Puzzle as CBK fails to mop up Sh7.4 billion in old cash
Mystery shrouded the whereabouts of the missing old Sh1,000 notes worth Sh7.4 billion even as Central Bank of Kenya Governor Patrick Njoroge declared the demonetisation exercise a success
Kenyans returned the old Sh1,000 notes worth Sh209.6 billion out of the Sh217 billion in circulation as at June 1 when the new look currency was announced by the government.
This means about Sh7.38 billion of the old currency did not return to the banking system by close of the September 30 deadline, raising questions as to where the missing amount could be.
Njoroge, however, insisted at a briefing in Nairobi yesterday that the demonetisation process was a success, adding: “We did well and we are happy with the outcome.”
“The anti-money laundering measures we put in place were a success,” said the governor. “Whoever is holding this (unreturned money) is poorer.”
Monitoring the process
The non-recovery of Sh7.4 billion divided opinions in the market with KenInvest chief executive Moses Ikiara saying those with the money may have decided to lose it rather than explain where they got it from.
Kenya Business Guide Project Lead Sahil Shah said CBK has heightened regulatory and compliance procedures for bank deposits.
“This is a sign that compliance procedures on deposits have improved and it is becoming difficult to inject money obtained from illicit means into the formal financial system,” he added.
He said lessons learnt from the phase-out of the old Sh1,000 is that money from illicit sources is circulating in the formal economy.
Njoroge said CBK also did targeted inspection on banks that it suspected of not strictly following its stringent anti-money laundering procedures.
“As Central Bank, when we saw through our monitoring, we did not wait but went in and did targeted inspection. We did 15 during this period,” Njoroge said during a press conference on the demonetisation of the 1,000 note at his office in Nairobi yesterday. CBK said it is working closely with other State organs, sharing information pertinent with each of them for action.
This means all suspicious transactions are now on the radar of various agencies including office of the Directorate of Criminal Investigation (DCI), Kenya Revenue Authority (KRA), Ethics and Anti-Corruption Commission (EACC) and The Financial Reporting Centre (FRC).
“We need to connect the dots, and we can deal with this at the appropriate time,” Njoroge said, adding that they must work hard to seek any correlation with criminal inclinations. Njoroge, who said the campaign was successful, pointed out that he met his two key objectives namely dealing with illicit cash flows on the one hand and counterfeits, of which the Sh1,000 note was the preferred option for cartels.
Monitoring the process
Working with financial institutions, the lender of last resort kept tabs on the weekly remittances, which gave it a good feel of the process leading to various red flags including enhanced activities among wheat farmers in Narok.
“How did we find fault in Narok wheat farmers? The farmers were quite surprised and decided to ask the guys to bank the money in their accounts,” he said.
During the period, banks, forex bureaus, micro-finance institutions and deposit taking institutions witnessed heightened tightened due diligence with CBK monitoring the process keenly.
The campaign which ended September 30 revealed that 99 per cent of transactions during that period were worth less than Sh1 million each.
Nairobi University Economics lecturer Samwel Nyandemo said going by CBK’s figures, it has achieved its goals, but added it must tighten all loopholes to stabilise the micro-economic variables.
“The money is going into mainstream circulation which is good since banks can now use the new cash to lend on to boost firms thirsty for cash,” he said.
During the period, the inflation was within range having dropped from five per cent to 3.85 per cent in September.