Wednesday, May 25, 2016

Blog Migrated

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Reach me on twitter and instagram at @bankelele. 

Email at bankelele_at_hotmail_dot_com

Monday, November 23, 2015

Interswitch in Kenya

Interswitch is a Nigeria-based, transaction switching and electronic payments processing company, with operations in several African countries. The company, founded in 2002, provides payment solutions for individuals and organizations, mainly around financial services to several private sector companies, as well as in the public sector (government revenue, health care etc.) 

Interswitch was majority acquired by Helios Investment Partners for $96 million in 2011. Helios are best known in Kenya for their large investments in Equity Bank, Wananchi Online, and soon, at  Telkom Kenya, where they are in the process of buying out France's Orange Telecom.

Interswitch itself entered Kenya by buying 85% of Paynet Holdings in 2014, which was best known for it's Pesa Point network of ATM's, which was launched in 2005,  and which grew to serve customers of over 100 institutions including several of the large and mid-size banks. At the time of the  Interswitch purchase in 2014, Paynet Services had 2013 revenue of Kshs. 320 million (~$3.7 million) and powered of 1,200 ATM's and 1,300 bank agent locations in Kenya. 

Interswitch also owns Verve International which is the largest card brand in Nigeria with almost 30 million customers. Interswitch launched the Verve card brand in Kenya last month, in a partnership with KCB, East Africa's largest bank.  

Monday, November 16, 2015

Equity Bank 3.0: Agency Banking & Equitel

A few days after Equity Bank released their Q3 results, the bank had another media briefing. CEO James Mwangi explained the stuff he had said earlier about the shareholding change, agency banking, superiority as a Telco and expansion plans for Africa.

Notes from the Live stream

Shareholding Change:
  • Helios have exited from the bank ahead of the end of the seven year life of the fund. It was a closed fund.
  • Equity listed in 2006 to discover  the price of the shares and on listing it was Kshs 50 per share  more than they had been offered
  • They chose Helios over 5 other investors. Helios had patient investors (CDC, IFC, Soros)
  •  -Helios is an example of what private equity can do and the bank transformed from Kshs 2 billion to 65 billion in shareholder funds without having to do a rights issues, or issue shares and went from 20 billion to 400 billion of assets
  • Helios exit was not a buy back, but a sale to third parties including Norfund, Genesis, Investec, NSSF Kenya, NSSF Uganda and Blackrock - some of who paid a premium of 10% above the market in order to secure large blocks of shares
  • The sale has allowed local shareholders to take up more shares in the bank and reduce the foreign ownership from 49% to 42%
  • Helios netted about $500 million from the sale of there stake in Equity 
  • Investors who missed out include China Construction Bank, China Development Bank, Temasek (singapore) and PIC (South Africa)

Agency Banking: 
is one of their most misunderstood and underrated products in which they outsource services /costs to third parties for a fee, and share prosperity with their customers (who become suppliers of Equity services)
  • Top agents are doing 300-400 transactions per day (one in Kitale is doing 500) and top agents earn Kshs 750,000 to 1 million per month
  • Going to add insurance, stockbroking - and transform 20,000 businesses. They want them to be profitable, so won't register a flood of new agents (e.g. 100,000 who will reduce the pie)
  • In August, agents transacted Kshs 29 billion (2/3 is deposit, 1/3 is withdrawal) - agents have too much liquidity - that's why Equity/Equitel money transfer is free  as it sweeps up excess cash at the agents 
  • Hope to use agents to bring down their cost income ratio down to 32%

Equitel / Phone Banking: 
  • Equity is not a telco - it is a channel for banking service with value add for telco - so customers don't have to carry two phones
  • Average sending amount is 2,000 - 3,000
  • Mwangi asked Kenyans to furiously take up this product as it solves two problems - that of too much cash at the Equity agents and customers solve their problem of  exhobitant money transfer costs. Equitel did 8 million transactions in August double the numbers down by agents
  • Using USSD, customers used to do 2 transactions per month. That is now to 19 transactions per month with Equitel, and they hope to go 120 per month when they add payments.
  • Kshs 4 billion has been disburse via Equitel . 1 million people have got these loans and the average is 4,000 or 5,000. They are going to increase the loan duration to 3 months, then 6, and will do loans of 3-5 years eventually. 
  • Used to process 3,500 loans a day, but that's now 12,000 loans per day via mobile. loans starts at 1 a.m. peak and are disburse by 5 a.m. before the branches open. 
  • Credit applications takes 2 minutes to check with the credit reference, the national identity bureau and also come up with a score analysis. 
  • You can send money to any telco, any bank account, any debit/credit card in the world
  • Next is bill presentation; you give your bank a list of recurring payments, and they will  check the bill for you and ask you to confirm payment for electricity, water, dust etc.
  • Cardless banking - no need to carry an ATM card. 
  • Other products are virtualization of chamas (software that keeps meeting minutes, chama balances, contributions, reminders, and disburses member loans by phone ( requests done by secretary, approved by chairman, paid by treasurer etc. all by mobile phone) 
  • Harambees (fund raisers are also virtualized:  You can see how much has been raised, who has donated a goat etc. 
  • Everyone in Kenya can be an airtime reseller and earn a10% commission 
  • Equity Life will have medial advice, agricultural advice (trying to map all soils in the country to better advise farmers on fertilizer), education (they have put curriculum from standard 4 to form 4 for kids to revise and do daily homework), financial literacy etc 
  • It has free insurance for anyone who spends Kshs 250 per month

John Staley, the Director of Finance & Innovation, said Equitel was a free channel that enables them to do secure transactions that were not possible by USSD before and they will soon be rolling out a secure mobile app.

James Mwangi confirmed that a move by Safaricom to hike up the costs of Equitel to bank transfers had been shot down and such regulatory approval decisions will be made by third parties of payment companies and banks (including Equity).  

Finally Equity are about conclude their purchase of ProCredit Bank in DRC with most regulatory approvals received and others that they have applied for (agency, mobile) pending -  and one of their big take on's will be to process payroll of all civil servants in the DRC.  

Friday, November 13, 2015

An Idiot's Guide to Getting a Tax Compliance Certificate (TCC)

A guest post by Muendo 

Taxes, are the dues that we pay for the privileges of membership in an organized society. Franklin D. Roosevelt

One thing, as sure as death is, you will pay taxes. As to how it is used, it is the prerogative of the government of the day as well as the citizens to keep the government in check to see how the paid taxes are being used to better the welfare of the citizens. I posted a Tweet, after getting my Tax Compliance Certificate and I got a few people including Mr. Banks, asking how I went round the process. So here is my story. I hope it will educate some of y’all on this long process.

On company registration, after you have received that blue/white document from the State Law Office saying that you are a legal entity recognized by the Government of Kenya, you have to go to the next step, which is getting a Personal Identification Number (PIN) for the company. In this new regime, unlike others, you can’t do any business with the biggest spender of our taxes, the government and its agencies, without a PIN. In fact for you to open and a bank account, for you to buy assets in your company’s name, for you to transact with any organization in .KE, you will be required to produce a PIN Number. It is a mandatory requirement. (I suspect soon the government will abolish ID numbers and use your PIN to locate every single thing about an individual. Instead of ID numbers, your PIN will serve as the ID number), (those are just my thoughts). How do you get your PIN in our modern society? KRA went the tech way to get you plugged in to the system. They have a robust system called iTax. Any new employee above the age of 18, and any registered organization, has to register with iTax to get their PIN.

Take that a notch higher, for you to increase the chances of you getting awarded a Tender, as everything in this country is tendered, you need another document called a Tax Compliance Certificate (TCC). The Tax man aka Kenya Revenue Authority (KRA), certifies that you have submitted your returns and paid all your liabilities before it issues you with that piece of paper stipulating that you are cleared to conduct business for the next 6 – 12 months.

Normally, for start-ups, the first years certificate is quick to get as your business is new and there is nothing much for them to look in to. (Though, rumour has that they (KRA) are also slowly going to the route of issuing TCC to directors of the companies and will slowly keep an eye on them as well. How true that is I am yet to find out) Now since KRA introduced iTax to the Kenyan system, it killed a few birds with one stone.

Previously, people never cared much about paying taxes. Now, if you are doing business you have to have an Electronic Tax Register (ETR) machine that captures the Value Added Tax (VAT) that you charge to your customers. Unless, you are selling zero rated commodities, it is assumed that every enterprise (Start-up, SMEs, Blue Chip, Multinationals etc.) has a PIN number and an ETR machine. Every transaction is/will be captured there and therefore a customer is issued with an ETR receipt. A normal ETR receipt has your PIN number and the amount you are charging the customer plus VAT and a breakdown of what the VAT is.

Again, previously, the Tax man used to assume that all Kenyans are upright and outstanding citizens who will pay their VAT after balancing their accounts (There is a way that you need to do, briefly explained as, (1) there is what you are charged by your suppliers and then (2) there is what you charge your customers, (3) the difference is what you remit to the KRA, hence the term 'doing your returns'). Anyways, not many Kenyans including the ones in authority, seemed to fit that tag. They would find tax loopholes, using their accountants and tax lawyers,  and exploit them. And the government would lose revenue. So, the Tax man,  aka Njiraini, decided to tighten the belt to curb that habit. So every time you supply the government with substandard goods with over inflated prices, because people have to eat, then the said agency snitches/alerts Njiraini and company, that company X has supplied us with goods/services/consultancy, and here is 6% of the tax they are going supposed to pay. Ask them where the other 10% is. And once the 6% is held, the agency, in return sends you an electronic withholding tax certificate.

As an upright citizen, who wants to be in the good books of the Tax man, you are given up to the 20th of every month to file returns of the previous month. Now, KRA will check up on its database and see how many organisations have submitted 6% with your company name in there and compare it with the returns you have submitted. Occasionally, you will find scenarios, where the Tax man needs to refund you some money. Problem with KRA is, once that is the case, it can take up to 2 years even more before they decide/remember they need to do tax refunds.

That aside, once you have filled your returns, whether nil or you have a liability (This is where you owe KRA money) or a Tax refund is required, you comply with the law of the land. Failure to file returns attracts a hefty fine of Kshs. 10,000 (~$100) per month for the months you haven’t filed your returns plus a percentage interest determined by a tax officer that you need to pay per month till you finish you with your liability. This is not a joke, especially, now that the government is tightening its laws on taxes and widening its tax base.

Here is a weird thing that KRA does. It waits for say 3-4 years of a company existing. And then, it is expected you have to have audited accounts say for the past two years (That is assuming you are done with your tax amnesty of 18 months – not sure whether this exists anymore,) and you have gotten a few good tenders here and there, and then they knock on your door, to find out how you are carrying out your business and how you have been performing in doing tax returns.) Assuming you are an upright citizen means, you have 4 years of an annual Tax Compliance Certificate issued and you have about 3 years audited accounts. They will request for all, and I mean all, documents to support your claim of existence. And by all I mean, from receipts, to P&L Accounts, to Audited accounts, to bank statements. Who the heck remembers stuff that they did 4 years ago? The Tax man will flip through records and see whether you have dodged taxes or you have acquired your TCC in a fraudulent manner. If you are a citizen of no morals, they will subject you to a fine of a percentage of your gross turnover and give you a time period to pay, failure to which, all assets you own will be liquidated and the money is recovered. I know that a bit to well, as a relative was being auctioned for tax non-compliance.

Also, KRA is now working overtime to ensure that all companies are registered on iTax. There is a budgeted Kshs 8 billion to be spent in catching up with you if you are not iTax compliant.

So, finally; 

Here's an idiot’s guide to getting a TCC

1. Register at the iTax platform and get your PIN.

2. Submit your returns every 20th of the month. You had better submit a Nil return than be late to submit the returns. Be prompt in doing your accounts reconciliation every month. Now, there are times you can’t afford an in-house accountant do your books, There are some great fellas, who I have worked with that can help you with that. Talk to Plus People Ltd. They are the people behind this great platform called Uhasibu. They have really assisted me in getting my books in order and ensuring that I use the Uhasibu system to run my small company. Also get an Auditor or a certified tax accountant to help you decipher and navigate the Kenyan tax laws and the levies that you need to pay as well as how to bring down your tax liability.

3. Make sure you get the Withholding Tax certificate, each time, whatever agency you deal with submits that 6%. As much as the system is automated, follow through is important. I am talking from experience. I have a government agency I am chasing since February 2015, to give me my withholding tax certificate.

4. Use the iTax system to submit your returns before the 20th. This is now an easier way, than to go queue at times towers to make your returns. 

5. It takes approximately, two (2) weeks between the expiry of your TCC and receiving a new TCC. Plan appropriately. During those 2 weeks, I do loads of client visits and queue up business for the next “financial” year. In those 2 weeks, Njiraini and Co, will be looking through your accounts and performance before giving you a clean bill of health. I know we people at .KE have this thing, I know a guy who can shorten that process, if you do well and good. But that’s the average time if you don’t know a guy.

6. Make sure you do annual audited accounts, just in case KRA guys show up and want to see what you have been up to. Also, a great rule of accounts, it moves, have evidence of what happened (Receipts, Invoices, Petty Cash vouchers etc).

7. In case things go wrong, occasionally they do, have your auditor in place, when this KRA officers check up on you. They kind of know how to navigate those murky waters while you sort things out with the Tax man. 

Thursday, November 12, 2015

Kenya Airways: Still in The Red

This morning Kenya Airways (KQ) released their half-year results. Some highlights from the investor briefing.  

• Half year Kenya Airways revenue was Kshs 56.7 billion same as last year. 90% is from passenger traffic, and  60% of their business is in Africa.
• Kenya's largest increase in tourists was in 2011, and the numbers dropped in 2012 & 13 with the largest decrease was in 2014, just as KQ added great capacity. JKIA passenger numbers have been flat for the last three years and for the last three months, they have had to adjust their schedule from 24 to 18 hours as the runway is being repaired.
 Half of airline industry profit is in North America, where strong capacity, consolidation, combined with ancillary revenue and lower fuel costs has had a major impact.  The Middle East has low yield compared to investment, and Africa has 3% of global demand. 
• Shareholder equity has gone from Kshs -6 billion last September, to Kshs -33 billion this year and KQ is talking to the CMA on how to reverse this.   
• KQ has a turnaround plan, developed with Mckinsey, with 24 initiatives worth a potential $200M, that starts this month.
• Despite fuel cost coming down from Kshs 21 billion to Kshs, 13 billion, the half year loss went from Kshs 10.5 billion to 11.9 billion 

Some other numbers
• Revenue per available seat decreased from 6.2 to 6.14
• Cabin factor was up from 64% to 68%
• Carried 2.14 million passengersm up from 2.10 million
• Cargo tons were 35,405 down from 37,255
• On time performance was 75% (down from 77%)
 Finance cost was 3.4 billion, up from 1.5 billion

The new chairman of the Kenya Airways board, Dennis Awori, thanked the government, financiers, and suppliers for their support for the airline. CEO Mbuvi Ngunze said that the senate enquiry is ongoing and on Monday, senators will, for the first time, visit the airline.


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