Say no to borrowing from backstreet money lenders

NAIROBI, KENYA: Many parents want the best future for their children and hence will do all they can to provide a good education. So when Fiona, a mother of two, had her son admitted to a local public university a few months ago, she was very excited despite knowing she could not afford the fees. Exuding confidence, Fiona, a civil servant, strode into her local bank armed with the right papers and ready to apply for an unsecured loan. However, she was turned down because she was servicing other loans.

Unbowed, Fiona searched for other options to raise the money. In the process of hunting for possible lenders, she saw a newspaper advert about a micro-finance institution based along Tom Mboya Street in Nairobi that was offering “instant loans” to be processed in less than 24 hours.

She was so excited at the prospect of getting all the money she needed instantly that she threw all caution to the wind. She hurriedly assembled all the documents they asked for, along with a title deed for some land she owned to act as collateral. Fiona got her loan within four hours of applying for it. However, this marked the beginning of her financial woes. After applying for Sh200,000, she was shocked to discover that Sh70,000 had been deducted upfront from the amount she had applied for, yet she had to continue paying monthly interest.

On inquiring, she was told this was one of the lending conditions and that it was indicated in the fine print. Unfortunately, Fiona had not taken time to understand all the requirements. She threatened to cancel the loan but she was told the money that had been deducted was non-refundable. Left with minimal options, she had to painfully service the loan or risk losing her collateral.

Fiona’s predicament is a good example of what many people go through at the hands of illegal money lenders.

Now littered on almost every corner of major urban streets, they are preying on gullible people who sign lopsided deals and end up paying dearly for their mistakes.

These illegal money lenders give loans on very bad terms. Borrowers are expected to pay an inflated interest rate and are incessantly harassed when they fail to make payments promptly.

The ruthless lenders, also known as loan sharks or shylocks, ask their clients to sign papers crafted in their favour. However, in some cases, they do not give any paperwork so that it is difficult to keep track of how much is owed or where they are located.

They take away people’s logbooks, bank cards or title deeds as security. They also give cash against domestic appliances such as cookers, TVs, microwaves and fridges. Sometimes they even ask for mobile phones, cameras and computers.

The history of shylocking stretches back many years. Even William Shakespeare talks about it in his play, The Merchants of Venice. In the play, Shylock, a Jewish money lender, lends money to his Christian rival, Antonio. He sets the security as a pound of Antonio’s flesh and when the latter is unable to pay, Shylock demands his dues!

Alex Gichini, a financial expert with a city firm, says shylocks make a huge amount of money in profits from people who cannot get loans from legitimate sources like banks or other lending institutions.

“Most of them charge a compound interest of about 30 per cent. This means they can recover nearly the principal amount in accrued interest alone in case of a three-month default,” observes Gichini. “Shylocking flourishes even though it is a crime in Kenya. That is why most of the operators work underground. However, the best way to deal with illegal money lenders is not to go to them in the first place,” he says.

“It is best to stick to licensed dealers. Currently, the hurdles of getting credit from most banks, co-operative societies and other legitimate financial institutions have been removed,” advises Martin Kironji, a banker.

Kironji says it is easy to keep away from shylocks.

“To avoid being a victim, be skeptical about people who promise quick and easy money.”

Martin Onyango, also a banker, advises, “Most of those who end up going to shylocks for quick money are those who do not have a workable budget. So make a realistic one and stick to it. This will eliminate the need for you to look for money elsewhere or even buy things you didn’t budget for.

“Be careful not to go for a loan where you are asked to use your car logbook, title deed and other valuables as collateral. Most of these shylocks ask for exorbitant interest, which many people are unable to meet, and they end up forfeiting their security,” he warns.