Carol Musyoka

October 8, 2018March 29, 2019

An Untidy Attempt to Recover Lost Funds

While the wailing and gnashing of teeth that followed the signing of the Finance Bill 2018 into law was going on, another little jab was punched at the banking industry. Our collective national attention was drawn to the brouhaha around the 16% VAT on fuel products and its detrimental effects on the cost of living but tucked away in the Finance Act, was a tiny little section that made changes to Section 31 of the Banking Act. Section 31 generally falls under the part of the Banking Act that relates to information and reporting requirements. The amendment, numbered Section 31A (1), reads, “a bank or financial institution licensed under this Act shall, in respect of all accounts operated at the institution, maintain a register containing particulars of the next of kin of all customers operating such accounts and shall update this register on an annual basis.”

So what was the mischief that the parliamentarians were trying to cure when they had that clause inserted? The Unclaimed Financial Assets (UFA) Act that created the Unclaimed Financial Assets Authority (UFAA) has created a cash rich institution that maintains billions of shillings in unclaimed liquid assets that arise from abandoned bank and SACCO deposits, insurance funds, mobile money funds, listed company shares and unclaimed dividends to name a few. In their fairly transparent and data rich website, the UFAA has published its past financial statements and I pulled up the most recent publication which is for the financial year ending June 2017. As at that date, the Authority held in its own name Kshs 8.5 billion in assets received from banks, Saccos, insurance companies etc. and held in trust listed shares valued at Kshs 16.4 billion following notification from other holders such as listed companies. The shares were being held in trust pending transfer of title to the Authority.

The UFA Act is an easy to read piece of legislation that is duly prescriptive on when a presumption of asset abandonment occurs. In the case of bank accounts, there is a presumption that the owner of the account has “abandoned” the funds if there has been no communication from the account holder in five years. The assumption being made by this amendment is that requiring banks to keep a record of next of kin will trigger an alert to the next of kin about dormant funds lying in a bank account, which might prevent them being swept into UFAA.

Folks, banks are bound by the common law principles of confidentiality as well as statutory requirements relating to non-disclosure of information in the same part of the Banking Act that they are trying to amend. Further north of the newly inserted section lies its cousin Section 31 (2) of the Banking Act which clearly states, inter alia, that “except as provided in this Act, no person shall disclose or publish any information which comes into his possession as a result of the performance of his duties or responsibilities under this Act and, if he does so he shall be deemed to have contravened the provisions of this Act”. The Act later provides exceptions to the rule, which include provision of information to the Central Bank, to credit reference bureaus, to the Kenya Deposit Insurance Corporation , fiscal and tax agencies, fraud investigative agencies and generally any entity whose business it is to have critical information about an account holder. At no point are next of kin (and that word in Kenya is often used quite loosely) envisaged as being of statutory importance for the breach of confidentiality rule to apply.

So here is why there are two fatal flaws in the drafting of the next of kin rule. Firstly, it is virtually impossible to hand over to any Johnny-and Janey-come-lately funds held in a bank account outside the context of a succession framework. The law of succession assumes such funds to be part of the deceased’s estate and can only be distributed within a testate or intestate framework. Secondly, as earlier stated, both common law principles as well as express legislation require banks to maintain confidentiality of their clients, which requirement is presumed, by common law, to extend beyond the death of the client and is therefore not extinguished by their untimely demise.

The upshot? You the owner of a bank account in Kenya will now be bombarded by your bank every year from here on to provide details of your next of kin because if you don’t, your bank is liable to pay Kshs 1 million in fines for default for each account. And did you notice that the wording of the law did not differentiate between individual and business customers? Just grin and bear it. As we’ve been conditioned to say in this beloved country: bora uhai!

carol.musyoka@gmail .com

Twitter: @carolmusyoka

April 10, 2017July 17, 2018

Customers Hire Your Product To Do A Job

The development of M-shwari was partly driven by Safaricom’s finding that mpesa was not only being used as a primary mode of money transfer, but as a repository of cash. M-Pesa users were storing cash on the virtual system, foregoing immediate financial needs for future use. M-Pesa gave rise to M-Shwari which has now given rise to M-Akiba. Last week I wrote that we would eventually see the true use of the M-Akiba product since customers hire your product to do a job and, in some cases, that job is remarkably different from what the product developers intended.

The closure of the bond on April 5th, five days earlier than the targeted date of April 10th 2017, generated a taste of what is to come in terms of product usage. The media release from the Treasury stated that out of 102,632 people who registered on the platform, only 5,692 investors bought the bond. I must add a rider here: I registered for M-Akiba but found the system down for over 24 hours, which prevented my bond purchase. That would definitely have been one reason for the low conversion rate of registered investors to actual investors. But here’s the fly in the “small-scale saver” ointment: the bond was bought in varying amounts ranging from Kshs 3,000 to Kshs 1.13 million.

Now let’s assume that the Kshs 1.13 million investor was a Safaricom subscriber named Moraa. Since the maximum daily transaction on the Mpesa platform is capped at Kes 140,000, Moraa would have had to undertake 8 transactions over 8 days to make this investment. Moraa is not Wanjiku the small trader. Moraa is quite likely a mid sized business person or well paid employee looking for an easy way to park cash earning 10% per annum tax free interest. Remember that investing in government paper today requires reams of paper and kilos of perseverance.

Let me demonstrate by quoting from the Central Bank of Kenya website: “The first step to investing in Treasury Bills is to open a CDS Account with the Central Bank. To open a CDS account you need to hold a bank account with a Kenyan commercial bank. You must fill out a mandate card in neat block letters. You’ll need to provide contact information and information about your commercial bank account. You’ll also need to have two signatories from your commercial bank sign the card to verify the information you’ve provided. [Please pause for a commercial break at this point to catch your breath. Ok back to the column] You’ll also need to submit a passport-sized photograph of yourself which has to be certified and stamped by a representative from your commercial bank. Finally you’ll also need to submit a clear copy of your National Identity Card, passport or alien certificates.”

How many times did you count the words “need to” in that excerpt? M-Akiba has opened the delightfully secretive Pandora’s box of disposable cash that is unrepentantly and very reluctantly placed in commercial banks. I am hazarding a guess that pseudo-savvy Kenyan investors (and we have an insatiable penchant for investing as the various land, Sacco and Ponzi schemes have demonstrated) will park their cash in the bonds and drive demand for liquidity on the secondary market in order to convert the medium term investment into cash where needed. The opportunity here is for the brokers who will provide a release for that cash against a profit induced discounted purchase price, or the bankers who will allow the investor to leverage that investment and borrow against that virtual security. If a vibrant secondary trading or securitization market emerges, as is wont to given the iterative product development that mobile money in Kenya has inculcated, M-Akiba will quickly become an excellent funds placement alternative to middle class and wealthy Kenyans. A hawk-eyed compliance approach will have to be applied as well, since an unintended consequence of such iterations would be to produce an easy way to launder large amounts of cash outside of the closely watched banking system. Wanjiku the “mama mboga” may have been M-Akiba’s target, but Moraa “the hustler” will be the ultimate beneficiary.

April 3, 2017July 17, 2018

Kenyans are savers not gamblers

Last week, my General Manager Domestic Affairs(aka GMDA) decided to change her bank provider. GMDA came home that evening gushing praises about how the new Bank X had told her that she could set aside Kshs 1,000 every month to save for school fees and it would be automatically deducted from her salary account. No bank had ever taken an interest in her life, or in providing her with an automated way of saving for this critical aspect of her children’s security

As GMDA was talking, a news item appeared on the television about the uptake of the M-Akiba bond. I turned up the volume, as this could potentially be an option I could provide to my the-savings-scales-have-fallen-from-my-eyes GMDA.

The product is beautiful in its simplicity. Dial a number, register, place Kshs 3,000 for 3 years and earn tax -free interest twice a year. In my view, someone in Serikal is finally using data the way it’s supposed to be done: not to gather dust in shelves at the bureau of statistics but to drive behavior and economic growth. And nowhere is there more rich data than in the Financial Access Household Survey issued February 2016 by FSD Kenya working in collaboration with the Central Bank of Kenya and the Kenya National Bureau of Statistics.

The report finds that 75.3% of Kenyans are now formally included, with the giant leap being taken by women where formal inclusion leapt between 2009 and 2013 driven by the spread of mobile financial services.Formally inclusion is defined as use of banks, mobile financial services, SACCOs and microfinance institutions. Why would there be such a quantum leap in the growth of women users? I daresay that the convenience and the absolute privacy that mobile financial services provide make it a key attraction for the women. Not having to make a trip into a commercial centre to deposit or withdraw from a bank and not having a debit card or statement lying around that can generate heated arguments as to “hidden resources” is a major draw.

While the FSD report doesn’t go into the abominable aspects of betting, it does delve into it’s divine counterparty: savings. The FSD report finds that the number of Kenyans using at least one savings or deposit instrument continues to rise and at least 66.4% of the adults sampled have a savings instrument. Almost half of those adults use savings for meeting ordinary day-to-day needs, a third save for education and 40% also save for medical emergencies and burial expenses.

One more critical finding: 42.6% of business owners and 87.7% of farmers rely heavily on their savings to finance their livelihoods.

It is on the back of this data that we should critically look at the potential of M-Akiba to provide a viable savings platform. M-Akiba has the potential to pull funds sitting tied in a knot in the corner of a leso or under the cooking hearth into the formal economy especially since the FSD report finds that the top two most valued storage places for Kenyans are their mobile financial services accounts and saving in a secret place!

Meanwhile, I tried registering for M-Akiba, so that I could sell it to GMDA. After jumping through several hoops, I ended up feeling like a hamster on a wheel so I jumped off. I called the number provided online and a lovely lady called Brenda answered on the third ring, telling me the system was experience downtime. By the time of submitting this piece it wasn’t yet up. I trust that the developers of M-Akiba will make this an iterative product, tweaking it as they get more and more customer usage data to determine how and why Kenyans are using it. Just like how M-Pesa was launched as a money transfer system but ended up being a virtual repository of cash, M-Akiba might not be used for what its creators envisaged it for. Customers use your product to do a job. Time will tell what the true job of M-Akiba will be, but the ultimate winner will be the government with a new, and far less interest rate demanding investor in its securities.

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