Locking out the shylocks
By Musyoki Kimanthi
Q: What is the legal position on shylock business? The shylocks seem to have a field day at the expense of poor Kenyans.
Answer: Shylock is a fictional character in William Shakespeare’s 1596 play, The Merchant of Venice. In that play, Shylock is a Jewish moneylender who lends money to his Christian rival, Antonio, setting the bond at a pound of Antonio’s flesh. When a bankrupt Antonio defaults on the loan, Shylock demands the pound of flesh. The word ‘shylock’ has gained currency along those lines to mean a ruthless moneylender, a loan shark or a heartless and demanding creditor. ‘Shylocking’ is commonly used to refer to the business of lending money at exorbitant interest rates.
No one will admit that they carry out shylock business because the term is deemed offensive. Instead, they christen themselves as "Microfinance". Their lure is the promise of instant cash without the snoopy scrutiny that characterises lending by banks.
Problems arise when the borrower realises that their bond — which often is a personal possession capable of quick disposal — has been sold despite repaying the loan even up to three times the borrowed amount.
The shylocks have a canny way of ensuring that the borrowers default so that they ‘justify’ the foreclosure and sale of the mortgaged property.
Whatever the excuse for borrowing from them, it seems unfair that the Government should let these people prowl and take advantage of poor and desperate Kenyans.
So, what is the law, if any, on regulation of shylocks?
I would say, and I stand to be corrected, that there is no express legal provision that says, ‘thou shall not shylock’. Shylocking is so vague that it is difficult to bring it under any proper regulation.
Most of those businesses are not registered and do not pay taxes. All one needs to transact business with a shylock is a signature on a poorly photocopied agreement. This, coupled with the fact that no one will admit they do shylocking, poses a challenge to law enforcers.
But perhaps most importantly is the all-important legal concept of sanctity of contract.
Honouring a contract
Where a mature adult signs a piece of paper binding himself to certain obligations, can he later argue that he be excused from the obligations because they are unfair to him?
In a 2000 High Court case, Fina Bank had lent Spares & Industries Sh75m, secured by various charges valued at Sh77m and a general debenture for Sh75m covering all the assets of the company.
Interest was payable at a variable 31 per cent and an additional six per cent as penalty charges for arrears.
The company had been unable to keep up with the interest repayments and the bank elected to appoint receiver manager under the debenture.
The company filed a suit seeking a declaration that the receiver’s appointment was null and void on the grounds, inter alia, that the interest rate was unconscionable and that the bank’s action was oppressive.
The bank contented that that the company had contracted to pay additional interest as penalty.
Justice Shah asserted that the debenture document formed a contract between the parties and the provision on interest can only be changed or altered like any other contract. Having executed the contract with full knowledge of the consequences, the company cannot later say that some of its terms were onerous.
In law, shylock must have his pound of flesh. But also, even where someone has a statutory right, the same can be interfered with by the courts where the exercise of that right is deemed oppressive.
In conclusion, it does appear that the law is vague on protection of borrowers from shylocks’ greed, but the courts may, if convinced the shylocks are oppressive, grant some relief.
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