Where do the cents in your account come from?
The Sunday Nation
Nairobi,
22 May 2011
Kimathi George is wondering how coins get into his account yet he never deposits them. “I have never withdrawn coins from the account… [we] are allowed to withdraw in denominations of Sh500… [but] there are coins such as, Sh0.96, Sh0.23. Are there hidden charges that are not listed?”
Now George, I don’t think there are any hidden charges. Quite the contrary, I suspect that there are hidden payments that the bank has been paying you without your knowledge!
If you check all the statements of your account from the day you opened it, you will get your answer. It will probably be that you are paid some interest every three to six months and this is where the cents (coins) come from.
But still, I am curious that the bank is indicating awkward amounts like Sh0.96 and Sh0.23. My curiosity comes from the fact that, even though the Kenyan shilling is divided into 100 cents, it can only be used in fractions of 5cents. The normal practice is to round to the nearest 5cents. Thus the Sh0.96 goes down to Sh0.95 and the Sh0.23 up to Sh0.25
A second question comes from Josphat Nyamu. He is worried about the amount of money the government is spending in the printing of new currency notes. Quoting from a story that appeared in the Daily Nation of 25th April this year, he writes: “… KSh1.71 billion new notes delivered at a cost $51.2 million. If you do dollar conversion, this should be … KSh4.3 billion. Is this what happens or am I understanding wrongly?”
Your suspicions are well grounded. It would not make any sense to spend KSh4.3 billion to print notes worth KSh1.71 billion! You misunderstood the report. The 1.71 billion is the number of notes, not their shilling value.
Thus the government will spend about Sh2.52 per note. Now since our smallest note is worth Sh50, this is clearly a proper deal; in fact, I am surprised that with all the security features, they are still able to print them at such a small price. But I guess that is the benefit of mass production.
Finally, a reader who wishes to remain anonymous wants to know how “interest rates are calculated so as to get info to expose an individual who is extorting Kenyans offering loans at 15 per cent interest per month on reducing balance.”
By “how interest rates are calculated” I will assume you mean how a lender decides to charge, say 15 per cent and not 20 per cent. There are many factors to be considered including the cost (to the lender) of acquiring the money, the risk that a borrower will not pay back in full and the market forces (that is, what other lenders are charging and how desperate the borrower is).
At the end of the day, the money market in the
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