The licenced shylocks of Kenya

They have flooded the kenyan market like never before,they have creatively branded posters which have bright colors and all sorts of eye catching words. "Cash in 24 hours" one poster shouts "check-off loans of upto 1million in 24 hours" another one interjects,"cash in 18 hours" another one appeals to its customers. These are the micro-finance institutions of Kenya, they have one target market, that is civil servants and all government employees. They claim to solve emergency financial woes of civil servants and yet it is not true.

A normal bank loan retails at an interest rate of between 12-18% per annum,a sacco loan also retails at 1% per month which translates to 12% per annum and on the contrary these micro-finance institutions charge between 2-5% per month which translates to a whooping 24-60% per month which is even higher than the black market rates of shylocks which range between 20-40%. In essence these micro-finance institutions siphon alot of money from the pockets of government employees by claiming that they do not require alot of documentation and that they only require a payslip,national identity card and a colored passport photo of a customer which are the basic items that most government employees have at hand.

Rose, a teacher in one of the public primary schools in Nairobi says that she cannot concentrate in her place of work because of financial stress caused by a loan from one of these institutions. She further says that she took a loan of Ksh100,000 with one of the institutions which was charging an interest rate of 3.97% per month for 48 months which adds upto Ksh290,560 which is almost three times of what she borrowed. Another government employee Omari ,36, a driver in one of the government ministries laments that he cleared paying a loan of Ksh50,000 with one the institutions but  deductions were still being effected from his salary an issue that made him financially overburdened,and although the deductions stopped after six months he has never received any refund from the concerned institution which amounted to Ksh18,000.

One of the micro-finance institutions was featured in a leading daily newspaper in connection with civil servants complaining that they were being deducted salary for loans that they have never applied for. Since most government employees have shyed away from taking up loans with these institutions they have decided to come up with new products in the name of asset finance which are also charged with the same interest as other loans in the micro-finance.they offer water tanks ,motor bike and even digital cameras on check-off loan basis.

John Muriuki a financial expert and consultant warns the government of more corruption if these loans will continue to be advanced at this rate since most government employees will indulge in corruption to cover up the deficit in their payslips which is caused by heavy salary deductions by these micro-finance institutions. He further warns county governments from signing memorandum of understanding with these institutions before taking into account the effect of these loans on the general morale of their workers since these institutions use dubious means and all unorthodox means to advance loans to government employees.

The most suprising thing is that these institutions depend solely on government payroll in their line of business operations which leaves people wondering if the government cannot tame these institutions or if these institutions work in cahoots with some government payroll managers to frustrate low cadre govenment employees financiallly. For example in January TSC did not process any loans for these institutions because they had closed their payroll and this helped as most of these institutions were literaly out of  business of capitalizing on the peanut salaries of Kenyan civil servants.

Many government employees i spoke to hoped the government will listen to their lamentations and tame these micro-finance institutions for the betterment of their service delivery.