Monday, June 30, 2008

Quest Holdings International partners with Experian to establish A Credit Bureau in Kenya

Experian®, the global information services company, has signed an agreement to supply Quest Risk Solutions, a subsidiary of Quest Holdings International Ltd, with its proprietary software to establish a credit reference database and bureau service in Kenya.

Quest Risk Solutions, as one of the first private credit bureaux in Kenya, will provide valuable decision-making tools to any company or financial institution extending consumer and SME credit in Kenya. Quest will use the Experian software to offer the following services to local businesses:

· Positive and negative credit account information on individuals and SMEs (a very large segment of the Kenyan business population)

· Information on previous credit applications

Kenya’s economy has been growing steadily over the last five years. In the past two years, the economy has grown at an astounding 6.5% and it is projected that the economy will grow at 5% in 2008. Kenya has over 42 banks, numerous MFIs (Microfinance Institutions) and Saccos (Savings and Credit Cooperative Organisations) and in 2007, lending of over 10 billion Kenya shillings was granted. The healthy state of the economy offers an untapped opportunity for the credit bureau business.

The donor community and Kenya’s development partners have noted that the existence of a credit bureau, credit scoring and a credit rating agency is imperative for the growth of the credit industry in Kenya. In that regard the Donor Agencies, particularly DFID are funding the mass education campaign on the value of a credit bureau in the country, through the East African Credit Bureau Association.

Commenting on the agreement, Roberto Giannantoni, Head of Credit Bureau solutions in Experian’s Decision Analytics division, said: “This operation fits our strategic objectives of expansion into exciting emerging economies around the world. Quest Holdings and its CEO, Mr Julian Kyula, have been in the forefront in the establishment of well-run and managed credit bureaus in Kenya. With an exceptional and highly experienced team sourced both locally and internationally, Quest Holdings is in a unique position to succeed in this project with the support of Experian as one of the world’s largest and most successful providers of credit bureau services and solutions for third party operators.

"Lenders need to base their decisions on relevant information about consumers, so automated and sophisticated credit information retrieval systems are key to managing credit risk. The predictiveness of decision making solutions has been enhanced by the introduction of shared credit information via credit bureaux, resulting in better risk management for lenders and improved profitability. Credit bureaux are key enablers for the growth of a nation’s consumer economy and the quality of consumer credit portfolios, whilst protecting the privacy and credit exposure of individual consumers.”

Commenting on the agreement, CEO Mr Julian Kyula, stated: “Experian is clearly the world leader in the provision of credit bureau services and meets all our needs in terms of reliability, ability, support, history of operating and launching credit bureaus in the developing world. For us, Experian is the perfect partner.

“This agreement will go a long way towards cementing our position as the leading provider of financial solutions locally. Our mission is to be the leading credit bureau in East Africa, offering unsurpassed services. We strongly believe that a well developed credit bureau will facilitate and increase the development of financial services in Kenya and the entire East African region”.

Interest waiver on bank loans

If you pay your overdue bank loan through Collection Africa Limited a subsidiary of Credit Reference Bureau Kenya, you stand to qualify for a waiver on all interest accrued. This is according to an advertisement in the Sunday nation of 29th June 2008. The details are scanty but term and conditions apply as expected. This is a great opportunity to 'repair' your credit record.

Coffee fund moves to curb loan defaulting

Publication Date: 6/28/2008

The Coffee Development Fund intends to set up a credit reference bureau to bring down default rates among farmers who borrow from it.

Speaking during the release of five-year strategic plan at the Kenya Institute of Education, the fund’s managing trustee, Mr George Ooko, said the strategy includes plans to bring all financiers of the coffee sector under one umbrella.

“To reduce overall indebtedness of the coffee farmer, we shall partner with Coffee Board of Kenya to set up the registry. In addition, we shall also lobby to stop marketing agents from giving cherry and partchment advances to coffee farmers,” he said.

The problem of indebtedness has plagued the coffee industry beginning mid-1990s following liberalisation that led to some farmers shifting to new players, hence defaulting on loan repayments.

Kenya Planters Co-operative Union is among coffee institutions labouring under the weight of debts and last week, asked the government to bail it out with an injection of Sh1 billion.

Mr Ooko said CoDF would strive to enhance loan repayments and expand funding to post-harvest activities that are currently handled by marketing agents.

He said Sh428 million had been given to farmers in form of advances and credit for rehabilitation out of the Sh600 million provided by the government. He said Sh11 million had already been repaid.

The Coffee Development Fund was set up by the government two years ago to provide sustainable and affordable credit and advances to farmers.

The fund charges a discounted interest rate at 10 per cent per year on a declining balance, and has a one-year grace period before repayment starts.

Tuesday, June 3, 2008

Loan borrowers feel the heat as banks tighten noose

Daily Nation
Publication Date: 5/31/2008

The rush for easy credit in the form of loans and credit cards from banks and micro-finance institutions is causing untold financial and emotional misery to many Kenyans.

Unlike in the past when getting a loan required lengthy procedures, when borrowers had to produce security in the form of land, vehicles and other assets,
lately the only security required is a payslip.

This liberalisation of lending procedures has led to a steep rise in the number of individuals seeking loans.

And although many other factors are at play for defaulting, the leading cause for individual borrowers is imprudent lending and imprudent borrowing by the banks and borrowers respectively.

Security of payslips

Many of these individuals clearly bite more than they can chew — banks are giving out loans on the security of payslips that clearly show that the borrowers’ incomes cannot match the sums advanced.

The other reasons for defaulting include loss of jobs, divorce — particularly in cases where a loan was borrowed jointly by a couple — and high interest rates.

Hard economic times or other calamities, like the election crisis following last December’s General Election, also contribute to defaulting.

Faced with huge debt portfolios, the banks are now engaging the services of lawyers and other debt collectors to assist in the recovery of the lent sums.

Lawyers instructed by banks to recover any such debts from the defaulters are shocked by the failure of borrowers to read between the lines before they sign for the loans.

They give little regard to the contractual implications of the loans they sign up for.

Over and above

For instance, a credit card holder with a limit of Sh50,000 utilises that sum and defaults.

When a lawyer is instructed to demand this sum, over and above the Sh50,000 due on the card, there is interest applicable at commercial rates of about 18 per cent on the principal, which translates to Sh9,000 in addition to a debt collection fee in the region of Sh15,000.

Therefore, at the first attempt of recovery, the defaulter will be required to pay Sh74,000. But many believe that the other charges that inflate the debt are not due.

If the default period increases, the sum is compounded and even becomes more burdensome to settle.

As such, a debt that seems manageable can become so huge and beyond the borrower’s ability to repay — in just four or five years, the Sh50,000 can rise to as high as Sh1 million!

The situation is further compounded where it takes long before a bank takes action to recover any such sum that has not been repaid.

The consequence has always been that any other extra charges that would have accrued pursuant to such inaction by a bank would be paid by the borrower.

In cases where there are disputes which proceed to court, the borrower is condemned to pay all the interest that would accumulate while the case is being heard if a ruling is delivered against him or her.

And the Banking Act has not made any attempts to control interest applicable on non-performing loans.

Therefore, for as long as a borrower is still paying, the rate would vary depending on the vagaries that influence the changes in the cost of loans.

It is only when a loan becomes non-performing that some control on interest chargeable appears to have been imposed.

Section 44A of the Banking Act provides “that the amount recoverable by a bank from a debtor in respect of a non-performing loan shall be limited to:

  • Principal amount owing when the loan becomes non-performing.
  • Interest in accordance with the contract between the debtor and bank, but not exceeding the principal owing when the loan becomes non-performing.
  • Expenses incurred in recovering the loan.
The implication is that the borrower still faces the likelihood of meeting the huge cost of lending.

Consequently, it becomes exceedingly difficult for the average borrower who does not have other sources of income to service these loans.

On many occasions borrowers have resorted to selling some of their valuable assets to offset these loans.

In extreme circumstances where it is established that a borrower does not have sufficient assets, the banks may resort to committing the borrower to civil jail.

The resultant effect is that funds that were clearly intended to be of benefit end up being sources of distress.

Mr Kolla is an advocate of the High Court