Tag Archives: Economic and Finance terms

Buzz word: Money Laundering

What is ‘Money Laundering’

Money laundering is the process of creating the appearance that large amounts of money obtained from serious crimes, such as drug trafficking or terrorist activity, originated from a legitimate source.

Money Laundering Scheme

Money Laundering Cycle Source:

There are three steps involved in the process of laundering money: placement, layering, and integration. Placement refers to the act of introducing “dirty money” (money obtained through illegitimate, criminal means) into the financial system in some way; “layering” is the act of concealing the source of that money by way of a series of complex transactions and bookkeeping gymnastics; and integration refers to the act of acquiring that money in purportedly legitimate means.

One of the more common ways that laundering takes place is when a criminal organization funnels their illegally obtained cash through a cash-based business, slightly inflating the daily take. These organizations are often referred to as “fronts.” In the popular television series “Breaking Bad,” the methamphetamine dealer funnels his earnings from selling illicit drugs through a series of car-wash businesses.

Other common forms of money laundering include smurfing (A smurf is a colloquial term for a money launderer. Also refers to one who seeks to evade scrutiny from government agencies by breaking up a transaction involving a large amount of money into smaller transactions that are below the reporting threshold. The term is derived from the cartoon characters known as The Smurfs) , where a person breaks up large chunks of cash and deposits them over an extended period of time in a financial institution, or simply smuggles large amounts of cash across boarders to deposit them in offshore accounts where money laundering enforcement is less strict.



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Kenya top in affordable financial services

  • Kenya has been ranked first in a survey by a US-based think tank that examined access to affordable financial services.
  • Tanzania and Indonesia were found to have the best regulatory environment of the 21 countries surveyed.


The country achieved the overall top score for its financial inclusion efforts in the 2015 Brookings Financial and Digital Inclusion Project Report which is published by the Brooking s Institution, largely due to the growth of its mobile money market.

21 Countries were ranked on four aspects of financial inclusion, including country commitment, mobile capacity, regulatory environment and the adoption of traditional and digital financial services. Of these categories, Kenya ranked first only in adoption.

Kenya earned 89 per cent overall, followed by South Africa (80 per cent), Brazil (78 per cent), Rwanda and Uganda (75 per cent each), and Chile, Colombia, and Turkey (74 percent each).

The use of mobile money transactions has been on the rise in Kenya since its inception. Data from the Kenya National Bureau of Statistics indicate that in 2014, mobile money subscriptions reached 26.0 million, representing a penetration rate of about 60 per cent of the total population.

Cash deposits made through mobile money agents reached Sh1,269 billion in 2014, up from Sh1,033 billion in 2013, while total transfers increased by 24.7 per cent to Sh2,372 billion up from Sh1,902 billion.

Kenya was cited for allowing both banks and non-bank institutions, including mobile operators, to offer financial services. In 2012, for example, M-Shwari was launched in Kenya as a partnership between the Commercial Bank of Africa and Safaricom to offer interest-bearing accounts and microloans, reaching an increasing number of unbanked people.

South Africa was ranked top for mobile capacity, defined by indicators like the extent of 3G mobile network coverage, ease of mobile payments, and the number of active mobile money services in each country. Kenya was ranked second, tied with Indonesia, Bangladesh, Colombia, Rwanda, and Afghanistan.

Tanzania and Indonesia were found to have the best regulatory environment of the 21 countries surveyed, according to the report.

Regulatory environment indicators included non-bank led mobile financial services, regulations governing e-money, the inter-operability of mobile money platforms, client identification (know-your-customer) processes, and cash-in/cash-out capability at agent locations.

Tanzania, Rwanda and Uganda were among seven countries ranked joint top for country commitment.

Mpesa, the first mobile cash transfer service in Kenya, was launched by Safaricom in 2007. Earlier this year, Equity Bank, the latest entrant in the mobile banking market, launched a special thin SIM card that allows the bank’s customers to access the lender’s mobile virtual network without parting ways with the existing telecom operators.

Other highlights of Kenya’s performance metrics include twelfth place for country commitment and third place for regulatory environment.

The country also had the highest rate of mobile money account ownership of the FDIP countries, as well as a regulatory environment that promotes entry of bank and non-bank providers in the market and diverse offerings such as mobile savings and credit products.

According to the World Bank Global index database which is sited in the report, South Africa, which was ranked second overall in the Brookings study, had 75 percent of adults with bank accounts and five percent with non-bank financial products, while in Kenya 55 per cent of people aged 15 and above have a bank account.

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Posted by on September 2, 2015 in Business News


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Finance Terms: “80 – 20 Rule”

Defition of “80-20 Rule”

A rule of thumb that states that 80% of outcomes can be attributed to 20% of  the causes for a given event. In business, the 80-20 rule is used to help  managers identify problems and determine which operating factors are most  important and should receive the most attention based on an efficient use  of resources. Resources should be allocated to addressing the input factors have  the most effect on a company’s final results.


Also known as the “Pareto principle”, the “principle of factor sparsity” and  the “law of the vital few.”

The 80-20 rule was developed by  Joseph Juran, a 20th century figure in the study of management techniques and  principles. The 80-20 rule has been applied to a number of different facets of  business.
An example of the 80-20 rule in economics would be that  80% of a country’s wealth is controlled by 20% of the population, although this  can be explained by the Gini index.

For you who visits the famous 80-20Fashions Blog by Shamim Mwasha ‘Zeze’  This is the meaning behind the name.



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General Understanding of The Kyoto Protocol

What do you understand by the term Kyoto Protocol?

First time i heard the term i thought it a type of mushrooms from China or Japan! So the more i heard of it on the International meia houses i decided to find out what exactly is the KYOTO Protocol.


Definition of ‘Kyoto Protocol’

Kyoto Protocol

An international agreement that  aims to reduce carbon dioxide emissions and the presence of greenhouse  gases. Countries that ratify the Kyoto Protocol are assigned maximum carbon  emission levels and can participate in carbon credit trading. Emitting more than  the assigned limit will result in a penalty for the violating country in the  form of a lower emission limit in the following period.

The Kyoto Protocol is a protocol to the United Nations Framework Convention on Climate Change (UNFCCC or FCCC), aimed at fighting global warming. The UNFCCC is an international environmental treaty with the goal of achieving the “stabilisation of greenhouse gas concentrations in the atmosphere at a level that would prevent dangerous anthropogenic interference with the climate system

The Protocol was initially adopted on 11 December 1997 in Kyoto, Japan, and entered into force on 16 February 2005. As of September 2011, 191 states have signed and ratified the protocol.[ The only remaining signatory not to have ratified the protocol is the United States. Other United Nations member states which did not ratify the protocol are Afghanistan, Andorra and South Sudan. In December 2011, Canada renounced the Protocol.

Tanzania ratified and accepted the kyoto protocol in August 2002.  One of the initiatives in Tanzania is through The national REDD strategy  which is  yet to be completed though it is at an advanced stage of preparation. It will enable Tanzania to gain billion of shillings annually from the international carbon trading markets, through conserving forests.

The Kyoto Protocol separates  countries into two groups. Annex I includes developed nations, while  Non-Annex I refers to developing countries like Tanzania. Emission limitations are only placed  on Annex I countries. Non-Annex I nations participate by investing in projects  that lower emissions in their own countries. For these projects, they earn  carbon credits. These credits can be traded or sold to Annex I countries, which  allow them a higher level of maximum carbon emissions for that period.

Carbon Credit is  permit that allows the holder to emit one ton of carbon  dioxide. Credits are awarded to countries or groups that have reduced  their green house gases below their emission quota. Carbon  credits can be traded in the international market at their current  market price.

The carbon credit system was  ratified in conjunction with the Kyoto Protocol. Its goal is to stop the  increase of carbon dioxide emissions.
For example, if an  environmentalist group plants enough trees to reduce emissions by one  ton, the group will be awarded a credit. If a steel producer  has an emissions quota of 10 tons, but is expecting to produce 11  tons, it could purchase this carbon credit from the environmental  group. The carbon credit system looks to reduce emissions by having  countries honor their emission quotas and offer incentives for being below them.

In response to the Kyoto Protocol a Carbon Trade idea was presented. The Idea  involves the trading of greenhouse gas (GHG) emission rights between nations.

For example, if Country A exceeds  its capacity of GHG and Country B has a surplus of capacity, a monetary  agreement could be made that would see Country A pay Country B for the right to  use its surplus capacity.
The Kyoto Protocol presents nations with the  challenge of reducing greenhouse gases and storing more carbon. A nation that  finds it hard to meet its target of reducing GHG could pay another nation  to reduce emissions by an appropriate quantity.




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What is GDP and Why is it so Important?

Recently the term GDP has been heard and or seen everywhere in our media in Tanzania, This follows the presentation of 2012/2013  Government Budget, Do you understand what it means? When Mh. Mgimwa said “The real GDP grew by 6.4% in 2011 compared to 7.0% in 2010” What did he mean exactly?

I will explain below in brief the meaning of GDP (Gross Domestic Revenue)

File:Map of countries by GDP (nominal) in US$.png

Map of Countries by GDP – Source Wikipedia


The Gross Domestic Product (GDP) is one the  primary indicators used to gauge the health  of a country’s economy. It represents the  total money value of all goods and services produced over a specific time  period – you can think of it as the size of the economy. Usually, GDP is  expressed as a comparison to the previous quarter or year. For example, if the  year-to-year GDP is up 3%, this is thought to mean that the economy has grown by  3% over the last year.
Measuring GDP is complicated (which is why we  leave it to the economists), but at its most basic, the calculation can be done  in one of two ways: either by adding up what everyone earned in a year (income  approach), or by adding up what everyone spent (expenditure method). Logically,  both measures should arrive at roughly the same total.
The income  approach, which is sometimes referred to as GDP(I), is calculated by adding up  total compensation to employees, gross profits for incorporated and non  incorporated firms, and taxes less any subsidies.

The expenditure method is the  more common approach and is calculated by adding total consumption, investment,  government spending and net exports.

Why do we Care about GDP?

GDP is the main measure of the health of the economy and is used by the central banks as one of the key indicators in setting interest rates each month. Also it is used by major international organisation like IMF to measure the Economic healthy of countries. See List of Countries by nominal GDP below (Tanzania No. 97) according to IMF data of 2011:


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Finance term: Macaroni Defence


An approach taken by a company that does not want to be taken over. The company issues a large number of bonds with the condition they must be redeemed at a high price if the company is taken over.

It is called macaroni defence because  if a company is in danger, the  redemption price of the bonds expands like Macaroni in a pot!


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Economic Term ‘A Prisoner’s Dilemma

A paradox in decision analysis in which two individuals acting in their own best  interest pursue a course of action that does not result in the ideal outcome.  The typical prisoner’s dilemma is set up in such a way that both parties choose  to protect themselves at the expense of the other participant. As a result of  following a purely logical thought process to help oneself, both participants  find themselves in a worse state than if they had cooperated with each other in  the decision-making process.

An example of a Prisoner Dilemma;

Suppose two friends, Ally and Baker are suspected of committing a crime and are  being interrogated in separate rooms. Both individuals want to minimize their  jail sentence. Both of them face the same scenario: Ally has the option of  pleading guilty or not guilty. If he pleads not guilty, Baker can plead not  guilty and get a two-year sentence, or he can plead guilty and get a one-year  sentence. It is in Baker’s best interest to plead guilty if Ally pleads not  guilty. If Ally pleads guilty, Baker can plead not guilty and receive a  five-year sentence. Otherwise he can plead guilty and get a three-year sentence.  It is in Baker’s best interest to plead guilty if Ally pleads guilty. Ally faces  the same decision matrix and follows the same logic as Baker. As a result, both  parties plead guilty and spend three years in jail although through cooperation  they could have served only two. A true prisoner’s dilemma is typically “played”  only once; otherwise it is classified as an iterated prisoner’s dilemma.


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