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Cash flow from banks registered its slowest growth in a decade in 2018 after Central Bank of Kenya (CBK) instituted stringent rules aimed at curbing illicit money.
Official data from Kenya National Bureau of Statistics shows that money outside of banks increased by a paltry two per cent in 2018, the slowest since 2008 when it declined by two per cent due to post-poll crisis that rocked the country that year.
An additional Sh5 billion left the banks into the economy, the lowest since 2009 when an additional Sh7 billion poured into the economy.
In 2017, money outside of banks increased by Sh15.5 billion as politicians raided their bank accounts to finance their campaigns which some studies have noted include cash hand-outs.
Analysis by The Standard that went back more than a decade also found that the amount of cash that flowed from banks into circulation in the country spikes during electioneering period, which might explain why politicians have been calling for the removal of cash withdrawal limits.
In the last 14 years to 2018, for example, banknotes and coins that left banks into the economy increased by an average of 16.2 per cent during the five election years compared to an average of 7.8 per cent in the other years.
Some members of the National Assembly recently unleashed their wrath on CBK Governor Patrick Njoroge, accusing him of slowing down the economy with the stringent rules aimed at combating terrorism financing and money laundering.
The regulations, which took effect in 2016, require anyone withdrawing or depositing more than Sh1 million to fill in a special form stating where the money is from or going to, who they are paying or receiving the money from and for what purpose.
Monitor customers
The MPs threatened to have the limits lifted. Banks are required to monitor their customers and flag suspicious transactions with CBK.
Dr Njoroge, however, warned that the push to lift the limits on daily cash transfers would attract a global backlash, with Kenya being classified as a high risk country.
“We expect adverse impact where foreign correspondent banks face closure of accounts, regional links would be threatened, we would be cut off and Kenya would be blacklisted. And worst of all, the war against corruption would be lost,” he told the National Assembly Finance Committee at Parliament buildings.
The slowdown in cash withdrawals might also have been offset by mobile money transactions, which contributed to a seven per cent increase in term deposits.
Term deposits include money in current and savings accounts, including M-Pesa money which is held by commercial banks, and can be withdrawn in short notice.
Given that the country’s economy is still largely cash-based, the decline in cash flow might have hit ordinary wananchi, especially those in rural areas, who still used cash to buy commodities.
Last year, the economy churned out an additional Sh1.15 trillion worth of products as gross domestic product, most of which might have been transacted through banks or mobile money.
Banknotes and cash in circulation increased by 11.8 per cent to Sh288.3 billion in 2018 from Sh257.7 billion in 2017.
Deepak Dave of Riverside Capital attributed the lowere cash flow to depressed demand in the market due to low inflation. He also said the economy was positively getting digitised as more people use their phones to buy and sell goods and services.
“We are mobbing towards a digitised economy,” he said.
Mr Dave, however, did not think the implementation of Anti-Money Laundering rules would have a significant effect on flow money outside of banks. “If they had an effect in the slowdown, I would give it 20 per cent,” he said.
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