Why Rotich could not resist the temptation to go after M-pesa

M-pesa Shop

After silently watching Kenya’s mobile money revolution from the sidelines, Treasury this week found a new opportunity to pounce.

Like a shepherd who watches after his sheep fatten before slaughter, Treasury Cabinet Secretary Henry Rotich demanded his pound of flesh to ensure that the ‘the Government got a fair share of revenue’ from the mobile money business.

Being one of the fastest growing sectors of the telco industry whose success has put the country on the global map of digital money, Treasury could not resist the temptation to raise taxes.  

Kenyans will now pay a 12 per cent excise duty on mobile money transactions, up from 10 per cent, as part of the tax measures targeting to raise over Sh4 billion to fund Universal Health Care. This means that for every Sh100 charged for the transactions, Sh12 will now go to taxes.

The fact that people pay for sending and withdrawing, this will see a double taxation of the same amount being transferred from one person to another.

The increment is part of a new tax policy — Robin Hood Taxes — where the government goes after the rich, luxury items or non-essential items to collect revenues to fund social services for the poor.

But mobile money transfers are no longer a luxury service in Kenya given that almost all income segments use the service and millions of transactions happen every day.

Bank transfers were also not spared. Rotich introduced a Robin Hood Tax of 0.05 per cent on any amounts of Sh500,000 or more transferred through banks and other financial institutions.

The ground for taxing large bank transactions was set in 2016 when the Central Bank of Kenya (CBK) introduced tough measures discouraging Kenyans from withdrawing more than Sh1 million. It encouraged them to send such amounts from one account to another via Real Time Gross Settlement (RTGS).  

If one has to withdraw, then they would be required to fill forms detailing what they are going to do with the money.

Last year, the country had 4.3 million RTGS transactions in which a total of Sh2.9 trillion was sent from one bank to another. On average, there were about 360,000 RTGS transactions every month between January and December last year. The monthly transactions according to data from the Central Bank of Kenya (CBK) stood at Sh242 billion per month.

But it is the mobile money taxes that will be a cash cow given that it is widely used across all income groups, where people are allowed to send as little as Sh100 via mobile.

Kenya currently has more than 37 million mobile payments accounts that make about 130 million transactions every month.

Last year, Kenyans were sending between Sh290 billion to Sh320 billion using their mobile phones every month, an amount that can fund the entire construction of the Standard Gauge Railway from Mombasa to Nairobi and buy most of the locomotives the country has acquired.

Data from the Communications Authority (CA) shows that as at the end of last year, the number of active mobile money transfer subscriptions and agents stood at 30 million and 198,234 respectively.

A total of 607 million mobile money transfer transactions valued at Sh1.763 trillion had been carried out. In addition there were 308.6 million mobile commerce transactions valued at Sh1.1 trillion. The value of person-to-person transfers amounted to Sh596.4 million.

The launch of M-Shwari in 2012 by Safaricom and Commercial Bank of Africa (CBA), which offers savings account and access to digital credit, has seen the rapid expansion of the digital credit market in Kenya.

Also fighting for a piece of the action, digital credit is now also offered by the four largest banks in Kenya — Kenya Commercial Bank (KCB), Equity Bank, Barclays Bank of Kenya and Co-operative Bank — as well as a growing number of FinTechs and non-bank institutions.

The latest Financial Sector Deepening (FSD) report that captured the supply of digital credit in Kenya notes that digital credit providers have developed different models to score and deliver credit to customers.

“The largest players M-Shwari and KCB M-Pesa partnered with the largest telecommunication provider (Safaricom) to score customers and manage loan disbursements and repayments through the M-Pesa platform,” the report notes.  

On its part, Equity Bank established Equitel, and utilises a combination of bank account data and credit bureau data to score customers.

FinTechs such as Branch developed a stand-alone smart phone app that collects phone usage information to score customers. M-Shwari has already disbursed over Sh230 billion loans since inception in 2012 and Kenya Commercial Bank, the largest institution by asset size in Kenya, now provides 90 per cent of its loans through the KCB-M-Pesa platform.

Equity Bank has reported the disbursement of Sh57 billion since 2014. The report estimates a market of over 6 million unique digital borrowers in Kenya.

This has now seen digital credit emerge as a new force that will shape the future of lending in Kenya.

At least 35 per cent of all adult borrowers do that to meet day-to-day needs, while 37 per cent borrow to do business. Education needs account for 20 per cent while 15 per cent borrow to buy airtime. This has seen it become the most used credit window for small businesses who want small loans to meet their daily needs.  

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