CBK alarmed by huge trade using old Sh1,000 notes

Zachary Ochuodho and Fred Aminga

The Central Bank of Kenya (CBK) has raised alarm over increased wheat purchases in Narok county just five days before the old Sh1,000 bank note is phased out.

Speaking yesterday during a post-Monetary Policy Committee media briefing in Nairobi, CBK Governor Patrick Njoroge said a recent spike in the purchase of wheat was unusual, but assured the public that security agencies are monitoring events closely.

“The wheat purchases going on in Narok County are a great concern to us,” he said, adding that the September 30 deadline when the Sh1,000 notes will become null and void will not be extended.

Analysts said though a spike in business in the wheat-growing region is normal at this time of the year as farmers sell their harvest, CBK’s concerns over possible use of dirty cash should be investigated.

A trader who spoke to People Daily from Narok said there was booming business involving various players in the commodity market.

“Traders are making a lot of money, you have seen some even posting pictures online going to the banks with wads of Sh1,000 notes,” said Tony Lolkera.

The currency conversion is supposed to clean suspected ill-gotten cash in the economy. But Kenyans are concerned that given the immense influence wielded by  people who can afford to hide huge amounts of money in their houses, there is a likelihood of generating new methods of cleaning or converting “dirty” cash.

This includes converting the money to Euros, Chinese Yen or US dollars. They can also distribute several millions to friends and relatives for a handsome commission, for conversion in banks and co-operative societies.

Indications are that church donations and cash pumped by individuals into cooperative societies increased during the demonetisation period, leading to speculation that this could be another way of cleaning illicit cash.

Individuals doing businesses with high daily turnovers are said to help convert the old notes for a commission. This is because the nature of their business allows them to bank large sums of money daily.

Critics of the timing of the demonetisation process such as former Kakamega Senator Boni Khawale had argued that the withdrawal of the old Sh1,000 note had targeted“a certain clique of politicians”who were showing generosity by supporting churches and the needy.

“We are saying that if the withdrawal of the Sh1,000 notes will fight corruption, then the government should not wait until October 1. We want it to begin right away,” he had said with some 20 MPs also hinting the call should have come earlier.

The CBK concern over Narok transactions came as pressure to meet the demonetisation deadline soared with traders setting their own cut-off dates for accepting the old notes.

Returned for conversion

Landlords, retailers and M-Pesa agents have set different deadlines raising fears that millions of shillings could be locked out.

Leading telecommunication firm Safaricom has advised its retail shops to cease accepting the old notes tomorrow and submit all notes collected the day after.

Yesterday, the CBK boss said of the amount returned for conversion, only 24 transactions were above Sh2 million and the average amount was Sh3.1 million. About 53 per cent of conversions were carried out in the last two weeks of June 2019.

By September 1, CBK had received 116 million pieces of Sh1,000 old notes with Uganda and Tanzania having finished their conversions and repatriated their old Sh1,000 stock.

According to CBK records, the old generation Sh1,000 notes, account for 83 per cent of the Sh540 billion in circulation.

The Sh500 notes account for 5.9 per cent, Sh200 (4.2 per cent), Sh100 (4.8 per cent) and Sh50 (1.9 per cent)

The governor advised individuals who still have the Sh1,000 notes in their possession to take them to banks for exchange otherwise those who will not have converted by September 30 will lose out.

He urged State institutions such as the Judiciary and Prisons holding money in the form of cash bailout or on behalf of prisoners to ensure that they organise with CBK to return the money for conversion.

“We are working with prison authorities to convert any currencies they are holding on behalf of inmates. We are also working with the Judiciary to exchange notes held as court exhibits or for bail,” he said.

The move to withdraw the Sh1,000 notes was announced by the CBK Governor on June 1 at the Narok stadium during Madaraka Day where President Uhuru Kenyatta led Kenyans in the celebrations.

“We have assessed with grave concern that our large bank notes, particularly the Sh1,000 series are being used for illicit financial flows in Kenya and also other countries in the region,” Njoroge said.

He added that money laundering and counterfeiting needed to be dealt with otherwise they would jeopardise the conduct of commerce in Kenya.

Other bank notes, Sh500, Sh200, Sh100 and Sh50 will remain in circulation alongside the new generation ones in a gradual phasing out process.