How loan guarantors are getting duped

By Omulo Okoth

Joe Mwalimu* was a senior mathematics teacher at a Nairobi secondary school before he moved to the United States.

For many years, he had participated in the annual US Green Card lottery in vain.

Luck smiled at him in 2006 when he received a letter from the Kentucky Consular Centre notifying him he had won.

Mwalimu promptly responded to the letter from Kentucky and began to put things in place just in case he and his family of four got the US immigrant’s visas.

For application fees, paperwork at the embassy, medical examinations and airfare to the ‘Promised Land’, Mwalimu had to come up with close to Sh900,000. He also figured out that he needed at least the same amount to cover his family’s living expenses for a few months in the US.

With three guarantors, Mwalimu secured a loan of Sh500,000 from Mwalimu Sacco. His wife, also a teacher, secured another Sh250,000 loan with the help of another set of guarantors. However, none of the guarantors knew anything about the Mwalimus US plans. Plus their savings, the initial Sh900,000 was raised.

Mwalimu and his wife each then obtained another ShSh300,000 from two leading banks (names withheld). Each had to use two different guarantors for the bank loans, who were as ignorant as the first lot.

On top of the new loans, the Mwalimus also had outstanding arrears of Sh144,000 with the Higher Education Loans Board.

In July of 2006, the Mwalimus and their two children got their US visas. By then, they had already secured admissions for the Fall semester at a University in New England for post-graduate studies. Armed with college letters of admission, they applied for and were granted paid study leave from the Teachers Service Commission.

Settled in US

The Mwalimus sold all their belongings and left for the US in mid-September, 2006. They settled in the South Atlantic region of the United States. Three years later, they are successful professionals in the US and their combined household annual income is close to $200,000 (about Sh14 million).

They have never paid a shilling towards their loans in Kenya and the banks and Mwalimu Sacco have gone after their guarantors. The TSC has long found out that the couple never intended to go to school in New England nor return to Kenya and wants the entire amounts they received during the purported study leave period returned.

The above pattern reflects what transpires year-in-year-out as people relocate for good from Kenya, leaving banks and saccos holding on to non-performing loans.

What options do the co-signers, banks, HELB and TSC have in dealing with such defaulters.

The US Embassy spokesperson, Inmi Patterson, said: ‘That is something between individual persons and financial institutions. Between a borrower and a lender and they don’t necessarily have to go to US. Some might be going elsewhere, so we can’t really get involved."

A senior TSC official, who sought anonymity, said they have received hundreds of complaints from guarantors, many of them teachers, who are being forced to repay loans whose applicants have left the country.

According to Thomas Kirui, a Kenyan-born lawyer who practices in the United States, such international deadbeat debtors are not necessarily out of reach from their Kenyan creditors.

"On several occasions in the past, my office here in the US has worked in close association with Kenyan lawyers and other professionals in Nairobi to recoup consumer as well as commercial debts rightfully owed to various Kenyan entities by debtors who have relocated to the United States," the lawyer, who has offices in Virginia, US, and in Nairobi said.

"International debt collection is a complicated process best left to professionals. One has to navigate through different legal jurisdictions, language barriers and different time zones, just to name a few considerations that leave many a creditor wanting to just forget about the debt all together.

"With the collaboration of professionals in different countries, effective debt collection, however, simply knows no borders in this day and age," Kisui says.

"Most collection actions are initiated in the creditors’ countries of residence and the debtor is engaged through international service of process. If a negotiated settlement cannot be arrived at, then once the creditor obtains a judgment in his or her favour, the issue of enforcement of the judgment in the debtor’s

country of residence arises.," he said.

Between lawyers

"Close collaboration between lawyers and other debt collection professionals in process is, therefore, inevitable. One group locally deals directly with creditors to obtain a judgment while the group in the debtor’s country of residence works to domesticate and enforce the foreign judgment," he said.

"Here in the US, enforcement of judgments issued by foreign courts is carried out in some states. In Virginia, for example, state law provides for foreign country money judgment domestication and enforcement cases," says the lawyer.

"Such judgments must, among other things, be certified by the Consul at American Embassy so that it will be accepted by the office of the clerk in any circuit court in the US ," he explains.

*Some names have been changed to protect identities