By Anthony Ngatia

Most people by virtue of experiencing unusual financial strains rush to "anyone" ready to advance credit to them speedily, normally without tedious formalities.

Unfortunately, they end up in the jaws of loan sharks or shylocks who true to their name, literally eat them up.

If like most people you are hard up and crushing under the weighty financial demands that have come your way this month, do not go for cheap loans.

These will literally eat you up by trapping you in a vicious debt cycle that only breaks after they have impoverished you.

Loan sharks are individuals or institutions that target people in extremely difficult financial situations and offer them "instant loans", but at normally high interest rates.

The loan sharks take advantage of your desperate financial situation to advance you credit but which they require you pay at an unreasonable interest.

In case you get stuck, they auction your property to recover their money, regardless of how much you have repaid the loan.

Personal finance adviser Eliud Maloba says despite the fact that the demands for money placed on individuals are usually high in January, one should strictly keep away from them, as they are nothing but friendly criminals.

"Initially, they seem quite friendly, offering you the sum of money you require to perhaps sort out your bill, but soon it gets ugly as they change tune and demand you repay the money on their terms," he says.

Unlike the conventional credit giving financial institutions, they avoid even paperwork at first though they may tell you to find time and sign the agreement.

This lack of emphasis on agreements is deliberate to keep you in darkness with regard to the interest rates charged and also the penalties for late payments.

According to Job Kungu, a personal finance expert, most loan sharks, who are otherwise known as shylocks, demand security in forms of household goods, cars and any other property where they value them at half their market value so that in case you default, they may sell it, usually at a profit.

Experts say that most people turn to loan sharks in large numbers mostly in December and January.

High lending rates

In December, it is mostly to finance the festive season, whereas in January, it is mostly to settle debts and pay school fees for children.

Eliud says that people should rather pursue legal credit channels like banks and savings cooperatives societies despite their high interest as opposed to illegal sources with no paper work. "Pay day loans from reputable and legal institutions are many times preferable to loans from loan sharks," he says.

Leah Simba only knows what the true stuff shylocks are made of. When four years ago her daughter cleared primary school and was called to a provincial school, something beyond her expectation, she rushed to a local shylock to get a loan of Sh20,0000 as she had saved little from her tailoring business.

"The shylock was very fast to approve my loan given she was a lady well known to me," she says. So, she was asked to deposit the title deed of her plot or the household goods she had. "I opted for the television set, fridge and my spare sewing machine," says Simba.

After getting the money, she was told to be depositing one thousand shillings every week until the money was repaid and which she did for the next six weeks until she failed to repay as agreed.

"The lady changed and became rather full of threats and she auctioned my TV to raise the penalty of Sh2,000 for failure to meet the weekly repayment," she says.

In the subsequent weeks, she struggled and repaid the amount advanced plus the shylock’s interest of Sh10,000. "Then, the bombshell struck—the lady summoned me to her office and informed me I had a balance of Sh6,000 to clear. She showed me a purported loan agreement that applies to all clients," she says.

Her protests were drowned in the loud exchanges that ensued, but as she went out, the shylock vowed to use all means to recover her money.

"Within two days, I had received a court summon, which further shocked me," she says.

When she obeyed the court summons, she was shocked to find herself almost going to jail "for failing to repay a credit advanced to her". She was required to honour the agreement they made with the shylock.

This was a shocker even as she protested her innocence. According to Julius Kashorda, an advocate, the shylocks use the legal loophole to take people to court as they argue that the money they loaned you was a private agreement but which you are now refusing to honour," he says.

Since the court is there to enforce what two individuals agreed on, "it appears like the shylocks always have an upper hand over their clients".