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Parliament Passes President’s Proposal to Reduce VAT on Fuel to 8% Amid Protests

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Parliament on Thursday passed President Kenyatta’s proposal to reduce the VAT on petroleum products from 16 per cent to 8 per cent amid protests from some Members of Parliament who were opposed to the proposal and against how the vote was carried out.

The Controversial Vote

The memorandum on the Finance Bill 2018 required 233 majority votes for it to be rejected. There were only 215 members present during the vote.

According to the National Assembly’s Speaker Justin Muturi, the quorum allowed for the vote was not met. “The ‘No’ vote on [8% VAT on Fuel] was lost on the basis that they did not have the required number,” he said.

The Standard reported that the Majority Leader Aden Duale and John Mbadi orchestrated a walkout from the House that gave the President’s memorandum a win based on a lack of quorum.

Besides the fuel tax passing through, employees will now have 1.5 per cent of their gross income deducted for contributing to the National Housing Development Fund. In addition, Kenyans will now be charged a 20 per cent excise duty for money transfers.

Financing High Debt Levels and a Budget Deficit

In his national address last week, President Uhuru defended his memorandum stating that to maintain the progress on development, tough choices had to be made.

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Supporting the memorandum, Duale said the VAT on petroleum products will enable the government to finance its main projects while delivering to Kenyans basic services. He also added that other countries such as South Africa, Ghana, and Nigeria charge VAT on petroleum products at 14 per cent, 15 per cent, and 5 per cent respectively.

The Finance Bill 2018 when signed will, therefore, reduce the country’s debt levels, address the budget deficits, and finance the government’s Big Four Plan.

Supplementary Budget Cuts

The Budget and Appropriations Committee (BAC) has reduced the total budget of this financial year by Sh37.6 billion and a reduction of the total recurrent expenditure by Sh9 million.

The budget for exploration and distribution of oil and gas has been slashed to Sh1.5 billion while the State Department of Infrastructure’s budget has been cut to Sh8.7 billion. Other budget cuts will affect country governments, the Treasury, the Ministry of Devolution, the National Assembly, and the Public Service Commission (PSC) among other entities.

On the other hand, the Judiciary received an increase of Sh1.5 billion in its budget which will see the arm of government proceed with plans to construct courts and speed up the hearing of corruption cases.

“The PSC proposal to reduce the parliamentary budget by a figure of Sh5 billion could have seen the entire budget affected by up to 40 per cent and that is why we have rationalised this, so that the austerity measures cutting across government is between 15 and 20 per cent,” the Chairman of the Committee Kimani Ichung’wa said.

The Budget Committee was reviewing the PSC budget which proposed a reduction of Sh55.1 billion to the budget.

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Kenya listed among Sub-Saharan Africa countries with high potential for Islamic Banking

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NAIROBI, Kenya, May 8 – Kenya has been listed as one of the countries with a high potential for Sharia Finance, an Islamic banking model with several restrictions and principles that do not exist in conventional banking like interest fees.

Middle East, Africa, India, and Jersey Finance Director Faizal Bhana said Sub-Saharan Africa’s share of global Sukuk issuances is only a mere 2 percent, despite an Islamic population of more than 200 million people.

Sukuk are financial products whose terms and structures comply with Islamic law, with the intention of creating returns like those of conventional fixed-income instruments like bonds.

“When you are coming to Africa, the story is very different. Africa is home to 250 million Muslims in Sub-Saharan Africa. At the moment, the penetration for Sharia compliance finance across the continent is 21 countries providing Islamic Finance services,” he said.

Speaking to Capital Business, he revealed that the Islamic Finance industry has a compound annual growth of 11 percent since 2006, with assets worth multi-trillion shillings.

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“We need to look to all forms of financing. And Sharia compliance financing is one form and because of its links like sustainability and ethical, for government, it is an easy win,” he said.

He said there is a need for regulators to provide enabling legislation for Sharia finance services and more so for sovereign and corporate issuance of Sukuk.

The common practices of Islamic finance and banking came into existence along with the foundation of Islam.

However, the establishment of formal Islamic finance occurred only in the 20th century.

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Currently, the Islamic finance sector grows at 15-25 percent per year, while Islamic financial institutions oversee over $2 trillion.

Islamic finance strictly complies with Sharia law. Contemporary Islamic finance is based on a number of prohibitions that are not always illegal in the countries where Islamic financial institutions are operating like paying or charging interest, investing in businesses involved in prohibited activities like gambling.

Due to the number of prohibitions set by Sharia, many conventional investment vehicles such as bonds, options, and derivatives are forbidden in Islamic finance.

The two major investment vehicles in Islamic finance are equities and fixed income instruments.

 

 

 

 

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CMA okays Crown Paints’ rights issue to fund expansion

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Crown Paints head of sales Bhavesh Gandhi and CEO Rakesh Rao during the company’s launch of all-weather paints at the Trademark Hotel, March 1, 2020. [David Gichuru, Standard]

The Capital Markets Authority (CMA) has given the nod to Crown Paints Kenya Plc to raise Sh711.80 million from shareholders via purchase of additional shares.

The regulator, in a statement yesterday, said it had approved the firm’s bid to issue and list 71,181,000 new ordinary shares on the Nairobi Security Exchange (NSE).

“The rights will be issued on the basis of one new ordinary share for every one existing share,” noted CMA.

The additional funds raised will boost the company’s financial flexibility to navigate through a tough business environment brought about by the Covid-19 pandemic.

It would also boost the firm’s growth strategy according to the information memorandum.

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“The group’s management plans to use the rights issue funds to facilitate the development of new products, retiring of current facilities and funding regional expansion,” CMA said in a statement.

Wyckliffe Shamiah, the CMA chief executive observed that the disclosures made on the rights issue comply with the capital markets regulations and will enable investors to make an informed decision.

Mr Shamiah noted that the regulator had reviewed the application for exemptions from complying with Regulation 4 of the Capital Markets (Take Over and Mergers) Regulations, 2002 concerning the intention of the company’s major shareholders, who have undertaken to take up their full rights entitlements.

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“They are also willing to take more than their initial entitlements subject to availability during the rights issue,” said Shamiah.

Crown Paints is expected to make bi-annual updates to CMA on the use of the proceeds of the rights issue.

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Branch buys local micro finance bank

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The deal gives Century Microfinance Bank a much-needed lifeline. [Courtesy]

Branch International Ltd has acquired microfinance lender Century Microfinance Bank in a move that gives the financial technology (fintech) firm a stronger presence in the country’s financial sector.

According to regulatory filings published by the Competition Authority of Kenya (CAK), Branch has acquired 84.89 per cent of the issued share capital in the microfinance bank.

The deal has been approved by the market regulator.

“The Competition Authority has authorised the proposed transaction as set out herein on condition that the acquirer and the target will each maintain the terms agreed with the borrowers in respect of all loans existing in their loan books at the time of the acquisition,” explained CAK in a notice in the Kenya Gazette.

The deal will further give Century Microfinance Bank a much-needed lifeline, coming in the wake of depressed earnings due to disruption from digital lenders and recently, the Covid-19 pandemic.

Customer deposits

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According to Central Bank of Kenya (CBK) data, the micro-lender recorded Sh348 million in assets as of the end of December 2019, a 19 per cent drop from Sh431 million in 2018.

The firm also recorded Sh326 million in liabilities for the year ended December 2019 with customer deposits sitting at Sh256 million during the period under review. The lender made Sh82 million in total income in 2019, the majority of it from interest on loans, fees and commissions.

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Brach International, one of the leading fintech players in the Kenyan market has over the years increased its user base across the region to more than three million.

The firm says it has disbursed more than Sh35 billion in loans, the majority of which it lent to users in its African markets in Kenya, Nigeria and Tanzania. In 2019, Branch secured Sh17 billion in the new financing and a partnership with Visa to issue virtual pre-paid debit cards to its users.

The acquisition of Century Microfinance Bank will allow the fintech firm to deploy more solutions to grow its digital and physical foothold in the Kenyan market.

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