The biggest story of the moment is the rapid spread of the coronavirus and the global attempts to contain it. The disease which originated from China is devastating cities and causing an economic meltdown across the world. The coronavirus (also known as COVID-19) has now been documented in 192 countries out of the total 195 countries in the world with more than 790,000 cases recorded worldwide – 37,700 having succumbed – prompting an official declaration as a global pandemic by the World Health Organization. As the coronavirus outbreak continues to wreak havoc on markets and industries around the world, businesses are now confronting significant and unique challenges.
The novel coronavirus has not only adversely affected the global community in matters of health but also, in terms of international trade, macroeconomic indicators, and financial markets. It is for this reason that we have chosen to discuss the impact the virus is likely to have on the Kenyan economy and what this means for the players in the financial sector like banks, SACCOs and microfinance institutions.
The disease has rocked the business world, sending financial markets into correction territory, down more than 10 per cent. The effects of the ongoing crisis are being felt in almost every sector. From retail and consumer packaged goods to entertainment, sports, and of course travel and leisure, every sector is being impacted differently and is facing down its unique challenges.
The financial services sector is currently facing challenges on multiple fronts: banks, MFIs and SACCOs have had to reduce their opening hours and in many cases can only serve a few customers at a time due to social distancing rules, putting additional strain on channels like telephone service, online banking and social media. At the same time, record numbers of consumers are frantically trying to contact their financial institutions with questions, concerns and requests for special measures as their finances have been impacted by the fallout from the coronavirus as many have lost jobs, seen their incomes vanish, and are in fear of defaulting on loans. Businesses too need additional help as many have seen their revenue drop dramatically or dry up altogether.
Meanwhile, fintech firms like Presta Capital will be well-placed to benefit from the increased demand for online and mobile banking and payments. Many fintech companies have taken it upon themselves to offer up their services for free, waive fees or prolong free trials, no doubt hoping to do some social good but also prove the value of their services at a time when digital solutions are more in-demand than ever. Presta, for instance, is offering free trials to all MFIs and SACCOs up to 30th June 2020. The situation requires constant handling from Sacco and MFIs as they seek to reassure consumers, respond to their concerns, and earn their trust during this volatile period and a lot depends on just how well their digital infrastructure and services can handle the increased demand. Now more than ever, it’s crucial for SACCOs and MFIs to be responsive on social media. Many financial institutions are taking the opportunity to highlight to their customers that they can carry out their banking online or on mobile, and use online chat or social media to resolve issues.
In the payments industry, the Coronavirus outbreak is helping to accelerate the adoption of certain types of payment technology such as contactless payments due to fears about germs being spread via cash and the use of credit and debit cards. Unsurprisingly, the Coronavirus crisis has triggered a surge in demand for online payments as many people look to eCommerce instead of physical shopping, hampered by lockdowns and social distancing rules. However, there is the impact of the expected drop in transactions at all levels of the economy worldwide. For example, M-Pesa had to waive fees for all transactions below a thousand shillings and moving money from your bank account to your Mpesa wallet is now free. This means fewer fees collected by both banks and M-Pesa, impacting profitability as well as valuations.
The impact of the coronavirus is having a profound and serious impact on the global economy and has sent policymakers looking for ways to respond. The World Health Organization is encouraging contactless payments while consumers’ desire for digital banking services has increased, forcing many traditional financial institutions like SACCOs to fast-track digital innovation efforts. As a result, many of them are looking to fintech firms for assistance in bringing better digital banking solutions to their customers. This increase in demand for digital solutions is to provide a lifeline to fintech firms at a time when funding may not be an option.
The Central Bank of Kenya rolled out measures that are geared to help financial institutions mitigate the effects of the crisis on the economy by lowering of the Central Bank Rate (CBR) to 7.25% from 8.25% a move geared towards prompting commercial banks to lower the interest rates to their borrowers, availing the much needed and affordable credit to MSMEs across the country. The CBK also lowered the Cash Reserve Ratio (CRR) to 4.25 per cent from 5.25 per cent which will provide additional liquidity of Ksh. 35 Billion to commercial banks to directly support borrowers that are distressed as a result of the economic effects of the COVID-19 pandemic.
Additionally, the president of Kenya ordered a temporary suspension of the listing with Credit Reference Bureaus (CRB) of any person, Micro, Small and Medium Enterprises (MSMEs) and corporate entities whose loan account fall overdue or is in arrears, effective 1st April 2020.
In summary, banks, SACCOs and MFIs need to take additional steps to mitigate their risk of suffering negative impacts from the coronavirus. As with other hard-hit sectors such as retail, the impact will likely be varied, and there will be several casualties. However, those companies who can adapt and continue providing customers with essential services will stand a better chance of weathering the storm.