bank, the Central Bank of Kenya (CBK) announced emergency measures to facilitate increased use of mobile money transactions instead of cash, as a way to curb the virus spread.

    The directive saw all M-Pesa transactions of up to Sh1, 000 discharged at no cost. Kenyans sent a high of Sh4.4 trillion for free when the waiver of fees subjected to such transactions were announced between March 16 and December 31 last year on the platform.

    “Innovation in digital financial services has been a key growth driver for M-PESA. We continue leveraging on technological innovation to enhance access to financial services for consumers and enterprise customers,” said Safaricom’s Chief executive Peter Ndegwa.

    Also felt to have contributed to the firm’s impressive earnings, is improving consumer confidence and business activity boosted by COVID-19 vaccination efforts as well as positive macro-economic projections by the World Bank which forecast the GDP to rebound strongly at 6.3 percent by December 2021.

    “In spite of the past year being one with far-reaching changes and extraordinary circumstances given the pandemic, the board is encouraged by the business resilience and recovery trajectory marked by a return to near normalcy,” commented Safaricom’s Board Chairman Michael Joseph.

    The operator has however, highlighted a host of barriers to its operations, citing increasing regulatory scrutiny, taxation- adjusted excise duty on telco products, looming general elections and political risk as well as mounting pressure on currency and consumer spending due to rising inflation, as some of its fears.

    Other include the ongoing conflict and civil unrest in Ethiopia in what the company fears will disrupt its operations in the populous nation.

    Safaricom on Tuesday evacuated some of its employees to Nairobi using commercial flights with more others scheduled to arrive in the country this week.

    The telco, alongside other partners is seeking to start Ethiopia operations next year, and will then gradually reduce Kenyan expertise and build the local workforce as the business grows.

    The debate around the firm’s market dominance also threatens to expose its brand image, even though Safaricom has a huge backing from the regulators Communications Authority (CA) and Competition Authority of Kenya (CAK) amid protest from smaller player.

    Last week for instance, rival subscriber Airtel Kenya Airtel claimed that CA’s unwillingness to declare Safaricom a dominant provider, had made it difficult for the company to compete commercially in the sector.

    In a 15-page presentation to the Senate Committee on ICT, the operator also accused CA of intentionally subscribing favours to Safaricom in spectrum allocation, despite heavily investing on the network to improve.

    Kenyans spent Sh83.2 billion to place bets in the six months to September through Safaricom’s M-Pesa platform alone, underlining the gambling craze that has become a national pastime.

    The telco’s disclosures show that the value of the bets jumped 69 percent from Sh49.2 billion a year earlier.

    Safaricom, the Kenya Revenue Authority (KRA) and betting firms are the biggest beneficiaries of the growth and intensity of betting activities, pocketing billions.

    The telco’s revenue from betting doubled to Sh2.95 billion from Sh1.48 billion. The taxman is estimated to have collected at least Sh6.2 billion from punters using M-Pesa.

    The KRA takes 7.5 percent of the value of bets placed besides 20 percent of winnings and corporate taxes on betting firms.

    The volume of bets funded from M-Pesa accounts surged 84.7 percent to 347.8 million, signalling a growing gambling addiction.

    The growth of betting comes despite the government trying to curb the activity through higher taxation and increased regulations.

    Betting is popular among young people – employed as well as the jobless — who see it as offering a game-like thrill besides an opportunity to make quick money.

    While a few punters get lucky and win large sums of money, the activity represents missed opportunities and losses for participants as a whole.

    The Sh83.2 billion wagered in the six-month period, for instance, is enough to buy 2.05 billion shares of Safaricom, equivalent to a 5.1 percent stake in the country’s most profitable firm.

    Such a stake would earn dividends of about Sh2.8 billion annually, based on the telco’s latest distribution of Sh1.37 per share for the year ended March.

    Betting is now the second-largest business line by revenue under M-Pesa’s payments and betting unit after consumer-to-business (C2B), which generated sales of Sh5.1 billion in the six months to September.

    The disclosures show that betting firms and punters are being charged some of the highest fees by Safaricom compared to other M-Pesa users.

    The full scale of gambling in the country is unclear but the bets funded from M-Pesa account are expected to represent the majority of the activity given the platform’s dominance in personal payments.

    Betting firms are the biggest beneficiaries of the betting craze but all of them are private firms which are not required to make their accounts public.

    A court case pitting the KRA against Pevans East Africa, which pioneered betting in the country using the SportPesa brand, highlighted the big business the company was doing before its operations were scuttled by the taxman.

    Court papers showed that Pevans alone took in bets worth Sh149.7 billion in 2018, making it the second-largest company in Kenya by revenue after Safaricom at the time.

    Pevans told the KRA that it paid out Sh129.6 billion or 86.5 percent of the bets placed in 2018.

    The company said it kept Sh20.1 billion as gross gaming revenue on which Sh4.8 billion worth of betting tax was due.

    It added that it had paid taxes worth Sh3.6 billion, leaving a balance of Sh1.2 billion.

    The taxman is, however, demanding a revised sum of Sh95 billion in what it claims are unpaid taxes by Pevans and which contributed to the cancellation of the company’s gaming licence in July 2019.

    The high margins in betting had attracted more than 100 companies but their number dropped significantly following the 2019 government crackdown and imposition of multiple taxes.

    It recently emerged that some of the gambling activities were being run by unlicensed operators.

    The Betting Control and Licensing Board (BCLB) in September announced that it had suspended 70 M-Pesa pay bill numbers for unlicensed or unauthorised gaming activities run through broadcast channels.

    The BCLB tabled the list during a meeting with the National Assembly’s ICT committee, which had directed BCLB to prove that the unlicensed gaming activities that are being run on radio and TV stations using playbill numbers issued by telecommunications companies were deactivated.

    The BLCB told the committee chaired by William Kisang that it had directed Safaricom to deactivate the pay bill numbers.

    “The board directed Safaricom PLC to suspend the…pay bill numbers on diverse dates between December 2020 and August 2021,” BCLB chief executive Peter Mbugi said.

    He said the 70 pay bill numbers were suspended as at December 22, 2020.

    He added that although BCLB had not conducted any study, it was possible that the gaming activities by the media can have harmful impact on the public, especially children.

    “The board has on several occasions picked this matter with media houses and has also been working with the Communications Authority of Kenya (CA) to curb the unauthorised promotions and advertisements,” he said.

    Mr Mbugi told the ICT team that the board in collaboration with the CA was reviewing the gaming advertisement guidelines and content to address emerging threats.

    The BCLB and the CA acting director-general Mercy Wanjau appeared before the committee to explain the reasons behind the rampant betting and gambling in the broadcast media and its effects to the public.

    The committee said unscrupulous operators had infiltrated the gaming sector.

    Ms Wanjau told MPs that broadcasters were responsible for advertising material transmitted by their stations and must therefore ensure that all advertisements are legal, honest, decent, truthful, and conform to the rules of fair competition.

    Mr Kisang asked the two regulators to furnish the committee with further information regarding the list of media outlets, paybill numbers and the period the operators have been running the paybill numbers.

    The committee has also asked the regulators to furnish it with details on any taxes avoided or evaded by the operators and the status of the crackdown on unscrupulous operators in the gaming sector across the media.

  • Kileleshwa’s Latest Residential Appeal

    Kileleshwa’s Latest Residential Appeal

    Kileleshwa hosts some of the most admired residential developments in Nairobi. The suburban community hosts mostly young families who are first-time home owners and is surrounded with some of the best amenities including schools, social amenities, healthcare facilities as well as shopping malls.

    Elina residences, a newly completed residential property by Purple Dot International sitting on a 0.8-acre parcel of land is one the area’s new sensation.

    The development comprises of an all en-suite 66 three-bedroom apartments and four 4 penthouse duplexes located along Mandera Road. The design of the units has been tastefully done with attention to details central to daily living for the urban dweller as well as the psychosocial dynamics of family life.

    The interior layout and finishes have also been carefully planned and selected with functionality and value in mind. From the open plan kitchen, dining and living area to a unique nook that inspires a multifunctional use tailored to the family’s specific needs.

    Jiten Kerai CEO Purple Dot International hands over the key to new home owner Cecilia Mwangi. PHOTO: Kenya Insights.

    Speaking to investors and home owners at a key Handover Ceremony, which took place at Elina Residences, Jiten Kerai, General Manager of Purple Dot International Ltd expressed his delight in the project’s timely completion and the confidence that investors had in the project since its inception. “We managed to complete the project on time and well within budget, given the general slowdown of construction last year. The off-plan sales uptake was very encouraging and we are very glad to be able to present our investors and home buyers with a quality finished product as promised”.

    Also present in the ceremony was Purple Dot’s partner financial institutions, Stanbic Bank and Bank of Baroda whose partnership enables clients both local and international, access mortgages and competitive rates among other product offerings. 

    Elina Residences at a glance

    4 Bedroom Penthouse Duplexes 

    4 all en-suite bedrooms

    Open plan layout for the living room

    Panoramic view of suburban Nairobi

    Sliding windows and doors

    4,200 square feet in size

    3 Bedroom Apartments 

    3 all en-suite bedrooms

    Open plan layout for the living room

    Panoramic view of suburban Nairobi

    Sliding windows and doors

    2,300 square feet in size

    Access to the residences is quite easy as it is close to central Westlands, Riverside, Lavington and the CBD. The real estate developer also boasts of similar successful projects including Serene Park Villas in Machakos, Asopalav and Marigold Residency in Langata.

  • Digital Lending in Kenya: Willingness vs. Capacity to Repay

    Digital Lending in Kenya: Willingness vs. Capacity to Repay

    In April 2021, a bill that proposed licensing digital lenders was passed by the Kenyan parliament and is now pending approval from the national assembly. Among other things, this bill would require all digital lenders to submit product pricing to the Central Bank of Kenya for approval before launching, a move that seeks to lower predatory interest rates. Further, non-performing loans would be capped at twice the amount of the initial loan defaulted, which means lenders won’t be able to perpetually increase the amount to be paid back through late-payment fees.

    Much has been written on the fintechs that have flooded the Kenyan market since 2016. FSD and CGAP published alarming evidence in 2018 showing that in addition to a saturated digital lending market, an increasing number of digital borrowers in Kenya became over-indebted, which furthered them into poverty traps. Digital lenders such as OKash and Branch reportedly publicly shamed debtors by texting their friends, family, and colleagues. Further, high-interest rates and non-transparent fees resulted in APR’s above 400 percent, making it more difficult for some low-income borrowers to repay. In some instances, repayment was possible, yet it meant sacrificing other payments like food, medicine, or school fees. And finally, millions of borrowers were reported to credit bureaus for loans smaller than $10.

    During the COVID crisis, the Kenyan Central Bank issued a number of measures to ease the debt burden on borrowers, such as forbiddingunregulated mobile-based and credit-only digital lenders from reporting any late borrowers to credit bureaus. Although this helped ease debt stress on consumers during the crisis, this drove many digital lenders out of the market as levels of default skyrocketed, leaving many Kenyan borrowers underserved. The entire loan market in Kenya shrank due to COVID-19; today, these platforms lend around 2 billion shillings a month, compared to 4 billion shillings in early 2020.

    The proposed bill by the Central Bank of Kenya unfortunately will not address the issue of making digital credit both safe and accessible. The bill focuses on product pricing only, and it doesn’t address the underlying challenge of digital lending platforms: a weak credit assessment model. Such a model extracts large amounts of data from the borrower’s phone and runs it through algorithms that approve or deny the loan. Many digital lenders mitigate the risk of a light-touch credit assessment with above-market APRs and hidden late payment fees, thus being able to generate profit and returns to their investors.

    The primary problem is digital lenders do not measure the capacity of someone to repay, but their willingness to repay, and these are drastically different concepts. Willingness refers to the genuine disposition of a person to pay back their loan. Capacity, on the other hand, refers to the person’s ability to generate enough money in the future to pay back the loan without having to forgo essential expenses.

    For example, I might score very well on a digital risk assessment. My geo-trace shows I go to work every day, my call log shows I call my mom regularly, and my browsing history shows I do not engage in sports bets. These measurements indicate I am a responsible citizen who complies with her duties, suggesting that I have a high willingness to repay a loan. However, I might have astronomical medical expenses that the digital lender is unable to detect. Or I might be sending significant remittances to my family. Both of these relate to my repayment capacity and are measures that digital lending apps tend to ignore in favor of automated decision-making based on more readily available data.

    By comparison, traditional banks run thorough credit risk assessments, sometimes so thorough that they are slow and expensive. These banks have credit committees and risk analysis departments that challenge relationship managers on the loan proposals they present. The result is that most people granted a loan have the means to pay it back. This method excludes the majority of the world’s population from the financial system, however, it also ensures that most people who are granted a consumer loan actually have the capacity to repay.

    So where do we draw the line? How do we expand access to credit to low-income people and informal workers and also protect them from default? How can we measure their capacity to repay in a cheap, digital, and rapid manner? Should we prohibit alternative, digital, phone-based metrics that only assess someone’s willingness to repay?

    A Possible Solution

    The answer could be a measure in between. One idea is that the Central Bank of Kenya could only grant a license to digital lenders that incorporate the borrower’s capacity to repay in their credit assessment algorithms. This means, finding a way to measure, prove and integrate the person’s real income and expenses. Another option could be asking lenders to integrate proxies for repayment capacity. For example, mobile money records could be matched with the borrower’s geolocation to determine where and why they are being paid and predict how stable his or her income is. Coupled with strong data protection measures, this and similar metrics could help curb the high default rate and loan-stacking among digital borrowers in Kenya without causing financial exclusion.

    Further, as suggested in a publication produced by CFI, the Central Bank of Kenya should withdraw a digital lender’s license upon surpassing a threshold percentage of non-performing loans as a share of the total loan portfolio. This would force the lenders to improve their algorithms and creatively design more capacity-measuring metrics. And finally, the CBK should explicitly require licensed digital lenders to cross-check an individual’s loan performance with each other before issuing further credit to prevent loan-stacking. Although the Digital Lenders Association of Kenya (DLAK) advocates for digital lenders to be able to receive and submit borrower information to credit bureaus, this practice has not addressed loan stacking in the past and only served to blacklist millions of borrowers for small amounts. Therefore, digital lenders should be allowed to view and report outstanding loans, yet with very limited power to blacklist a late borrower.

    Kenya cannot go back to the old bank-driven model which financially excluded most of the population, yet Kenyans cannot keep paying the price for the financial experimentation of tech startups. Digital credit should be responsible, affordable, and inclusive. With this new bill, the Central Bank of Kenya is getting closer to achieving it. However, the root cause of the problem is the evaluation algorithm and the business model that stems from it. Without addressing this, little will change for Kenyan borrowers.

  • Inside Kenya Power Procurement Department Under Investigations

    Inside Kenya Power Procurement Department Under Investigations

    Kenya Power has suspended the top leadership of the supply chain division comprising 59 members of staff to pave the way for a forensic audit.

    The electricity distributor said the suspension was part of the recommendations made by the presidential taskforce that sought to reform Kenya Power and the energy sector, so as to catalyse a 33 per cent cut in the cost of the end user tariff by Christmas, this year.

    The utility did not reveal the names of those affected in the latest announcement.

    However, Kenya Insights has learnt that Nyandarua Governor and former Secretary to Cabinet and Head of Public Service Francis Kimemia’s brother is among the 59 procurement staff suspended at Kenya Power as reforms began at the troubled utility firm.

    Standards Manager Eng (Dr) Peter Kimemia describes himself on LinkedIn as ‘experienced Standards Manager with a demonstrated history of working in the utilities industry as energy expert and registered consulting engineer. Skilled in Enterprise Risk Management, Analytical Skills, Power Transmission, Quality Management, Technical Audit’s and Management. Strong engineering professional graduated from University of Nairobi and solid post graduate management and entrepreneurship credentials from Jomo Kenyatta University of Agriculture and Technology’

    Standards Manager Eng (Dr) Peter Kimemia.

    Dr Kimemia’s boss, John Ng’eno, a General Manager, Supply Chain & Logistics at Kenya Power & Lighting Company was also sent home in what promises to be a thorough clean-up at KPLC.

    However, the division led by Dr. Ngeno, is responsible for managing procurement inventory.

    “As a consequence, and in compliance with the taskforce recommendations, Kenya Powerhas, with immediate effect, suspended the top leadership of the supply chain division comprising 59 members of staff to pave the way for forensic audit. In the interim, the company has appointed a team in an acting capacity to ensure business continuity,” Kenya Power said.

    The unit controls the bulk of the Kes47.8 billion spent by Kenya Power every year on operations, network management, commercial and administrative costs.

    Previously, the unit was led by former Kenya power CEO Bernard Ngugi before he was appointed to the corner office.

    Mr Ngugi left Kenya Power in a huff in August citing boardroom wrangles following the board’s involvement in matters procurement.

    Kenya Power has been bogged down by several procurement scandals in recent years ranging from faulty meters to over-priced transformers, besides billing and power tokens’ purchase scams.

    Jobs at Kenya Power, which is currently being headed by former general manager customer service, Engineer Rosmary Oduor are very insecure.

    Kenya Power has had four CEO’s in just four years, reflecting a troubling turnover rate at the troubled company’s highest office.

    In 2018, Mr Ken Tarus was hounded out of office and charged along his predecessor, Dr Ben Chumo, and a number of other senior managers for conspiring to commit an economic crime and abuse of office.

    He was replaced by Jared Othieno in acting capacity.

    Mr Othieno served up to 2019 and was replaced by Mr Ngugi who was at the time head of its procurement division.

  • Twitter Has Spoken, Elon Musk Should Sell 10pc Of Tesla Stock

    Twitter Has Spoken, Elon Musk Should Sell 10pc Of Tesla Stock

    Twitter has spoken after Elon Musk polled his more than 62 million followers on whether he should sell 10 percent of his Tesla shares, by Sunday a majority had voted “yes.”

    “I was prepared to accept either outcome,” said Musk, who regularly takes to Twitter to make unexpected announcements or surprising comments. He did not specify when or how he plans to sell the shares.

    The electric car maker’s query on Saturday night follows a proposal by US Congressional Democrats to tax the super wealthy more heavily by targeting stocks, which are usually only taxed when sold.

    Musk had already criticized the proposal at the end of October, tweeting: “Eventually, they run out of other people’s money and then they come for you.”

    He broached the topic again on Saturday, writing on Twitter: “Much is made lately of unrealized gains being a means of tax avoidance, so I propose selling 10% of my Tesla stock.”

    He also shared a poll asking followers whether they agree “yes” or “no.”

    By Sunday, 57.9 percent of those who voted had picked “yes.”

    Musk owned about 17 percent of Tesla’s outstanding shares as of June 30, currently worth $208.37 billion, according to Bloomberg.

    The entrepreneur was also awarded a large package of stock options and convertible shares as compensation.

    By selling 10 percent of his shares, he could theoretically earn just under $21 billion.

    His wealth swelled with the recent surge in Tesla’s stock price, from about $130 at the start of 2020 to $1,222.09 as of Friday.

    Taking into account his stakes in his other companies, such as neurotechnology firm Neuralink and SpaceX, Musk is the world’s riches man in theory, with an estimated fortune of some $338 billion, according to Bloomberg.

    “Note, I do not take a cash salary or bonus from anywhere,” Musk tweeted Saturday.

    “I only have stock, thus the only way for me to pay taxes personally is to sell stock.”

    No matter the results of the poll, Musk would have likely started selling millions of shares this quarter. The reason: a looming tax bill of more than $15 billion.

    Musk was awarded options in 2012 as part of a compensation plan. Because he doesn’t take a salary or cash bonus, his wealth comes from stock awards and the gains in Tesla’s share price. The 2012 award was for 22.8 million shares at a strike price of $6.24 per share. Tesla shares closed at $1,222.09 on Friday, meaning his gain on the shares totals just under $28 billion.

    The company has also recently disclosed that Musk has taken out loans using his shares as collateral, and with the sales, Musk may want to repay some of those loan obligations.

    As Tesla noted in its third-quarter Securities and Exchange Commission 10-Q filing this year: “If the price of our common stock were to decline substantially, Mr. Musk may be forced by one or more of the banking institutions to sell shares of Tesla common stock to satisfy his loan obligations if he could not do so through other means. Any such sales could cause the price of our common stock to decline further.”

    The options expire in August of next year. Yet in order to exercise them, Musk has to pay the income tax on the gain. Since the options are taxed as an employee benefit or compensation, they will be taxed at top ordinary-income levels, or 37% plus the 3.8% net investment tax. He will also have to pay the 13.3% top tax rate in California since the options were granted and mostly earned while he was a California tax resident.

    Combined, the state and federal tax rate will be 54.1%. So the total tax bill on his options, at the current price, would be $15 billion.

    Musk hasn’t confirmed the size of the tax bill. But he tweeted: “Note, I do not take a cash salary or bonus from anywhere. I only have stock, thus the only way for me to pay taxes personally is to sell stock.”

    Since CEOs have limited windows in which to sell stock, and Musk would likely want to stagger the sales over at least two quarters, analysts and tax experts have been expecting Musk to start selling in the fourth quarter of 2021.

    At an appearance at the Code conference in September, Musk said: “I have a bunch of options that are expiring early next year, so … a huge block of options will sell in Q4 — because I have to or they’ll expire.”

    Musk, of course, could also borrow more against his Tesla shares, which now total over $200 billion. Yet he has already pledged 92 million shares to lenders for cash borrowing. When asked at the Code conference about borrowing against such volatile shares, he said, “Stocks don’t always go up, they also go down.”

    Musk is still racking up options beyond those granted via Tesla’s 2012 pay package. In March 2018, Tesla’s board of directors granted him an unprecedented “CEO Performance Award” consisting of 101.3 million stock options (adjusted for the 5-for-1 stock split in 2020) in 12 milestone-based tranches.

  • Court Rescues Tangaza From KRA

    Court Rescues Tangaza From KRA

    Central Bank of Kenya (CBK) has been barred from interfering with operations of software firm Our Open Market Ltd which runs payments services for Mobile Pay Limited (MPL) commonly known as Tangaza.

    In a Tuesday High Court ruling, Lady Justice Janet Mulwa instructed lawyers representing CBK and MPL owners to file their respective submissions before November 8, when the case will be heard.

    The ruling gave temporary reprieve to the firm whose offices were raided on October 26, 2021 by officials from CBK, revoking its licence in the process on regulatory breaches.

    While revoking the firm’s license last week, CBK accused the firm of repeatedly violating the NPS (National Payments System) law and regulation saying it had failed to submit tax compliance reports including audited financial reports as required by the regulator.

    Funds safe

    “MPL has persistently failed to discharge its statutory obligations, among others, non-submission of audited annual Financial Accounts of the Trust Fund (Tangaza Trust) and MPL, non-submission of annual systems security audit report, and non-submission of quarterly reports for CBK’s oversight,” argued CBK, saying the firm was putting customer funds at risk.

    The firm’s chief executive yesterday refuted claims at a media briefing, saying customer funds are safe.

    “We wish to bring to the attention of the general public that contrary to CBK press release indicating that customer funds may be at risk, and that public trust could be eroded.

    No customer funds were exposed to any risk and all customer funds have always been available and safe since 2011, and no complaints of any nature were raised with them by our customers,”  said the firm’s  Chief executive Oscar Ikinu while addressing journalists.

    Abiding by the law

    MPL is the smallest of the four mobile Payments Service Providers in Kenya – PSPs, with less than 0.01 per cent of total mobile money subscribers which described last week’s actions as “procedural and without compliance of the law.”

    The firm said CBK forcefully took control of data centres, software systems, computers, and equipment operated by affiliate companies Mobile Pay Limited, Our Open Market Limited and Creative World Architects.

    “We hope that the Central Bank will abide by the rule of law and comply with the high court orders as served,” the CEO said.

  • Senior KPLC Officials Suspended In Cleanup Exercise

    Senior KPLC Officials Suspended In Cleanup Exercise

    Kenya Power has suspended top leadership of the Supply Chain Division comprising 59 members with immediate effect.

    In a statement released on Thursday, the decision will pave way for forensic audit as recommended by the Presidential Taskforce on the Review of Power Purchase Agreements report presented to President Uhuru Kenyatta on September 29, 2021.

    “In the interim, the Company has appointed a team in an acting capacity to ensure business continuity,” the firm said in a statement.

    The Taskforce which was constituted in March 29, 2021 President Kenyatta was mandated to address the high cost of electricity for both individual consumers and enterprises.

    The nine point recommendations included a forensic audit on the procurement and system losses arising from the use of Heavy Fuel Oils (HFOs).

    “The goal of the forensic audit, which will be done on the procurement systems, stock and staff, is to enhance the robustness of the Company’s supply chain processes so as to anchor them on the principles of value for money, professionalism and accountability,” said KPLC.

    Upon implementation of the report, consumer tariffs is expected to drop from an average of Kshs. 24 per kilowatt hour to Kshs. 16 per kilowatt hour which is about two thirds of the current tariff by December 25, 2021.

    Among the recommendations that were made by the Taskforce was a review of Power Purchase Agreements (PPAs) in order to lower the cost of purchasing power from Independent Power Producers (IPPs) with the aim of securing the sector’s sustainability.

    Sources indicate that some rogue employees at the company have been collaborating with shadow entities to undercut the firm and unsuspecting consumers by generating and selling pre-paid tokens contrary to KPLC policies.

    The scam involves enticing consumers with cheap fraudulent pre-paid tokens offered online which disappear upon payment.

    The tokens fraud is said to be aided through social media platforms and websites such as alphamikofficial.com where consumers are required to key in personal details including metre numbers.

    The audit comes as Kenya Power bounced back to profitability after years of  heavy losses, reporting a full year net profit of Kshs. 1.5 billion driven by increased electricity sales and lower operational expenses.

  • State Unveils New Force To Crackdown On Cyberbullies

    State Unveils New Force To Crackdown On Cyberbullies

    A crackdown against cybercrime and social media bullies has inched closer to reality with the unveiling of the Secretariat to operationalise the relevant law.

    The National Computer and Cybercrime Coordination Committee (NC4) will be tasked with consolidating action on the detection, investigation and prosecution of cybercrimes.

    Interior Cabinet Secretary Dr Fred Matiang’i said the Secretariat will prioritize the misuse of social media which he described as a major threat to national security and integration.

    The CS who officiated the launch of the Secretariat at the Kenya Institute of Curriculum Development said there will be a sustained crackdown against culprits especially in the run-up to the General Election.

    “As we approach the general elections, our challenge number one is the misuse and abuse of social media,” he said, adding that digital communication and transactions were a growing reality of the public and private sectors and urged all arms of the government to invest commensurately in relevant training.

    He noted that the adoption of technology had also seen steady growth in cybercrime and other digital-driven crimes and challenged the players in law and order sectors including the Judiciary to incorporate digital training within its ranks.

    “Nations around the world are pumping resources into research on cybersecurity…Our conflicts are going to move to the Judiciary, and the judges must be capacitated enough to help us resolve them.”

    ICT CS Joe Mucheru said the new law was necessary to support the digital economy and called for its stringent application.

    “People have been giving public holidays on social media, killing others online, and even publishing content from different countries to mislead citizens. This habit must stop.”

    Interior Principal Secretary Dr Karanja Kibicho who chairs the NC4 said the unveiling of the Secretariat will deter rampant abuse and character assassinations on social media.

    “The operationalisation of this Secretariat and the law will provide us as a country with a very good foundation to get recourse from those who are hiding behind the keyboard of their phones to commit crime,” he said.

    The NC4 was established under the Computer Misuse and Cybercrime Act of 2018 to enable timely prohibition, detection, investigation, prosecution and response to computer misuse and cybercrime.

    The Act provides a framework to fight computer misuse and cybercrime by facilitating investigation procedures for local and international cooperation.

    It establishes jurisdiction and prescribes penalties for crimes such as mobile money fraud, developing websites to steal people’s information and child pornography among others.

    The Committee comprises representatives from the Kenya Defence Forces, the National Police Service, the National Intelligence Service, the Ministry of the Interior, as well as representatives from the office of the Attorney General and Director of Public Prosecutions, Communications Authority of Kenya and the Central Bank among other agencies.

  • KenGen Facing Hefty Fine For Not Cushioning Shareholders

    KenGen Facing Hefty Fine For Not Cushioning Shareholders

    Kenya Electricity Generating Company PLC (KenGen) posted a 7 percent growth in Profit Before Tax after recording a Ksh.14.76 billion profit up from Shs 13.79 billion profit in its full-year Financial Results for the financial year ended 30th June 2021.

    In a statement, the firm’s Managing Director Rebecca Miano said the profit growth was achieved on the back of continued revenue growth underpinned by the company’s diversification strategy.

    In effect, the firm recommended a dividend pay-out Shs.0.30 per share which amounts to Shs 1.98 billion to be paid to all its shareholders.

    Overall, there was a growth of 3% in unit sales from 8,237GWh in 2020 to 8,443GWh in 2021. The Company benefited from a full year operation of the 172MW Olkaria V geothermal power plant whose construction was completed in October 2019, resulting in a 12% displacement of thermal generation.

    However, despite the glittering results, the energy producer is headed for a shoulder brush with the market authority for failing to cushion consumers with a profit warning.

    KenGen whose net income dropped by at least 25% in the year ended June, is accused of going against compliance requirements among Nairobi Securities Exchange-listed firms by failing to issue the shareholders with a profit warning.

    The big profit drop came as a shock to investors, with the company’s share price declining 2.5 percent in yesterday’s trading to Sh4.57 as the market reacted to the news.

    The Capital Markets Authority (CMA) requires listed firms to issue a profit warning within 24 hours of becoming aware that their net earnings will drop by a quarter or more for their respective financial year results.

    Such announcements are meant to give existing and prospective shareholders a guide to a company’s performance well in advance of what would otherwise be shocking results.

    KenGen did not issue a profit warning prior to publication of its results.

    According to the company the profit drop was brought by circumstances out of its control, hence it did not see the need to publish an earnings alert.

    ”That explanation does not make sense. Kengen credibility is on the line.” Isaac Koech reacted.

    “As a public entity they are held to the highest scrutiny, must deliver the public expectation. They cannot hide under the cloak of generality, should have issued a profit warning regardless of compliance.” He added.

    ”Sounds very dodgy.” One Brian reacted on KenGen.

    Previously, the markets regulator has penalised investment firm Centum for failing to issue a profit warning before announcing a drop in its full-year net profit.

    Companies listed at the Nairobi Securities Exchange (NSE) are required to warn investors if their full-year profits will drop by more than 25 before actual announcements, with the law stating that offenders will pay a fine set at the discretion of the regulator.

    The earnings alert should be sent to the NSE, CMA, and the public at least 24 hours before announcement of the results, a rule Centum did not adhere to.

    “An issuer who fails to comply with any continuing obligation within the prescribed time shall be liable to pay a penalty at the rate prescribed by the authority,” says the CMA public disclosure requirement.

    CMA forwarded amendments to Treasury that will allow CMA to reprimand directors who fail in the duty to protect investors’ interest saying it was impunity that a board would have prior information on results but opt to ignore the law as is the case of KenGen now and Centum then.

    Last year the Acting Chief Executive of Capital Markets Authority Wycliffe Shamiah warned companies listed on the Nairobi Securities Exchange against issuing profit warnings late. 

    Shamiah urged the firms to comply with listing rules which require companies to issue a profit warning within 24 hours of the board becoming aware that returns will fall by more than 25 percent compared to the previous financial year.

    “Good corporate governance practices dictate that companies prepare prudent periodic management accounts and projections. The company’s management and board also ought to be aware of the declining levels of profits well before commencement of external audit,” he said.

    Shamiah said the Authority will continue to implement the penalties for late filing.

    In 2016, National Bank of Kenya was fined an undisclosed amount of money for failing to publicly issue a profit warning ahead of announcing a surprise loss.

  • Fly 748 To Showcase Why It Remains Most Affordable For Domestic Flights At The Sarit Tourist Expi

    Fly 748 To Showcase Why It Remains Most Affordable For Domestic Flights At The Sarit Tourist Expi

    The growing demand for domestic flights has seen airlines double their travels with KCAA saying Western and Coastal regions commanding the biggest share. With huge demand, tickets prices have in recent weeks sored with some airlines going ad high ad Sh10,000 for a one way flight, this is like triple the amount of the amount paid 3 months ago.

    748 Air Services who joined the competitive market and grabbed it with their friendly prices has set up a booth at the ongoing Tourism Fair at the Sarit Expo Center, to cater to the rising number of travelers’ in need of affordable domestic flights.

    Since last year, the airline has been on an aggressive domestic routes expansion from flying to the Mara only, to now flying to Malindi, Ukunda, Mombasa and Kisumu to support business and leisure tourism.

    748 Air Services Managing Director, Moses Mwangi said with the curfew being lifted, Kenyans are now traveling more have a bigger opportunity to capitalize on affordable offers in the hospitality and aviation sector to explore our magical country.

    “The getaway tourism fair will provide Kenyans with various exciting offers for holiday destinations as the peak season is approaching. I would like to encourage everyone to take advantage of these offers in the aviation and hospitality sectors to explore this Magical country,” said Mr. Mwangi.

    The airline will use the forum to showcase its new domestic routes, most of them in the coastal tourism circuit offering travelers competitive airfares starting from KES 5,350 for a one way ticket.

    The pandemic did not only freeze the travels but also felt a big blow to the hospitality. With the new openings and the symbiotic relationship between domestic flights and hospitality, tourism which forms a big deal for national revenue is likely to experience a boost in income.

  • Don’t Buy A House Off A Brochure, Look At What Primo Park Advertised And What’s On The Ground

    Don’t Buy A House Off A Brochure, Look At What Primo Park Advertised And What’s On The Ground

    Marketing depends generally on two factors, perception and deception and it’s the marketer’s job to manipulate, convince a customer by taking advantage of the factors into putting them in a box and into buying their products and services.

    Growing demand for homes and houses in urban areas with many willing to throw in millions in investments to own their own houses, has seen real estate firms develop plans and properties for easy and quick acquisition. With a high demand, spaces and land land continue to shrink, and given a corrupted system, structures are erected without  a clear plan ending up to a disorganized state of buildings.

    In Nairobi, estates are congested with suffocating apartments coming up everyday, one wonders if the city planners ever pay attention and approving structures blindly. The truth is, with a bribe, you can put up a building in a river bed and we’ve seen that happening alot.

    In Parklands, Primo Park apartments developed by Primofort Investment Ltd has drawn attention to many following photos of the building that went viral on the social media.

     

    Most of the real estate agents rely on excellently polishes brochures that typically show the artist’s impression of the building and mostly not what’s on the ground for marketing. Unsuspecting clients are easily lured into buying. For instance, a potential investor in diaspora who can’t visit the actual site, would easily buy what is shown on the brochures and other adverts without having the touch of reality. This has seen many people invest their hard earned cash in dubious deals that turned out later as scam. Deceptive marketing is a devil.

    Looking at the Primo Park’s website for instance, you’ll notice the gallery of the apartments shows well furnished, glamorous interiors with breathtaking views, you’ll be easily convinced. Curiously, they don’t show how the house looks like from the outside which is key when one is making a comprehensive decision. The surrounding is essential in making up one’s mind.

    The artist’s impression of the building.
    Artist’s impression looking really enticing.
    The actual look of the house on the ground. Adjacent building swallowing the balconies, darkness and obviously there’s a privacy issue for potential home owners.
    Electric line hanging dangerously next to the buildings.

    Nairobi City planners got their lack of ethics and love for bribery, are overlooking essential safety measures for residents, approving dangerous buildings, uncoordinated job turning the city into a big slum.

     

  • President’s Directive A Relief To Millions Blacklisted With CRB

    President’s Directive A Relief To Millions Blacklisted With CRB

    President Uhuru Kenyatta has directed the National Treasury to effect a moratorium of listing in CRBs, for loans less than Ksh 5 million for a period of 12 months to end September 2022.

    This is according to a directive by President Uhuru Kenyatta who was speaking during the Mashujaa Day celebrations held in Kirinyaga County.

    In his directive the president said borrowers with loans below Ksh. 5 million listed with CRBs from October 2020 to date will not have that listing incorporated in their credit reports for the next 12 months, ending September 2022.

    “In addition to foregoing measures and to accelerate our economic recovery, I urge all banks and financial institutions to accommodate customers who seek to restructure their banking facilities,” urged President Kenyatta.

    Digital financial services

    In recognition of the importance of digital financial services, especially to the small scale traders and the household at large the president directed the Treasury to engage all digital payment providers with an aim of deepening and expanding the use of digital payment channels.

  • Competition Authority Warns State House Against Adopting Narendra Raval’s Proposal Of Hiking Levy On Clinker

    Competition Authority Warns State House Against Adopting Narendra Raval’s Proposal Of Hiking Levy On Clinker

    ‘Guru’ Narendra Raval made his name from being a business genius and in the steel industry through his company Devki Group. Through his company, Devki Group has been expanding his empire into cement business. In 2015, Mr Raval turned down Mr Aliko Dangote’s offer to acquire part of the Devki empire as a means of accessing the East African market.

    He has since been expanding rapidly and he beat rivals Rai family to the court battle to take over Athi River Mining (ARM) where Guru emerged the winner and gave him teeth into cement and fertilizer business.

    ARM deal made Guru’s National Cement Company (NCC) the second biggest cement maker in Kenya. National Cement has merged with Cemtech in West Pokot which controls huge limestone, clay deposits.

    In the five years to 2020, cement makers spent an annual average of Sh8.3 billion to import 4,439.7 tonnes of clinker from countries such as Saudi Arabia, United Arab Emirates, Egypt and Pakistan.

    This gave a lucrative space for local production of clinker which saw Devki invest heavily in putting up plants across the country with the hopes of gaining a monopoly and being the sole supplier to other cement makers.

    There was a push by some cement manufacturers for Kenya to raise import duty on clinker to 25 per cent from the current 10 per cent, but the clamour has faltered, Devki spearheaded this push in the hopes that it would discourage imports and make manufacturers stream to him for the vital ingredient.

    Competitors have often accused Raval of using his proximity to Statehouse as he’s close to the President to push for unfavorable and selfish deals like raising raising imports duties from 10% to 25% a lobby campaign that he has pushed for long and vigorously in the past few weeks and days.

    The clinker wars that favors Devki have attracted criesfrom close competitors like Savannah Cement who accused Raval of using his proximity to Statehouse to lobby for unfavorable terms to his competitors in bid to lock them out and cement his market dominance which they termed as unhealthy.

    Raval has been accused oftentimes by a section of cement manufacturers claiming the firm was playing politics in a bid to get the government to increase import duty on clinker this became apparent when National Cement threatened to lay off workers at its clinker production plant in an arm twisting and blackmail tactic to push state into adopting his bid.

    Devki Chairman Narendra Raval said the company would send home at least 860 employees working at its Emali-based clinker production plant as demand had failed to pick, with local cement firms preferring to import clinker.

    This would come after 300 employees were laid off after the firm shut its clinker facility in Mombasa.

    However, major competitors Bamburi, Rai, Savannah and Ndovu Cement faulted the firm, saying the clinker issue was being addressed through a “collaborative initiative” that National Cement is part of.

    They said the firm was being “disingenuous” on an industry-wide issue that key stakeholders have engaged on.

    “I do not see why National Cement is playing politics with such a sensitive long-term industry issue that has taken  over a year and which involved the entire cement industry and key stakeholders, including National Cement,” said Savannah Cement Chairman Benson Ndeta in a joint statement on Monday.

    He added that Devki was attempting to strong-arm the government into imposing higher taxes on imports, a move that would “serve one player’s personal interests and expectations”.

    Local cement firms have been fighting over whether to increase import duty on clinker, with National Cement and Mombasa Cement championing a tax increase while the four others have opposed it.

    This led the industry to set up a committee, together with Kenya Association of Manufacturers and the ministries of Industrialisation, Petroleum and Mining and National Treasury, to look into clinker production and consumption.

    The committee, which gave its report mid-September, recommended that the industry be given a four-year window to increase its clinker production capacity, after which the State can increase duty on imports.

    The Competition Authority of Kenya (CAK) is warning the government against implementing a proposal by billionaire industrialist Narendra Raval to raise the import duty on clinker, a raw material used in cement production, from 10 percent to 25 percent.

    Mr Raval whose Devki Group owns four cement firms has been lobbying the government to raise the taxes, arguing that the country now has enough capacity to meet its clinker needs.

    But the competition watchdog says the proposal is a self-serving move on the part of Devki which has a near-monopoly on the means of manufacturing clinker, adding that it risks shutting down rival plants and raising cement prices

    In an advisory opinion to State House, the Treasury and other government departments, the regulator noted that imported clinker is cheaper and that the window to import or produce it locally should be maintained to ensure healthy competition.

    The State has been considering increasing the import duty, drawing protests from Raval’s rivals — Bamburi Cement, Savannah and Rai. The watchdog says expensive imported clinker will make it easier for Raval to control cement prices through influencing rivals’ production costs, killing them by controlling supply of the critical raw material.

    “Increasing the current import duties will therefore distort the market, entrench National Cement’s position as a cement manufacturer and a clinker supplier and placing it at a position to foreclosing competitors and barring entry into the market,” the CAK wrote in the letter.

    “Further, increasing duty will make it more costly [sic] for firms to import clinker yet sourcing from local manufacturers is even more expensive.The proposal seems not to be attending to an existing market/consumer problem but a private/shareholder investment strategy.

    The billionaire, 59, who made his initial fortune in the steel industry, has spent billions of shillings in recent years to build a cement empire. Devki has annual revenues of more than $800 million (Sh88 billion), producing steel products, roofing sheets and cement among other items.

    The conglomerate now owns National Cement, Simba Cement, ARM Cement and Cemtech, fuelling the expansion through its own resources and loans from banks and the International Finance Corporation (IFC).

    The CAK’s analysis shows that the Devki entities control a combined 84 percent of limestone mining allocation, giving them excess power in the extraction of the mineral which is a key component in producing clinker. Limestone is mixed with clay soil and iron ore to make clinker which is then ground with gypsum to make cement.

    Mr Raval, one of the richest and well-connected businessmen in the country, has argued that raising taxes on foreign clinker or banning imports altogether is now possible because of the ability to produce the commodity locally.

    He says the move will help create jobs for Kenyans and improve the country’s balance of payments. Mr Raval recently announced that his company, National Cement, will cut more than 800 jobs because of weak demand for clinker as a result of the government’s failure to curb imports of the commodity.

    Rivals protested, accusing him of using his position as one of the country’s biggest employers to arm-twist the government into restricting clinker imports

    It marked a rare fallout among members of the Kenya Association of Manufacturers (KAM) who traditionally take a position to lobby policymakers. The chief executives of Savannah Cement, Bamburi Cement, Rai Cement and Karsan Ramji & Sons Limited issued a statement to condemn what they termed a disingenuous “public outcry” by National Cement.

    They said the company had gone against the all-inclusive National Independent Clinker Verification Committee whose key recommendation is that players should be given a grace period of four years before any increase of import duty

    Mr Raval’s moves are reminiscent of Nigeria’s protectionist policies starting in 1999 that turbocharged the business empire of Aliko Dangote who went on to become the richest man in Africa with a fortune estimated at $12.8 billion (Sh1.4 trillion).

    In an interview with the Financial Times, Mr Dangote said Nigeria’s former president Olusegun Obasanjo summoned him and asked why the country could not produce cement.

    The businessman told Mr Obasanjo that it was more profitable to trade than to produce, adding that restricting imports would incentivise manufacturing. The President agreed and the protectionist policies started, helping the businessman to build the largest commodities empire on the continent ranging from cement, petrochemicals and sugar

    Mr Dangote said he helped fund Mr Obasanjo’s electoral campaigns, demonstrating how top entrepreneurs are uniquely positioned to shape policy to their benefit. The CAK says Devki’s proposal risks reversing the steady decline in cement prices over the years, an outcome of brutal price wars fuelled by expansion of entrenched and new players despite a growing glut in the local and regional markets.

    The regulator says real prices declined by more than 20 percent in Kenya between 2014 and 2018, making the cement sector one of the few industries to cut prices despite rising input costs.

    The regulator said that the current landed cost for a tonne of clinker from the international markets ranges from $100 (Sh11,000) to $110 (Sh12,200), which is cheaper than locally purchased clinker

    The CAK argued that it approved Devki’s expansion in the cement sector through acquisitions due to the fact that its rivals have access to imported clinker. The statement signals that should restriction on clinker imports be imposed, the regulator could push for the breakup of Devki’s cement empire since its control of the commodity will then have a major impact on competition.

    Devki has in the past few years spent more than Sh6 billion to acquire ARM Cement and Cemtech, growing its sales market share and gaining access to more limestone mining rights.

  • Consumer Body Trashes Peptang’s Re-Charge Dawa Drink For Flu As Big Deception

    Consumer Body Trashes Peptang’s Re-Charge Dawa Drink For Flu As Big Deception

    Peptang maker Premier Foods, inspired by homemade ‘dawa‘, a herbal drink Kenyans enjoy to treat common flu, has introduced a new beverage, eyeing the market also served by restaurants.

    The firm launched its latest product dubbed Recharge Dawa that will be on sale in supermarkets.

    Dawa, which means medicine in Kiswahili, is made up of honey, lemon and ginger as its key ingredients.

    “Recharge Dawa drink contains all the ingredients used by locals; ginger a natural antioxidant, lemon rich in Vitamin C and great for detoxing, and honey a good source of antioxidant,” Premier Foods CEO Joseph Choge said.

    “Unlike the homemade drink that one has to drink hot, this one is already packaged for you and is readily available in the market,” he added.

    Mr Choge noted that dawa has the health benefits of soothing sore throats, flu or colds, and added that the new product is a good example of listening to the market and moving with the times.

    However, the Consumers Federation of Kenya (Cofek) has trashed the drink and advertisement as deceptive.

    “The ‘medicine’ has not be certified as such by the Pharmacy and Poisons Board. Therefore, the use of the name ‘dawa’ (Swahili for medicine) is fatally misleading. It must be dropped. Even if it were to be certified, the minimum ingredients threshold must be specified and met.” Cofek said.

    The popular ‘dawa’ that contains lemon, ginger and honey is served hot at restaurants, hotels and even bars – on request.

    Normally, the lemon, ginger and honey are natural and not processed.

    The popular ‘dawa’ drink retails between an average Sh100 to Sh1,000 per glass in high-end hotels.

    Served cold, the ‘dawa’ does not serve it purpose at all. It is also not clear whether the deceptive marketing brand Recharge Dawa to be sold in supermarkets requires a consumer to boil before use.

    The body is now asking authorities not to allow the drink to be on the shelves without doing the due diligence for the protection of consumers who’d fall for the ‘deception’

    “In the likely event that the new Recharge Dawa was boiled before packaging, it has a high risk of being carcinogenic (cancer-causing) since it is stored in plastic bottles whose internal walls melt and dissolve in the drink if packed hot. Cofek hopes that the Kenya Bureau of Standards (KEBS) will conduct due diligence before allowing the drink to be on retail shelves. While we support Premier Foods efforts in product diversification, its management must be brought to speed with provisions of Article 46 of the Constitution and the Consumer Protection Act, 2012 as regards deceptive advertising.” Cofek said.

  • More Kenyan Tea Pickers Sues Finlay Over Gross Human Rights Violations

    More Kenyan Tea Pickers Sues Finlay Over Gross Human Rights Violations

    More trouble is brewing for one of the world’s largest tea producers, James Finlay, as 1,300 former tea pickers have now filed fresh suits against the multinational in Scotland seeking compensation for injuries suffered as a result of harsh working conditions.

    Behan & Okero Advocates has confirmed the cases have formally been filed in Scotland, and several other workers could follow suit by lodging more claims against the multinational.

    The fresh cases have pushed claims against James Finlay to Sh2.614 billion, even as the Kenyan courts hold the keys to a crucial inspection of farms where workers say they suffered injuries.

    Behan & Okero Advocates is working with Wales-based Hugh James Solicitors, the law firm that successfully represented coal miners in a £2 billion (Sh301 billion) compensation claim against the Welsh government, and Scotland’s Thompson Solicitors in the Edinburgh cases.

    For James Finlay, the cases have opened a can of worms.

    Aside from the risk of paying billions of shillings in reparations, the company is staring at potential boycotts in the United Kingdom where multinationals with a Kenyan presence have previously become pariahs on account of human rights abuses.

    Last year, Kakuzi PLC was blacklisted by top retail chains in Europe after a group of neighbouring residents sued the multinational’s parent companies for injuries allegedly sustained from vicious assault by guards protecting avocado farms.

    Kakuzi lost hundreds of millions after top retailers like Tesco and Sainsbury’s suspended purchase of avocadoes grown in the multinational’s farms in Murang’a.

    Seven Kenyans fired the first salvo in the All Scotland Sheriff Personal Injury Court, filing a suit in 2017 demanding that James Finlay Kenya compensates each of them with Sh2 million for injuries suffered on the multinational’s farms in Kericho and Bomet counties.

    Elly Okongo Ingang’a, Lucas Onduse Omoke, Vitalis Otieno Muga, Rebecca Okenyuri Nyakondo, Joice Mongare Ochoi, Christopher Owamba Chuma and Gesula Matela Idinga each filed individual cases in Edinburgh, Scotland.

    The seven claims filed on May 8, 2017, were test cases, which were to open the door for thousands of other past and present workers to sue James Finlay.

    Both sides of the compensation war agreed that Scotland’s courts have the authority to determine the dispute.

    James Finlay is enjoying orders barring the inspection until local courts adopt the directions issued by Scottish judge Kenneth McGowan.

    But for three years, lawyers representing the claimants have been unable to access James Finlay’s farms to allow experts collect evidence intended for the Scottish cases.

    The inspection was barred following a case filed by James Finlay, which has revealed a gap in local laws that could affect other cases in which foreign courts where orders are issued for enforcement in Kenya.

    Kenya’s laws only refer to adoption of foreign judgments, or orders issued at the end of a case.

    The Foreign Judgments (Reciprocal Enforcement) Orders Act does not give direction on how to deal with court orders issued in foreign courts and which are not final in nature.

    Kenya’s Supreme Court has now been asked to determine whether there is need to get a local endorsement of foreign orders in instances where both parties have agreed to have a matter determined by judges in other countries.

    The seven claimants also want the top court to rule on whether foreign orders issued before the end of a case must be endorsed by Kenyan judges before execution.

    The High Court and Court of Appeal have already pronounced themselves on the dispute, ruling that Kenya’s Judiciary must endorse orders issued by its foreign counterparts. The move has now stalled inspection of James Finlay farms, and by extension the cases in Scotland.

    On December 18, 2018 Mr McGowan ordered James Finlay to allow a team of lawyers and scientists to inspect farms and collect evidence to be used in the seven test cases.

    The inspection was to be done no later than February, 2019.

  • NCBA And KCB Customers To Have Their Accounts Blocked If They Default On Repaying Fuliza

    NCBA And KCB Customers To Have Their Accounts Blocked If They Default On Repaying Fuliza

    For those who hold bank accounts in NCBA and KCB you might want to pay keen attention to this.

    M-Pesa users who default on their Fuliza loans will have access to their funds in M-Shwari and KCB M-Pesa accounts blocked or used to settle their outstanding balances.

    This is according to an update to the terms and conditions that will give Safaricom the mandate to hold onto users’ funds on the two mobile money accounts in the event users default on the overdraft facility.

    According to the new terms, KCB and NCBA may hold users’ funds in M-Shwari and KCB M-Pesa as collateral and security for any Fuliza loans that are outstanding.

    “You hereby agree and confirm that NCBA and KCB are entitled in its discretion to prevent or restrict you from withdrawing in whole or in part the funds in your accounts for so long as and to the extent of the amount outstanding in respect of your loan without KCB or NCBA giving any notice to you and/or without incurring any liability to you whatsoever in that connection,” reads the terms and conditions that come into effect on November 14, 2021.

    The updated terms further indicate that the right to hold on to users’ funds and using the same to offset Fuliza loans will also apply on savings and mobile saving accounts they hold with service providers.

    The new terms also introduce a 1.083 per cent interest rate on Fuliza, whereas previously, the service charged a facility fee of the same amount.

    Safaricom says the updated terms are not new but a standard for banking products.

    “The new terms clarify the fact that Fuliza may be offered across additional M-Pesa products,” Dennis Mbuvi, a communication officer at Safaricom said in response to inquiries.

    “As a financial service, Fuliza is offered by KCB and NCBA as licensed by the Central Bank of Kenya (CBK) hence the lien clause which is standard for banking products and also there in the current terms,” he said.

    This is however the first update Safaricom is making on the terms and conditions of Fuliza since its introduction in January 2019.

    A previous set of terms and conditions from the company’s website makes no mention of the lien clause on KCB M-Pesa accounts or of the 1.083 per cent interest rate.

    The updated terms are expected to cut the rate of loan defaults on Fuliza, discouraging the practice where users rack up outstanding principal and interest repayments and abandon their lines after they default.

    It is also expected to affect users who take loans from Fuliza, KCB M-Pesa and M-Shwari at the same time, relying on savings in their mobile wallets or transaction histories to build their credit score.

    Data from Safaricom’s latest annual report indicates that Fuliza is currently the most lucrative mobile lending product for the firm.

    It recorded a 61 per cent growth in revenue year-on-year to Sh4.5 billion as at the end of the last financial year, and more than 100 per cent growth in daily active users, who stood at 1.4 million daily. The fund disbursed Sh351 billion at the end of the last financial year, up from Sh245 billion last year, with a repayment rate of more than 98 per cent.

    M-Shwari on the other hand recorded 3.9 million active users as of the end of the last financial year, with Sh571 billion in deposits and Sh94 billion in loan disbursements.

    KCB-M-Pesa on the other hand reported a 100 per cent repayment versus disbursement rate while even as revenue and monthly active customers fell by a third in the last financial year.

  • State Captured, Dissecting The Rai Family

    State Captured, Dissecting The Rai Family

    In January 2017, a lavish wedding between Gavneet Chatthe and Rajbir Rai was celebrated at the Sarova Mara Game Camp within Maasai Mara.

    Several prominent businessmen and politicians attended the lavish invite-only ceremony, among them Deputy President William Ruto.

    Clearly, the Rai Family enjoys a cordial relationship with the DP. He, however, is neither the first nor the only one. The family has enjoyed close association with the Daniel Moi, Mwai Kibaki and Uhuru Kenyatta governments for over four decades, and has reaped handsomely from the resultant political patronage.

    The Family – made up of patriarch Tarlochan Sigh Rai (deceased), his wife Sarjit Kaur, and sons Jaswant Rai, Jasbir Rai, Iqbal Rai and Daljit Kaur Hans – came into prominence when Tarlochan bought off large tea and coffee estates from Belgians fleeing then Belgian Congo – now Democratic Republic of Congo – in the 1960s.

    He built a fortune and entered Kenya by partnering with a fellow Asian to produce chests for their coffee and tea in Eldoret in the 1970s.

    To say the family has greatly benefitted from political patronage in the sugar, wood, cooking oil and soap manufacturing businesses is understatement; it owns and dominates these sectors.

    The Rai family has cultivated an appetite for affiliation to prominent politicians for since 1993 when Raiply partnered with Nicholas Biwott and former President Moi after the brutal murder of its previous partner Shabir and his wife in Eldoret.

    The biggest manifestation of the industrialist family’s reach in the Jubilee government came with the acquisition of Kenya’s only paper mill, Pan Paper Mills in Webuye, at the chickenfeed price of 900 million shillings

    Following this partnership, Rai, who came to Kenya in 1971 from Uganda after the expulsion of Asians from the country by the then President Idi Amin, began enjoying concessions in the excision of Mt Elgon Forest, where they cultivate hard wood trees for the Eldoret-based wood processing industry.

    So beneficial was the partnership with Moi and Biwott that Rai’s family business quickly expanded from timber to sugar as they continued to enjoy political benefaction, courtesy of the elder Rai’s collusions.

    Through their companies – Rai Investments Limited, Rai Plywoods (Kenya) Limited, Rai Products Limited, Rai Holdings Limited, Tulip Properties Limited, Rai Expo Park Limited, Tarlochan Singh Rai Limited, Kabarak Limited, PBM Nominees Limited and Sarjit Singh & Ram Singh Limited – the family has continued to enjoy privileged business opportunities.

    Rai Products Limited’s original shareholders were Rai Investments Limited, Tarlochan Singh Rai, Jaswant Rai and former Laikipa Senator and powerful minister G.G. Kariuki.

    Kabarak Limited, for instance, is associated with Moi owns 1.4 per cent of Raiply, and has continued to get licences to log indigenous hardwood, according to a report recently released by the Jubilee government-appointed task force of forest destruction.   

    It is during the partnership with Biwott and Moi that Raiply earned the license to log protected public forests, which it did with wanton promiscuity.

    The family then wooed the Kenyatta family when Jaswant allegedly secretly siphoned family business funds sometime in the 1990s and invested in two Kenyatta family businesses – Commercial Bank of Africa and Timsales, which was a competitor to RaiPly.

    But the biggest manifestation of the industrialist family’s reach in the Jubilee government came with the acquisition of Kenya’s only paper mill, Pan Paper Mills, Webuye, at the chickenfeed price of 900 million shillings. The last audit value of the Mills, done in 2016, was Sh19 billion.

    The receiver managers in charge during the second bail out of the mill – which was a joint venture between the government and an Indian investor – confessed that the presence of powerful manipulation led to the cheap sale of the mill’s assets to the Rais; Sh900 million is less than what was injected in at the last bailout.

    Rai group of company directors when purchased the Webuye paper mills.

    Testy family relationship

    The purchase gave the Rai family and their backers a whooping Sh18 billion payday in assets for a Sh900 million investment. Given its history, it’s all in a day’s work.

    Two of the Rai brothers, Sarbjit and Jasbir, following family disputes, have since established Nile Plywoods (Uganda) Limited and Poly pack Limited in Uganda, where they equally enjoy more than cordial ties with President Museveni. The two also have a 25 per cent shareholding in Lukenya Flowers Limited.

    The family also has substantial investment in India that at one time led to protests by family members against Tarlochan over the millions of shillings invested in the Asian country.

    Jasbir once accused Jaswant of diverting Sh100 million from the family’s Standard Chartered Bank account, Eldoret Branch, to Kenya Commercial Finance Company in Nairobi without the involving the rest of the family consent.

    The matter was reported to police by Tarlochan and Jasbir was later paid Sh46 million before he and Sarbjit moved to Uganda, where they then established PolyPack Limited with a Ksh350 million capital investment equally owned by Jasbir and Sarbjit, and Nile Plywoods (U) Limited with US$ 2.5 million, with a joint 45 per cent shareholding.

    Sarbjit would later buy out Karim Hirji’s 51 per cent shareholding after obtaining Ksh180 million from his father.

    When the crackdown on sugar smuggling barons began in the country, it was Leader of Majority in the National Assembly Aden Duale, in a statement to parliament, who linked the Rai family to the importation of 187 million kilogrammes of sugar during the duty free period allowed by the government, but which had been contaminated by copper and mercury due to poor handling.

    Tellingly, it is former Kakamega senator Bonny Khalwale who came to the defence of the Rais – with the weedy assertion that some barons wanted to close down West Kenya Sugar factory.

    The family’s appearance before a parliamentary committee for ‘grilling over the saga turned out to be a tragic farce where committee members displayed rare carnal excitement at being close to such a immersing figure as Jaswant. It evoked thoughts of “birds of a feather”.

    Reportedly, an MP from Western Kenya had come in with fat wads of cash on behalf of the Family, which he had distributed amongst the committee members prior to the meeting.

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