For many rural small traders, the one shilling coin no longer counts

Fanuel Omung’ala has been stocking one shilling coins in his house for the past six months.

Mr Omung’ala, a pastor in Luanda in Western Kenya, says he has decided to keep the pennies because no shopkeeper accepts them. He says six months ago , a storekeeper turned him away when he went to buy bread and a packet of milk.

‘‘The shopkeeper refused to pick up the coins, and that is all I had. I pleaded with her to take the money but she said it was not valuable any more,” he said.

‘‘I tried a number of times to use the coins to buy food but no trader could accept them,’’ he says.

He now collects the pennies in a plastic container in his house and occasionally takes them to the bank in exchange for notes. He sometimes oils them to ensure they do not rust. One day, he hopes to use them.

The father of two is not alone. In Kisumu, Odhiambo Aliwa, a 28-year-old lecturer, has been keeping coins in his office drawer for the past one year. He says most local shop reject them.

He says he went to vendor to buy water with coins and was turned away. “There is a time I went to a shop in Maseno town to buy water. I had a Sh10 and Sh15 in one shilling coins. The shopkeeper refused to sell to me the water,” he said.

The story is the same in most parts of western Kenya where the one shilling currency no longer trades.

Shopkeepers in Homa Bay, Kakamega, Migori, Vihiga, Kisii and some rural areas in Kisumu do not accept coins, arguing that they are bulky and losing value.

The one shilling coin weighs approximately 5.50 grammes, according to estimates by the Central Bank and it is made of nickel-plated steel. The Sh5 and Sh10 coin weigh 3.75 and five grammes respectively. 

Hasman Onyango, a trader in Rongo, Migori, says they have been forced to increase the prices of goods that were not in the denomination of Sh5, Sh10 and Sh20 to make it easier to trade. “The one shilling coin is no longer accepted in most shops in the area. Even wholesalers reject them ,” he says.

Mr Onyango says traders used to take the coins to those running photocopy business. ‘‘But they also stopped accepting them ,” he says.

Some shopkeepers have however found a way around this problem. For instance, a matchbox that would normally cost Sh3 now trades at Sh5 for two, an egg that costs Sh12 now sells at Sh25 for two.

Other affected commodities are sweets, salt which now retails at Sh15 instead of Sh12 and candles at Sh15 instead of Sh11.

But the shopkeepers’ refusal to take coins kills a cycle that the Central Bank of Kenya (CBK) relies on to keep the low denominations in circulation.

As at December, 2014, there were coins worth Sh6.6 billion in circulation which CBK believes are sufficient to support transactions in the country. There were 693 million one shilling coins in the market in December and 274 million fifty cent coins.

“It is a violation of the law to deny customers the possibility of obtaining their change in Kenya currency or deny them the opportunity to agree to settle the transaction in any other form,” said CBK in a statement.

It added that any member of the public experiencing difficulty in using coins as a means of exchange or in depositing them with commercial banks should report to a CBK currency centre for assistance.

READ: Supermarkets warned over issuing sweets for change

But consumers like Mr Omung’ala do not know of any currency centre in their neighbourhood. It is easier to pay extra for goods.

For photocopying services, customers are either charged Sh5 for every photocopied page instead of Sh3. Alternatively, one can have a page photocopied twice at Sh5 to supplement the charges. 

Hussein Adballah, a trader in Migori town says: “For some reason, some wholesalers have now resolved to charge a percentage if we give them too much pennies. We now start counting from the five shilling coin.’’

Depositing of coins with commercial banks has also been made difficult by the tellers while some banks charge a commission for coin- processing.

KCB charges 50 cents for changing over 100 coins in whichever denomination. The first 100 pieces of coins do not attract any charge, but from coin 101, it attracts a 50 cent fee for every coin despite the denomination.

For most banks, performance of tellers is also reportedly pegged on the number of transactions they do in a day so they tend to avoid counting coins which take a long time.

Accounting for the cash at the end of the day while reconciling the books is also tiring and time-consuming for the tellers. As a result people depositing coins are tossed from one counter to another.

The rejection of one shilling coins in the rural areas has now cast doubt on this legal tender, with fear that its poor circulation could affect the economy. This is besides the fact that the shilling is trading poorly against the dollar.

For instance, in 2012, poor circulation of the one shilling currency was blamed for the increase in commodity prices.

The trend, blamed on Kenyans hoarding pennies instead of allowing circulation was caused by huge losses in retail outlets in the search for low-denomination pieces, a cost that was then passed on to consumers in the form of higher cost of goods.

Supermarkets were forced to pay up to Sh60 for every Sh1,000 worth of coins due to the shortage.

Losing value

Economist Kwame Owino told the Business Daily that the problem facing the one shilling pennies is caused by its bulkiness and the fact that it was losing value.

While supporting the traders’ arguments, Mr Owino who is the chief executive of the Institute of Economic Affairs, reckons that it is time the government reconsidered the production of the coin.

“The metals used to make the one shilling coin are heavy and with time, the value of the coin is much less than the metal used to make it,” said Mr Owino.

“These things are bulky and it takes a long time to count even Sh50 to buy an item. Traders are now saying we want a convenient thing. The government should think whether we still need to make heavy, bulky and inconvenient metallic shilling coins at a time when traders want to do their business easily and faster,” he says.

The coin problem is not only a Kenyan issue, in 2012, the Indian and Argentine governments raised concerns over hoarders, black marketers and bus companies who resold them at a percentage of the face value.

In India, the government indicated that millions of rupee pennies were being smuggled into neighbouring Bangladesh and turned into razor blades.
One rupee coin, for example, was said to be worth 35 rupees when smelted because it produced about five to seven razor blades.

To curb the shortage, the Reserve Bank of India increased the number of coins in circulation, with shopkeepers giving their customers sweets and cigarettes to round up the figure.

Reduce burden

In the 2012 Kenyan case, the Institute of Economic Affairs suggested the introduction of notes instead of pennies to reduce the burden of carrying money.

In an article titled; Dealing With the Shortage of Coins in Kenya, Mr Owino noted that unlike the one shilling currency, notes will bear greater advantage for safer carriage and expose Kenyans to less risk of loss or theft.

“Kenyans are acting rationally by opting to carry less burdensome notes in the place of coins. And so far, it appears that they are prepared to pay the higher costs on account of this choice. Haranguing the middle class for hoarding coins does not change the conditions that make those coins burdensome,” he said.

However, X.N Iraki, a lecturer of economics at the University of Nairobi says lack of coins is fuelling inflation because they are of small values then we leave them behind; people need to realize that and use them more.

‘‘Having notes of small denominations would be expensive in circulation because they get torn easily,” he says.

Additional reporting by George Ngigi