By Marian Joseph – Art in Tanzania internship
The Covid-19 pandemic has carried the world into unchartered territory that has been straining to every sector of the economy. The financial industry not being the exception has been facing several challenges in managing effective ways to serve their customers in such times. In this post we look closely at how Kenya’s financial sector as a country responded to the Covid-19 pandemic. A report by Bowmans (2020) kept track of how the government responded to the gradual outbreak of Covid-19.
The following were the responses taken by the different branches of government, regulators, and governmental agencies
1. Loan Availability.
On 18 March 2020, the Central Bank of Kenya (CBK) announced emergency measures arrived through consensus with commercial banks, applicable to borrowers whose loan repayments were up to date as at 2 March 2020.
· Banks to provide relief to borrowers on their personal loans based on their individual circumstances arising from the pandemic.
· To provide relief on personal loans, banks will review requests from borrowers for extension of their loan for a period of up to one year and borrowers should contact their respective banks.
· Medium-sized enterprises (SMEs) and corporate borrowers to contact their banks for assessment and restructuring of their loans based on their respective circumstances arising from the pandemic.
· Banks to meet all the costs related to the extension and restructuring of loans.
· To facilitate increased use of mobile digital platforms, banks to waive all charges for balance inquiry. In addition, the CBK had earlier announced that all charges for transfers between mobile money wallets and bank accounts would be eliminated. (Bowmans, 2020)
2. Credit Availability
On 24 March 2020, the Central Bank of Kenya announced additional measures to facilitate lending by banks to borrowers adversely affected by the COVID-19 pandemic.
· The lowering of the Central Bank Rate (CBR) to 7.25 percent.
· The lowering of the Cash Reserve Ratio (CRR) to 4.25 percent to provide additional liquidity of KES 35.2 billion to commercial banks. CBK to avail this liquidity to banks based on their demonstrated requirement to directly support borrowers that are distressed as a result of COVID19.
· To provide flexibility on liquidity management facilities provided to banks by CBK, the maximum tenor of Repurchase Agreements (REPOs) was extended from 28 to 91 days.
· CBK to provide flexibility to banks with regard to requirements for loan classification and provisioning for loans that were performing on 2 March 2020 and whose repayment period was extended or were restructured due to the pandemic. (Bowmans, 2020)
3. Individual and Business Relief Package
On 25 March 2020, the President announced individual and business relief measures to be undertaken by the government:
· Reduction of Personal Income Tax top rate (PAYE) from 30% to 25% of the gross amount.
· 100 % Tax Relief for persons earning up to KES 24,000 per month.
· Reduction of the Resident Corporate Income Tax rate from 30% to 25% of profits.
· Reduction of the Turnover Tax rate for SMEs from 3% to 1% of the gross revenue.
· Immediate reduction of VAT rate from 16% to 14%.
· Temporary Suspension of all listing for all persons including companies, whose loan account fall overdue or is in arrears, by the Credit Reference Bureau (CRB) – effective 1 April 2020.
· Ministries and Departments to cause the payment of at least KES 13 billion of the verified pending Bills, within three weeks from the announcement.
· Appropriation of KES 1 billion from the Universal Health Coverage towards the recruitment of additional health workers to support the management of the spread of the COVID-19.
· KRA to expedite payment of VAT Refunds by allocating an additional KES 10 billion within 3 weeks or in the alternative, to allow for offsetting of withholding VAT.
· Appropriation of KES 10 billion to the elderly, orphans, and other vulnerable members of our society through cash-transfers by the Ministry of Labour and Social protection, to cushion them from the adverse economic effects of the COVID-19 pandemic.
· Government to set up a fund to which players in the Public and Private Sector will contribute in support of Government efforts. (Bowmans 2020)
Bowmans the value of Knowing (November 2020). COVID-19: TRACKING GOVERNMENT RESPONSE IN KENYA