Monday, August 22, 2011


By CHEGE MUIGAI Business Daily Sunday, August 21

Kevin Ndabi, a city lawyer, owns a BMW and lives in an impressive house in South C, Nairobi. Armed with a pricey smartphone and an Apple iPad, Ndabi admits that he has been spending money beyond his means.
“It’s a trap of the times,” he says. “It’s all vanity I agree. But without building a super image in this day and age, it would be impossible to do well career-wise and in my personal life. The girl I wish to marry wants to see cool stuff to respect me.
Without spending money on myself to look good and on her too — upkeep, clubbing and all — she would never give me a second look.”
Mr Ndabi is part of a growing list of Kenyans, trapped in a consumer culture and who are getting into serious debt as a result.
“Kenyans have a spendthrift culture,” says economist Dr Tabitha Kiriti, a senior lecturer at the University of Nairobi .
“With all the easy loans being advertised around, Kenyans dive right into them without any forethought or fore planning. Because of the lack of specific projects, when the money comes, there is misuse.”
As a result, the economy is paying the price.
Kenyans love to express themselves materially and most of the money gets lost in unnecessary expenses like gadgets, outfits and cars. These are all consumables that lose their value fast,” says Dr Kiriti. “It is a cultural thing.”
She adds that this habit is weighing down on the economy, killing the shilling’s value and contributing to the high cost of living.
“When people save, they are able to invest. Such investments in turn contribute to economic production, which means more wealth for the country.
But if the society is only spending and not investing, it means wealth is being exported. It also means that the country’s currency is vulnerable because of the relatively bigger import than export flows, which is the case with our shilling currently.”
 Anne Gichanga, managing director at financial planning firm Regnum agrees: “Everything is significantly more expensive.
It would be impossible for most people to save now. Overall though, even in much better times, Kenyans have not been saving as much as is necessary.
It is more of a lack of financial discipline than anything else.” Ms Gichanga says that the cycle of debt that many people have sunk into is very hard to get out of.
 “If you spend before you can earn, that is an emergency financial situation,” she says.
“Living within your means and spending only what you earn is the first step to a successful financial life.”
The plight of Generation Y worries Ms Gichanga too. “The young people coming to employment now have a very lopsided approach to financial success. They want to get rich instantly, live a very high life and are ready to cut corners to get there.”
 She adds: “It is not uncommon to see some guy only two months into his job living in a house that eats up half of his salary, has an iPhone and is seeking a car loan. All of these are well and good. But none has the potential of generating a sustainable income.
Ms Gichanga says the way out is for people to adopt responsible spending habits at the personal level.
 “As much as possible, a portion of any income should be channelled into profit-making projects,” she adds.
 That, says Ms Gichanga, is hard work that calls for sacrifices.
“Nobody ever became successful without great financial discipline, denying themselves many luxuries and having taken a 360 degrees view on their spending. But you mostly see people going about their lives without caring about the future. That is suicidal.”
Figures from the Central Bank of Kenya (CBK) show a rise in Kenyans’ indebtedness.
According to CBK, personal loans shot up by Sh61 billion to stand at Sh296 billion. This was much more than any other sector of the economy.
If the words of Dr Kiriti and Ms Gichanga are anything to go by, this is money that finances consumption more than investment. Sh296 billion going to non-productive activities is a major worry for the economic future.
 “It is a trend that cannot be afforded,” says Dr Kiriti. “Countries that are doing well are those that make more money than they spend. China, Singapore, Malaysia and Thailand are fast industrialising because of their positive balance of payments.”
She says that the earnings translate to a net surplus per capita which Kenya must aim to achieve.
Anastasia Aluoch and Mr Ndabi concede to being financially careless.
 “Without doubt, I could have done better,” says Ms Aluoch, who is a teacher in Kawangware, Nairobi. “I took loans to move house, furnish it and to have fun. Now I have a big debt to pay and I am really struggling. Had I invested, I would be making money rather than losing it.”
She adds that she is in a perpetual debt cycle as she can barely meet her monthly obligations from her salaried income any more.
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Thursday, August 18, 2011


By GEOFFREY IRUNGU   Thursday, August 18  2011 Business Daily
The Central Bank’s latest move to stabilise the shilling by mopping up liquidity in the financial system came under scrutiny as the overnight borrowing rate shot to 15.68 per cent, raising fears of a surge in the cost of government borrowing. File 
The Central Bank’s latest move to stabilise the shilling by mopping up liquidity in the financial system came under scrutiny as the overnight borrowing rate shot to 15.68 per cent, raising fears of a surge in the cost of government borrowing.
The CBK discount window rate rose sharply for the third day in a row from Tuesday’s 13.87 per cent and Monday’s 11.34 per cent. Wednesday’s rate was above all interest rates that the State is paying on Treasury bonds. The highest yield on Kenya’s 30-year bond is trading at around 15.50 per cent.
Fred Mweni, a member of the informal CBK advisory group comprising top traders of government securities, said the regulator appeared “overly concerned” with the exchange rate and was using the higher short-term interest rates as a way to defend the currency.
 “The government and even other actors in the economy are likely to experience increasingly higher borrowing costs because the Central Bank has raised the over-night borrowing window in its attempt to defend the Shilling,” said Mr Mweni.
He added that interest rate bids in the oncoming treasury security auctions were likely to be more aggressive.
The government has suffered under-subscriptions in the past few bond and even T-bill auctions because of a liquidity crunch caused by CBK’s recent tightening stance.
Mr Mweni said the defence of the currency through tightening was not necessarily going to succeed — in view of an overall dollar shortage, a view also shared by Joshua Kagia, head of treasury at Consolidated Bank. “The Central Bank appears to believe that commercial banks are hoarding foreign currency. The CBK is tightening so that they can release it to the market. This should then strengthen the Shilling as dollars are offloaded into the market,” said Mr Kagia.
“My personal view is that there are no dollars in the market and tightening may not achieve the intended objective. So what might happen is that short-term rates are just continue rising even though lending rates are not likely to go up in the short term,” said Mr Kagia.
He said the inter-bank rate was up mainly because there was not enough liquidity in the market as institutions held bonds that were difficult to dispose of without making a loss in the currency interest rate environment.
“Banks have high liquidity but this does not mean that they have actual cash and they are not selling the bonds to get cash because it would lead to losses as interest rates have shot up,” said Mr Kagia.
He said government securities holdings at the end of last week were down to Sh116 billion from Sh126 billion the previous week because institutions did not roll over their maturities into the new treasury bills and bonds – thus explaining why last week’s paper was not fully subscribed.

Thursday, August 11, 2011


Even if you have made money mistakes in the past, you can rebuild your credit history and become a borrower in good standing. It is important to have a good credit history if you want to borrow money. The better your credit report and score, the better the terms of your loans and credit will be (e.g. lower interest rates).
However, you have harmed your credit history and score if:
  • you did not pay at least the minimum balance on your debts
  • you made late payments
  • you went over your credit limit
  • you missed one or several payments
  • you stopped making payments altogether
  • you have too much credit and you use it
  • your debt was referred to collection
  • you made a consumer proposal
  • you declared bankruptcy.
A bad credit report and score can mean you do not get approved for a loan, or you do not receive the best loan terms (e.g. higher interest rate).
How to rebuild your credit history
  1. Make at least the minimum payment by the due date. If you cannot pay off your balance in full each month, make at least the minimum payment on each of your debts on time. Late payments will count against you and negatively impact your credit score and credit report.
  2. Do not apply for too many credit and loan products. Having too much credit can also negatively affect your credit report. Keep your available credit at a minimum. Do not fill in too many applications for credit and loans because every time you do, your credit history is checked. Each credit check can affect your credit score.
  3. Review your statements. When you are in debt, avoiding your monthly statements may cost you. Mistakes happen and you only have a limited time to correct them. Always review your statements to make sure there are no transactions charged in error and that your payments are recorded correctly. Report any mistakes as soon as possible.
  4. Check your credit report annually. You are entitled to receive a free copy of your credit report annually from the credit rating agencies. Check your credit report annually for errors and get them corrected as soon as possible.
Prepaid cards do not help you build credit. You may choose to use a prepaid card as a payment option, but its use is not tracked by the credit rating agencies.
Use credit responsibly
There are no quick fixes to repairing your credit history. You have to prove you are a responsible borrower to lenders, and that may take time. Whether you are rebuilding your credit history, or trying to maintain a good credit score, you should always use credit responsibly.