Friday, November 25, 2011

THE ZERO EMERGENCY FUND

The conventional financial advice is that if you are employed or earning some income you need to put aside some cash for emergencies; for example loss a job, medical emergency etc. Personal finance experts advice that you keep 3 months to 6 months equivalent of monthly liabilities if form of cash.
While it a good idea to set aside some cash for a rainy day, the whole idea of holding such cash needs to be rethought. Failure to have such amount of cash saved does not necessarily constitute a crisis. So if you haven’t, don’t worry too much because what really matters is your overall financial flexibility, that is; resources you can command too help you withstand a crises, however unexpected, severe or long lasting for the following reasons.

1. Emergency funds take time to accumulate

With the tough economic conditions especially the biting inflation, household budgets are becoming tighter and tighter. With the numerous financial obligation and spiraling costs saving even a small amount is becoming a challenge and thus an emergency fund is hardly a priority. If at all you manage to save anything at all, it will be minute and will take you ages to actually save 6 months worth of living expenses cash.

2. Unacceptably high opportunity cost of funds

Like mentioned above, your budget will have some priorities which are important for your overall financial well being. Items such as debt repayment, retirement saving, sacco savings and investment in a income generating venture will definitely have a higher priority than putting aside an emergency fund. Basically, you have more to gain from making such investments than having money sit around.

3. Non emergencies become emergencies

With idle cash in the bank, issues which you would not ordinarily consider emergency will become emergencies. For example when your idiot brother gets arrested and people look up to you to bail him out, if you don’t have money you will state that fact and suggest creative ways of raising the money. With idle cash lying in the bank creativity will feature less and you will just want to get on with your life. Of course your brother will never pay you back.

Emergencies and financial crises can be managed by first having access to a credit line. That means you have a good financial reputation and you have been paying your debts promptly, be it to your friends, family or even financial institutions. Another way of dealing with emergencies is to liquidate some assets you may have invested in such as real estate or sacco savings. Yet another way to manage emergencies is by risk transfer which is basically use of insurance. Personal accident, comprehensive car cover, fire and burglary and especially medical insurance for your family can help you ride some of the difficult times.

Therefore if you have the above mentioned basics in place and a zero emergency fund, you can sleep easy despite what the experts insist.

Friday, November 4, 2011

CBK ORDERS BANKS NOT TO BLACKLIST DORMANT ACCOUNT HOLDERS

By George Ngigi November 4  2011 Business Daily

Banks should not blacklist customers whose dormant accounts run into negative balances, the Central Bank of Kenya (CBK) has said.
“Failure to close a bank account does not in itself amount to defaulting on a loan. However, it is important to note that credit facilities that had not been fully serviced or regularised when they became dormant may amount to non-performing loans,” said CBK in response to questions by Business Daily regarding the matter.
Customers have accused banks of blacklisting dormant account holders whose balances slip into negative figures due to standing monthly charges.
The lenders then deny the account holders access to credit, effectively lumping them in the category of loan defaulters.
CBK has asked banks to adhere to conditions stipulated in the Credit Reference Bureau (CBR) regulations.

Take advantage
Bank customers should take advantage of the free credit report copy that they are entitled to each year to check any inaccuracy, CBK said.
Credit reference regulations allow customers to raise complaints in not more than 100 words on inaccuracies in the report.
The Kenya Bankers Association (KBA) intends to set up an office of an ombudsman to arbitrate conflicts between banks and customers.
Sharing of borrowers’ loan repayment history started in July last year with the aim of cutting out serial defaulters.
The system is expected to develop to levels where information on dormant accounts will be relevant but not necessitating black-listing.
“As Kenya moves towards comprehensive credit information sharing, the financial profile of customers will become more pertinent.
In comprehensive credit information sharing systems, information on account operations such as dormancy is a consideration,” said the CBK.
The credit bureau system has specialised in gathering information on loan defaults, limiting wider public benefits that could accrue from the body and undermining some reasons for setting it up.
One of the reasons for creation of the body was to allow clean borrowers to access cheaper loans under less stringent terms.
KBA said it was working on modalities to encourage sharing of data on performing loans by next June.
Bank customers have also been asked to update their personal data so that letters on their being black-listed reach them.

Wednesday, November 2, 2011

BANKS SEEK ARBITER OVER LOANS BLACKLIST DISPUTES

By George Ngigi  November 1  2011 at  BusinessDaily

Bankers will create an ombudsman’s office to address customer complaints regarding use of credit referencing bureaus (CRB), the industry lobby organisation has said.
The Kenya Bankers Association (KBA) said the office will arbitrate on emerging issues on use of CRBs, such as the reported blacklisting of customers whose dormant accounts had fallen to negative balances due to accumulated bank charges.
Some bank customers have also claimed they were black listed due to erroneous reconciliation of loan accounts, and did not have an avenue to have their issues resolved.
“We are proposing amendments to the CRB regulations to introduce the office of an ombudsman who will listen to customer disputes that may not be resolved by the CRB and commercial bank as provided for under the current regulations,” said the KBA chief executive, Habil Olaka.
The credit reference regulations currently allow customers to raise complaints in not more than 100 words of the aspects that he/she considers inaccurate in his report.
The credit bureau is required by law to insert the statement to the borrower’s credit report while the reporting bank investigates the complaint in a maximum period of 15 days.
If erroneous, the CRB deletes or amends it and within five days of having received the resolution notice, inform everyone who has accessed the report over the previous twelve months.
But if no agreement is reached, the complaining customer will now appeal through the office of the ombudsman whose ruling will be final.
“The decisions of the independent ombudsman will be binding on the banks,” said Mr Olaka.
Mr Olaka saidthe association was preparing guidelines to be issued to banks clarifying on what constitutes a credit facility in order to prevent any misuse of the system.
The latest Central Bank quarterly report indicates that commercial banks had requested 1,060,865 credit referencing reports by end of September indicating increased reliance of the reports in the process of loan appraisals.
An individual is entitled to one free report in a year and to a free copy of the report within 30 days of being notified of their listing. By end of December 2010 only 434 credit reports had been requested by customers against 284,722 made by banks.
“The challenge is to increase public awareness on the credit information sharing mechanism and the right to access a free credit report from a licensed bureau at least once a year by customers,” said the Central Bank industry report for the year 2010.
Kenya Bankers association said it had also noted that much more sensitisation is required to assist all parties -lenders, borrowers and credit bureaus-clarify any grey areas and hence would be rolling out an awareness campaign early next year.
Currently there are two registered credit reference bureaus in the country being CRBAfrica and Metropol Bureau.

Tuesday, November 1, 2011

BANKS DENY DORMANT ACCOUNT HOLDERS ACCESS TO NEW LOANS

By George Ngigi  October 31  2011 Business Daily

Thousands of consumers who did not formally close previously held bank accounts have been included in the list of bad borrowers, adding a new twist to commercial banks’ use of credit reference in the lending market.
The lenders said the consumers are being penalised for maintaining negative bank balances that add up to loan defaults, qualifying them as bad borrowers in the credit market.
Also included in the list of bad borrowers are bank customers who have applied for credit cards but have not activated them — making it impossible for the banks to recover the initial cost.
Kenya launched the credit referencing system last year to profile borrowers based on their loan servicing history as well as their dealings with utility companies such as water and electricity distributors.
Some commercial banks acknowledged encountering similar problems when evaluating their clients for loans and advised them to clear with the banks that shared negative information before continuing with negotiations.
“People have been put there unnecessarily. Some credit officers in the industry think CRB is a correctional measure for all that has gone wrong in the past but that is not the case; it is worse because it denies one access to credit,” said Jacob Ogola, head of credit administration at Commercial Bank of Africa.
Banks have been increasing their reliance on credit reports with most demanding that all loan applications be accompanied by findings of the individual’s or business report.
The latest Central Bank quarterly report indicates that commercial banks had requested 1,060,865 credit referencing reports by end of September.
“The reports are now part of our credit appraisal process and negative listing is considered on a case by case basis,” said Suprio Sengupta, the general-manager at I&M Bank.
“For personal financing, it becomes crucial but on secured loans it is negotiable,” he said. 
The credit referencing guidelines for the banking industry indicate that lenders are expected to put more emphasis on each borrower’s character than their ability to repay or even to raise collateral.
The CRB report is deemed to reflect the borrower’s character.
Consumer complaints
Credit reference bureaus admitted receiving consumer complaints over dormant account-related blacklisting but said commercial banks had submitted the information to the bureaus.
“We are aware of cases where a customer left his or her account dormant and it went into negative balance not necessarily because of failure to service a loan but for overdrawn bank charges,” said Sam Mukoko of Metropol CRB.
“This is the group of customers who are being taken by surprise when they apply for a loan.”
Wachira Ndege of CRBAfrica, one of the first credit reference bureaus to get Central Bank licensing, said such surprises should not occur as commercial banks are expected to inform a person of his/her listing in the bad borrowers’ book within 30 days of registering a person as a defaulter with the credit bureaus.
Mr Ndege said the requirement is expected to elicit a response from the listed borrower and set in motion a process to correct any errors in the report.
“A customer can also request their status report and if there is any error a resolution procedure is in place,” said Mr Ndege.
An individual is entitled to one free report in a year and to a free copy of the report within 30 days of being notified of their listing.
Mr Wachira said that the law only provided for listing of individuals on the basis of outstanding debt obligations on a facility and not as a result of bank charges.
Mr Mukoko said that customer complaints had led some banks to write special letters to the bureaus asking them to review the status of the complainants.
CRB stands as one of the most outstanding banking sector reforms in Kenya for its provision of credible information on customers that has helped improve the quality of loan books.
Kenya’s stock of gross non-performing loans (NPLs) declined by one per cent in the three months to September to stand at Sh57.7 billion.
Similarly, the ratio of gross NPLs to gross loans improved from 5.4 per cent in June 2011 to 4.8 per cent in September 2011 — a development that has been partly attributed to the use of the credit reference mechanism.
 “The reduction in non-performing loans is attributed to enhanced appraisal standards deployed by banks,” read the Central Bank’s report.
“Someone who has been listed cannot get a loan until they clear with the CRB first,” said James Mwangi, CEO of Equity Bank.
Blacklisted consumers are considered to be of higher risk and can be charged a higher premium than other borrowers. On the other hand, borrowers with a good repayment history are expected to use their rating to negotiate better interest on their loans as they are perceived to bear a lower risk of default.
Evidence from the lending market, however, indicates that no lender has used the credit reference information to vary interest rates for their customers though the bad book is being widely used to deny consumers access to credit.
Some lenders also responded to the bad ratings with requirements that the borrowers raise more collateral for their loans even when they have been cleared by institutions that had listed them.
It remains each bank’s prerogative to determine the amount of risk exposure it is willing to take but most have chosen to simply reject loan applications from such customers.
Before listing a person, a bank is required to give a 30 days’ notice for the individual to take corrective measures.
But once listed, even if a person clears the debt for which they were listed, their names remain in the bad register for seven years.
“Some banks are denying these people credit and that should not be the case,” said Mr Ogola.
“They should instead be priced higher and be required to settle the loan for which they were blacklisted before disbursement of the new loan.”
Mr Ogola said the law gave the allowance in recognition of the fact that conditions in a client’s life at the time of default may have changed, placing them in a better position to service a higher loan while offsetting the previous one.
Staff turnover in the industry was also cited as necessitating further investigation into historical information in an account for a comprehensive reconciliation before listing.
Industry insiders also blamed lack of public awareness and the failure by customers to challenge the banks for the casual manner in which the lenders are using the credit reference information.
Closing their accounts
Mr Ogola advised borrowers to follow due procedure in closing their accounts instead of leaving them dormant even where they felt aggrieved.
Initially, those who were locked out by the banks could turn to microfinance institutions but in his Budget speech in June, Finance minister Uhuru Kenyatta sought to have the MFIs included in the information-sharing platform.
Other service providers including the Nairobi City Council have sought to be included in the credit referencing – especially aiming to list land rates defaulters.
The Higher Education Loans Board is already using the services of the bureaus.
The industry regulator hopes that the goodwill of non-defaulters would not only attract lower cost of credit but also eliminate the need for collateral, making it easier to deepen financial inclusion.

Friday, October 28, 2011

CREDIT REFERENCE BUREAU (CRB) AFRICA ACQUIRED BY TRANSUNION

27th Oct. 2011 – TransUnion, a global leader in credit and information management, announced today that it has entered into an agreement with CRB Holdings Limited, the parent company of CRBAfrica to purchase a majority shareholding in CRB Holdings Limited, a credit risk management organisation with a presence in eight countries across Africa.
The acquisition significantly expands TransUnion’s footprint in Africa. Building on its existing presence in South Africa, Namibia, Botswana, Zimbabwe and Swaziland, TransUnion can now enhance operations in Botswana and extend its footprint into Kenya, Mozambique, Malawi, Rwanda, Tanzania, Uganda and Zambia, bringing a wide range of credit reporting and risk management solutions to these emerging markets. Terms of the transaction were not disclosed. Closing of the transaction is subject to satisfaction of customary conditions to closing and regulatory approvals.
“For TransUnion, broadening our presence in Africa is part of our strategy to open opportunities for both businesses and consumers, helping to fuel economic growth in these evolving credit markets,” said Edward Khoury, Group CEO TransUnion Africa. “We are delighted to be working with CRBAfrica and leveraging their experience and relationships within these countries to introduce to the local markets the many benefits of credit-information.

In addition to supporting new retail and banking customers in the region, this will also enable our large customers in South Africa to launch operations further into Africa, whilst being assured of Credit Bureau support.”

With a population of approximately a billion people and a strong gross domestic product, Africa is increasingly the focus of both local and international commercial interest and investment. The benefits of this investment are widespread, but the introduction and influence of credit bureaus in particular are expected to have a significant effect on the economies of Africa in the medium term and positively impact job creation, specifically at a Small, Medium and Micro Enterprise (SMME) level. Moreover, at a social level, studies have shown that widening access to regulated credit fosters positive results for the distribution of wealth.

According to Michael Karanja, Chairman of CRBAfrica, the synergies between the two companies will enable the combined business to offer clients an even more compelling value proposition. “With over twenty years’ experience in credit referencing and debt management in Africa, we have built strong relationships with our clients and pride ourselves on our high business ethic, as well as our commitment to our people and the region as a whole,” Karanja said. “As part of TransUnion, we will have the global reputation, expertise, systems and suite of solutions to dramatically enhance our services within the region.”

Khoury and Karanja also stressed the point that there are no plans to make any changes to personnel or management, and that it is very much “business as usual”. Once the purchase is complete, the markets will begin learning and seeing a wider range of product and service offerings as the transition to the TransUnion brand occurs.

About TransUnion

As a global leader in information and risk management, TransUnion creates advantages for millions of people around the world by gathering, analysing and delivering information. For businesses, TransUnion helps improve efficiency, manage risk, reduce costs and increase revenue by delivering high quality data, and integrating advanced analytics and enhanced decision-making capabilities. For consumers, TransUnion provides the tools, resources and education to help manage their credit health and achieve their financial goals. Through these and other efforts, TransUnion is working to build stronger economies worldwide. TransUnion reaches businesses and consumers in 23 countries around the world. Based in Johannesburg, with global headquarters located in Chicago in the US, TransUnion is one of South Africa's oldest credit bureaus. Visit www.transunion.co.za or www.mytransunion.co.za for more information.

About CRBAfrica

CRBAfrica, headquartered in Nairobi, Kenya is Africa’s largest networked credit reference bureau and debt management outsource organization with current operations in eight African countries employing 300 employees. By combining a highly skilled, multilingual indigenous workforce, a wide range of unique products and services that reflect each local operating environment and a fully-integrated geographic reach, CRBAfrica has pioneered the development of credit bureau and debt management services across the African continent to allow major banks, credit card companies, financial institutions, microfinance and multinational commercial enterprises to reduce their credit risks. www.crbafrica.com
From Vuma Reputation Management

Wednesday, October 19, 2011

THINK TWICE BEFORE SWIPING THAT CARD

By James Ratemo, Business Daily Thursday, October 13  2011
A friend of mine who has been using a credit card for several months was recently surprised at how far banks were willing to go to ensure his financial ‘comfort’.
This friend, let us call him Jack, likes making purchases  using his credit card and repaying 100 per cent at the end of every month.
One day,  he suddenly realised the bank had blocked his card.
He was surprised because he had never defaulted on his payments. He went to  the bank for an explanation.
“The bank official told me they had monitored my card and thought I was straining because after paying my monthly expenditures, my account remained almost empty...so  he suggested that I pay 50 per cent of my bills instead of the 100 per cent I was used to,” explains Jack.
A critical look at what the bank wanted Jack to do reveals that the bank would be the ultimate beneficiary since paying the way they recommended means additional interest on the credit carried forward.
Jack pays Sh2,500 as the annual fee for the credit card.
If you pay 100 per cent promptly every month, there is no interest accrued meaning the only cost you incur is the annual fee, which in  Jack’s case is Sh2,500.
However,  after Jack changed his repayment plan to 50 per cent, it meant the remaining 50 per cent is carried forward,  attracting a 3.5 per cent interest.
This may sound logical since it gives Jack more time to repay but ultimately it proves expensive.
Today,  banks are literally ‘hawking’ credit cards to clients in the hope of increasing their income portfolio.
Most banks allow customers to repay anything between 5 per cent to 100 per cent. Of course, the longer you take to pay, the more expensive it becomes. So watch out.
Credit cards  encourage you to spend more at very high interest rates which is why the card companies or banks coax customers to own one.
Always endeavour to repay your credit in the shortest time possible. In fact it would be wise to repay 100 per cent every month to avoid paying interest. Otherwise the best option would be to use cash instead of entering a cycle of  indebtedness.
According to one online financial advisor, by spending more than they can actually afford each month, individuals end up paying very high interest charges each month.
Because you are only billed once a month, it is also very easy to forget about purchases you have made using a credit card. You may end up with a very unwelcome surprise at the end of  the month once you see just how many purchases you signed for during the past 30 days!
Any unpaid balances are charged very high interest rates that will quickly add up.
If you continue to pay only the minimum amount, your unpaid balance can easily become unmanageable.
Credit cards can be dangerous for people who are not good at budgeting.
It  is very easy to overspend because you don’t need to pay for your purchases upfront.  Somehow,  signing a piece of paper at the time of purchase doesn’t always feel like you are actually spending money.
Financial experts argue that if you cannot trust yourself with a large credit limit then call your provider and demand it to be lowered.
Spending when abroad
Whenever you use your credit card abroad, depending on your bank,  you can be charged around 2.75 per cent for the foreign exchange loading fee and then a handling fee of around 2.5 per cent if you draw money out from a cash point machine or bank.
According to Mr Steve Kamau, Group Business Development manager, Credit Reference Bureau of Africa Ltd, out of the total loan defaults reported between August last year and this year, 23 per cent were credit card related.
CRB provides those who subscribe to it such as banks with solutions to credit risk management such as payment history information of individuals and corporates.

Tuesday, September 27, 2011

CreditKenya Consultancy Services

Should you feel that our free online advisory will not work for you, we are available for a one on one consultancy session at a minimal fee for the following services;
  • Debt Counseling.
  • Debt management.
  • Money Management.
  • Investment Advisory.
For further information feel free to contact our principal adviser, Patrick at; 
patrick@creditkenya.com

Friday, September 16, 2011

FINANCIAL ASPECTS OF OWNING A CAR

For most people, a car is a necessity. We often depend on our vehicles to get us to and from work every day, transport children to events, and even for pleasure. Because they are such an important aspect of your life, you want a vehicle that is reliable, comfortable, and maybe even a bit stylish. The vehicle choices are almost endless, so finding the right combination of wants and needs with an affordable price tag can be challenging.

Some people never buy a car, as they simply cannot afford one or they live in cities where public transportation and conveniently located shops, schools, and businesses make having a car a luxury, not a necessity. But if you need a car or you think you simply can’t live without one, there are some financial issues to resolve before you go car shopping.

The first is how much car you can actually afford. Because you may be able to finance your car with a loan if your credit is good and you have a steady income, you usually don’t have to come up with the entire cost in cash. (Then again, if you can wait to pay cash, it’s not a bad idea.) But if you’re borrowing, you will probably need a down payment in cash, usually about 10% - 30% of the total price. And you need to know how much of your monthly budget you can allot for installment payments on a car loan, plus the cost of fuel, insurance, and maintenance. One test to determine whether you have too much car (beyond your means) is if your monthly car loan repayment costs, insurance financing, maintenance and fuel costs (cost of car ownership) exceed the amount you are able to save in the month.

The second is, how important is having a car versus other financial goals? Like saving for retirement, house ownership, further education etc. Buying a car can actually make a big dent on your net worth being a depreciating ‘asset’ which requires maintenance. Vehicles depreciate rapidly, so if you finance the full purchase price, you often find yourself upside down on the loan immediately. Being upside down simply means that you owe more than the car is worth, as opposed to buying real estate for example.

Another consideration is the type and number of cars. Now, think about buying a super expensive luxury car or buying two cars because you’re married and you both work. Now you’re making mortgage size payments just to have something to drive you around.

Remember that not all vehicles are created equal. Some cars will hold their value over time better than others, and some cars have notorious maintenance issues. Do your research before buying your next car and don’t just buy something because it looks good in the commercials. You can not only save some headaches down the road by picking a reliable car, but if it retains its value you will take less of a hit when it comes time to sell.

Long story short, it’s up to you to decide how you want to spend your money. A vehicle may be a necessity, but it doesn’t have to negatively impact your financial future. If you aren’t careful, a vehicle can erode your wealth faster than anything else. Unfortunately, most of us need a car. That’s just the reality of it all. But you can take some steps to make sure that you’re keeping your car costs as low as possible so that you can focus on building wealth, not just maintaining a vehicle year after year.
Be smart about your vehicle costs. It might be nice to drive around in something a little fancy but is it worth the negative impact it may have on your long-term financial goals? That’s for you to decide.

Tuesday, September 13, 2011

THINK TWICE BEFORE TAKING THAT PERSONAL LOAN

By Peter Kamuri - East African Standard
With the rising cost of living, many people are growing desperate for money to help meet their expenses.
As a result, many of them are turning to extreme means of funding their budget deficits.
They care less about the costs that come with such kind of finances.
One such plan is approaching a commercial bank for a personal loan.
Indeed, these commercial banks are aware people are desperate for money.
They have thus come up with innovative ways of luring customers to borrow from them.
Although getting a personal loan from a bank is one way to get through tough financial times, it is not necessarily the best solution to all your financial miseries.
However, if you do not have another way out of your financial limbo other than securing a personal loan from a bank and other financial institutions, you must be aware that hasty decisions can make you lose your money at the end.
This can bring about more anguish than the problems you already have.
Kennedy Bosibori, a financial expert working with a micro-finance institution in Nairobi says that before you consider going for a personal loan, one should start by asking himself or herself whether there is enough income to honour the obligation.
Available options
"Some people borrow money even when their disposable income cannot allow. Although you may be desperate for money to get you through tough financial times, lack of a regular income to service the loan can only get you into a deeper hole," says Bosibori.
He advises, "Then ask yourself: is going for a personal loan the only option available for me to get out of my financial woes?
You might be surprised to discover that some options like cutting down on your expenses can help you significantly spare some money, eliminating the need of going for a loan."
Bosibori says that before you make a rash decision to fill out a loan application form, take time to find out whether there are alternatives of getting the money rather than going to the bank.
Bank charges in terms of interest are high and if they can be avoided, the better.
"Think about getting money from friends or family members. Although in some cases you may be expected to pay some interest on such money, the rates are quite low," he advises.
Tough times
"In addition, establish whether you can do something to improve your daily, weekly or monthly income. There is a possibility that what you need is not a loan but a boost on your income.
Look for creative ways in which you can supplement your income.
Try part-time jobs for extra pay and you may be surprised that this is just what you required not a personal loan," says Bosibori.
Financial experts say experiencing financial problems does not necessarily mean you have to go for a personal loan.
You might be shocked to learn that you are just a poor manager of your finances and what you need is a financial advisor to show you how you can successfully manage your finances.
That is why it is advisable to talk to a financial expert before you fill in the loan application form.
However, if you are convinced that you indeed require a personal loan, it is important that you choose your lender well.
Choosing the right bank that can fulfill all your financial needs is the most important decision while applying for a loan.
Avoid going to loan sharks or lenders who will take advantage of your situation.
"If you decide to get money from a bank, do not just go for one that will not just give you banking and lending services only, but one that will offer support, advice and guidance among other services. The bank should then tell you how soon you should get the loan and whether there are hidden charges," counsels Bosibori.
"Where possible, consult friends or relatives who can recommend a suitable bank for you. However, you should consider using your current bank for your lender as you may get some concessions, but do not forget to compare rates with other banks," he concludes.
Meanwhile, experts say most Kenyan banks cap the loan repayment periods up to 48 months.
To keep monthly instalments and interests reasonable, banks have to ensure the repayments don’t exceed 50 per cent of a borrower’s gross salary or regular income.
So, if your objective is to convince a bank to grant you a loan, you’ll have a tough time unless you meet the requirements of both the lenders and the Central Bank.
Financial management
"Banks have their own rules about salary size and age of borrowers for example, and if your profile does not fit, they will not lend to you. It’s not about presenting your case for a loan, but rather about meeting the requirements of the bank," says an expert.
But the more information and clarity that you can provide to your bank, Musty says, the smoother the process will be to apply for and receive the result of a loan request.
"It is important to have regular conversations with your relationship manager to ensure that you are on top of your finances and that they are being managed in the best possible way."
If you really need to take out a loan, it is critical to shop around to get the best deal possible.
Taking the first loan offered can result in paying a higher interest rate than needed, and make the purchase more expensive.
Go for fixed interest. The first thing to do is check if the interest payable is fixed or flexible.
Gurnos Stonuary of Nexus Group warns that if the loan has flexible interest, monthly payments may rise when the interest rate rises.
Keep it short. Always aim to have a loan for the shortest possible period, because the longer you take a loan, the more interest you pay.
Don’t get tempted when lenders offer to extend your loan amount over a longer period.
"This can look inviting as it will reduce your monthly repayments, but beware the longer the loan, the more interest you will have to pay overall," says Stonuary

Monday, August 22, 2011

KENYA HAS KSH 296BILLION IN PERSONAL LOANS

By CHEGE MUIGAI Business Daily Sunday, August 21

Kevin Ndabi, a city lawyer, owns a BMW and lives in an impressive house in South C, Nairobi. Armed with a pricey smartphone and an Apple iPad, Ndabi admits that he has been spending money beyond his means.
“It’s a trap of the times,” he says. “It’s all vanity I agree. But without building a super image in this day and age, it would be impossible to do well career-wise and in my personal life. The girl I wish to marry wants to see cool stuff to respect me.
Without spending money on myself to look good and on her too — upkeep, clubbing and all — she would never give me a second look.”
Mr Ndabi is part of a growing list of Kenyans, trapped in a consumer culture and who are getting into serious debt as a result.
“Kenyans have a spendthrift culture,” says economist Dr Tabitha Kiriti, a senior lecturer at the University of Nairobi .
“With all the easy loans being advertised around, Kenyans dive right into them without any forethought or fore planning. Because of the lack of specific projects, when the money comes, there is misuse.”
As a result, the economy is paying the price.
Kenyans love to express themselves materially and most of the money gets lost in unnecessary expenses like gadgets, outfits and cars. These are all consumables that lose their value fast,” says Dr Kiriti. “It is a cultural thing.”
She adds that this habit is weighing down on the economy, killing the shilling’s value and contributing to the high cost of living.
“When people save, they are able to invest. Such investments in turn contribute to economic production, which means more wealth for the country.
But if the society is only spending and not investing, it means wealth is being exported. It also means that the country’s currency is vulnerable because of the relatively bigger import than export flows, which is the case with our shilling currently.”
 Anne Gichanga, managing director at financial planning firm Regnum agrees: “Everything is significantly more expensive.
It would be impossible for most people to save now. Overall though, even in much better times, Kenyans have not been saving as much as is necessary.
It is more of a lack of financial discipline than anything else.” Ms Gichanga says that the cycle of debt that many people have sunk into is very hard to get out of.
 “If you spend before you can earn, that is an emergency financial situation,” she says.
“Living within your means and spending only what you earn is the first step to a successful financial life.”
The plight of Generation Y worries Ms Gichanga too. “The young people coming to employment now have a very lopsided approach to financial success. They want to get rich instantly, live a very high life and are ready to cut corners to get there.”
 She adds: “It is not uncommon to see some guy only two months into his job living in a house that eats up half of his salary, has an iPhone and is seeking a car loan. All of these are well and good. But none has the potential of generating a sustainable income.
Ms Gichanga says the way out is for people to adopt responsible spending habits at the personal level.
 “As much as possible, a portion of any income should be channelled into profit-making projects,” she adds.
 That, says Ms Gichanga, is hard work that calls for sacrifices.
“Nobody ever became successful without great financial discipline, denying themselves many luxuries and having taken a 360 degrees view on their spending. But you mostly see people going about their lives without caring about the future. That is suicidal.”
Figures from the Central Bank of Kenya (CBK) show a rise in Kenyans’ indebtedness.
According to CBK, personal loans shot up by Sh61 billion to stand at Sh296 billion. This was much more than any other sector of the economy.
If the words of Dr Kiriti and Ms Gichanga are anything to go by, this is money that finances consumption more than investment. Sh296 billion going to non-productive activities is a major worry for the economic future.
 “It is a trend that cannot be afforded,” says Dr Kiriti. “Countries that are doing well are those that make more money than they spend. China, Singapore, Malaysia and Thailand are fast industrialising because of their positive balance of payments.”
She says that the earnings translate to a net surplus per capita which Kenya must aim to achieve.
Anastasia Aluoch and Mr Ndabi concede to being financially careless.
 “Without doubt, I could have done better,” says Ms Aluoch, who is a teacher in Kawangware, Nairobi. “I took loans to move house, furnish it and to have fun. Now I have a big debt to pay and I am really struggling. Had I invested, I would be making money rather than losing it.”
She adds that she is in a perpetual debt cycle as she can barely meet her monthly obligations from her salaried income any more.
Top of Form

Thursday, August 18, 2011

INTEREST RATE INCREASE RAISES FEARS OF SURGE IN BORROWING COSTS

By GEOFFREY IRUNGU   Thursday, August 18  2011 Business Daily
The Central Bank’s latest move to stabilise the shilling by mopping up liquidity in the financial system came under scrutiny as the overnight borrowing rate shot to 15.68 per cent, raising fears of a surge in the cost of government borrowing. File 
The Central Bank’s latest move to stabilise the shilling by mopping up liquidity in the financial system came under scrutiny as the overnight borrowing rate shot to 15.68 per cent, raising fears of a surge in the cost of government borrowing.
The CBK discount window rate rose sharply for the third day in a row from Tuesday’s 13.87 per cent and Monday’s 11.34 per cent. Wednesday’s rate was above all interest rates that the State is paying on Treasury bonds. The highest yield on Kenya’s 30-year bond is trading at around 15.50 per cent.
Fred Mweni, a member of the informal CBK advisory group comprising top traders of government securities, said the regulator appeared “overly concerned” with the exchange rate and was using the higher short-term interest rates as a way to defend the currency.
 “The government and even other actors in the economy are likely to experience increasingly higher borrowing costs because the Central Bank has raised the over-night borrowing window in its attempt to defend the Shilling,” said Mr Mweni.
He added that interest rate bids in the oncoming treasury security auctions were likely to be more aggressive.
The government has suffered under-subscriptions in the past few bond and even T-bill auctions because of a liquidity crunch caused by CBK’s recent tightening stance.
Mr Mweni said the defence of the currency through tightening was not necessarily going to succeed — in view of an overall dollar shortage, a view also shared by Joshua Kagia, head of treasury at Consolidated Bank. “The Central Bank appears to believe that commercial banks are hoarding foreign currency. The CBK is tightening so that they can release it to the market. This should then strengthen the Shilling as dollars are offloaded into the market,” said Mr Kagia.
“My personal view is that there are no dollars in the market and tightening may not achieve the intended objective. So what might happen is that short-term rates are just continue rising even though lending rates are not likely to go up in the short term,” said Mr Kagia.
He said the inter-bank rate was up mainly because there was not enough liquidity in the market as institutions held bonds that were difficult to dispose of without making a loss in the currency interest rate environment.
“Banks have high liquidity but this does not mean that they have actual cash and they are not selling the bonds to get cash because it would lead to losses as interest rates have shot up,” said Mr Kagia.
He said government securities holdings at the end of last week were down to Sh116 billion from Sh126 billion the previous week because institutions did not roll over their maturities into the new treasury bills and bonds – thus explaining why last week’s paper was not fully subscribed.

Thursday, August 11, 2011

REBUILDING YOUR CREDIT

Even if you have made money mistakes in the past, you can rebuild your credit history and become a borrower in good standing. It is important to have a good credit history if you want to borrow money. The better your credit report and score, the better the terms of your loans and credit will be (e.g. lower interest rates).
However, you have harmed your credit history and score if:
  • you did not pay at least the minimum balance on your debts
  • you made late payments
  • you went over your credit limit
  • you missed one or several payments
  • you stopped making payments altogether
  • you have too much credit and you use it
  • your debt was referred to collection
  • you made a consumer proposal
  • you declared bankruptcy.
A bad credit report and score can mean you do not get approved for a loan, or you do not receive the best loan terms (e.g. higher interest rate).
How to rebuild your credit history
  1. Make at least the minimum payment by the due date. If you cannot pay off your balance in full each month, make at least the minimum payment on each of your debts on time. Late payments will count against you and negatively impact your credit score and credit report.
  2. Do not apply for too many credit and loan products. Having too much credit can also negatively affect your credit report. Keep your available credit at a minimum. Do not fill in too many applications for credit and loans because every time you do, your credit history is checked. Each credit check can affect your credit score.
  3. Review your statements. When you are in debt, avoiding your monthly statements may cost you. Mistakes happen and you only have a limited time to correct them. Always review your statements to make sure there are no transactions charged in error and that your payments are recorded correctly. Report any mistakes as soon as possible.
  4. Check your credit report annually. You are entitled to receive a free copy of your credit report annually from the credit rating agencies. Check your credit report annually for errors and get them corrected as soon as possible.
Prepaid cards do not help you build credit. You may choose to use a prepaid card as a payment option, but its use is not tracked by the credit rating agencies.
Use credit responsibly
There are no quick fixes to repairing your credit history. You have to prove you are a responsible borrower to lenders, and that may take time. Whether you are rebuilding your credit history, or trying to maintain a good credit score, you should always use credit responsibly.

Friday, July 15, 2011

HELB CRACKS THE WHIP AFTER A STRING OF REMINDERS

By pwafula@ke.nationmedia.com  from Business Daily 
Friday, July 15 2011

Mr Daniel Adero, a Maseno University graduate, is yet to get gainful employment, two years after he graduated. But Mr Adero, just like thousands of his colleagues who are still looking for jobs, receives an e-mail monthly from the Higher Education Loans Board (Helb) that not only reminds him to start repaying his loan but also informs him of a Sh5,000 fine on top of the interest his loan is attracting per month.
Even though his argument that the education financier should give him time to get a job so that he can start offsetting the debt is shared by most of the defaulters the Business Daily interviewed, the board maintains that once any student completes his/her university education, they should use the knowledge gained to generate some income.
Nevertheless, Mr Adero reckons that the new measures have made it indeed very expensive for a beneficiary of the government loan to continue ignoring repayments. Currently, loanees are required to start repayment a year after completing studies, and the board can shorten the grace period if it finds it fit. For instance, Mr Adero’s fines in the past 10 months are now in excess of Sh50,000, which is eight times more than the Sh8,600 interest his 12 per cent interest rate per annum his loan has attracted in the same period, making the fines emerge as the most effective punitive measure that will push the education financier to overcome its greatest nightmare — recovering loans — as it races towards self-reliance.
According to data from the State corporation established to finance needy university students, more than 76,000 beneficiaries who are due for repayments are yet to commence repayments amounting to Sh7.9 billion, meaning that the financier is netting at least Sh3.8 million in fines alone monthly. Should the board defy the mounting pressure against these fines and continues, as is the case in the developed world, then Helb is sure of a fresh source of quick cash to support its huge demand for loans. For instance in the US, defaulters are penalised up to Sh18,000 ($200) a month if they don’t pay.
The board is also looking to tap into the expertise of professional debt collectors to complement the current services of the Kenya Revenue Authority to track down defaulters of the government university loans in an effort to maintain the growth in its loan recovery now in excess of Sh200 million a month.
“The process of picking the debt collectors is currently on as per the public procurement law, there has been drastic increase of loan payment by individual payers not attached to any employer,” the board’s head of operations, Richard Kipsang told the Business Daily. “We have seen more than 100 per cent increase of collections from this group,” Dr Kipsang said.
Latest figures show that the stringent measures the board has introduced to encourage repayment have started to bear fruit after it reported a 21 per cent growth in loan recovery in its last financial year. It collected Sh2.3 billion in 2010 compared to the Sh1.9 billion the previous year — a 60 per cent of the annual loans disbursement to students ­— while tripling the growth in its individual collections to Sh457 million in the period under review. The growth means that the financier’s revolving fund will be able to cope with reducing Government financing even as it ropes in more students into the scheme.
This year, it is planning to lend Sh4.1 billion to 100,000 students, a 17 per cent growth from the Sh3.5 billion it gave to 76,000 students last year and a 28 per cent rise on the Sh3.2 billion disbursed to 68,500 students in 2009.
The board has also embraced the use of new technology to recover the loans, especially via the mobile money platforms and monthly reminders to defaulters. It has also opened an avenue where one can go and negotiate as much money as they are able to pay a month depending on their income to encourage graduates with unstable contractual engagements, unsalaried or low-paying jobs to also consider repaying.
But it is the dawn of the era of information sharing among lenders on defaulters with the Credit Reference Bureau (CRB) that has handed the board the biggest muscle to deal with its worst nightmare for decades. Information sharing involves circulation of names of defaulters to all lenders, potentially locking them out of the credit market.
The board, which is already sharing information with sister institutions within East Africa and Africa at large through the Association of African Higher Education Financing Agency is now calling on the regulator to increase the scope of information sharing to all lenders including micro-finance institutions and the savings and credit co-operative societies (Saccos).
“We propose that the current legal framework on credit referencing be made more inclusive by including all credit providers in the country. This will enhance accountability and reward those who pay as per the loan agreements,” Dr Kipsang told participants of the regional credit reporting conference early this month last. Currently, information sharing is prominent among commercial banks, leaving out other lenders such as the Saccos and micro lenders.
This comes at a time when the rising cost of living and labour costs have started a clamour for increments in the amount of allocations; a proposal, which if implemented will see the loan advanced to students more than double. Parliament has proposed that the maximum amount allocated per academic year for universities be set at Sh100,000, and the least Sh50,000.
Currently, students who qualify for the loans get between Sh35, 000 and Sh60,000 alongside a bursary of up to Sh8,000 every academic year until they finish their studies. This translates to a minimum of Sh140,000 and maximum of Sh240,000 in four years.
This has seen the board through Higher Education minister Sally Kosgei seek parliamentary support to have its budgetary allocations increased to cater for the increasing number of self-sponsored (parallel) students.
The increased allocation, she said, was meant to include more students into the Helb scheme alongside increasing the disbursement threshold for the students who benefit.
Helb’s extension of its scope of financiers to include all Kenyan students in any university in East Africa, masters and post-graduate students, scholarships to very needy students is also putting it under increasing pressure to ensure it collects its loans. The expanding university population to the current 31 alongside 16 constituent colleges as they seek to satisfy the ever rising demand for tertiary education further exerts pressure on the board as demand for loans increase.
“There is therefore need to enhance loan recovery to be able to create a viable revolving fund to meet this demand for university education,” Dr Kipsang said.
To date 300,000 Kenyans have benefited from financial support from the board at a cost of Sh30 billion in which Sh22.8 billion is mature loans having been disbursed to 212,000 students. Forty-seven thousand students have fully re-paid their loans amounting to Sh3.7 billion whose details have been forwarded to CRB for positive listing.
A consolidated 90,000 beneficiaries are at various levels of servicing their loans, which stand at Sh11 billion.
The board said it is also looking for fresh avenues to push loan beneficiaries to repay their loans.
“The board’s long-term strategy is to become an education savings mobiliser through deposit taking in order to finance students in all tertiary institutions,” said Dr Kipsang. An improved collection will also allow it to increase its allocation to Kenyans studying in East African universities as well as students in the middle-level colleges.
This high demand for university education financing has also attracted commercial banks that are coming up with ways of circumventing challenges posed by this group financing since they lack security — title deeds and other fixed assets — critical to access finance. For example National Bank has a loan product where employed guardians or parents can access loans of up to Sh500,000 through its study loan repayable in 60 months and Kenya Commercial Bank has the Masomo loan product. Insurance companies have also lined up several products targeting parents who want to secure the future of the children’s education.

Wednesday, July 13, 2011

AUCTIONEERS IN KENYA - FREQUENTLY ASKED QUESTIONS

Question. Who is an auctioneer?
Answer.
An auctioneer is a qualified individual holding a valid auctioneering license issued by the Auctioneers Licensing Board pursuant to the provisions of the Auctioneers Act No. 5 of 1996 Laws of Kenya. An auctioneer's license is strictly issued to an individual and it is not transferable.

Question. Is the auctioneering business rooted in the Law?
Answer. The auctioneers Act No. 5 of 1996 and Rules of 1997 regulate the business of Auctioneering. For a person to perform the duties of an auctioneer he must hold a valid Auctioneers License issued by the Auctioneers Licensing Board pursuant to the provisions of the Auctioneers Act No. 5 of 1996. The Licensing Board based at Milimani commercial courts Nairobi maintains a record of all the licensed auctioneers.

Question. What are the duties of a licensed auctioneer?
Answer.  A licensed auctioneer is authorized under the Auctioneers Act to undertake the following duties
  • To levy Distress for rent against defaulting tenants pursuant to the provisions of the Distress for Rent Act Cap 293 laws of Kenya.
  • To attach for sale any movable or immovable property pursuant to a court order made pursuant to any written law or contract.
  • To repossess property pursuant to any written law or contract.
  • To carry out evictions pursuant to a Court order.
  • To realize charged security
  • To offer for sale any movable or immovable property through public auction or any other mode of sale by competition.
It is a an offence punishable under the Auctioneers Act and the Penal Code for anyone to undertake the above duties in Kenya without a valid Auctioneer's license issued by the Kenya Auctioneers Licensing Board. Only licensed auctioneers are authorized under the law to undertake these tasks. You should always ask to see the identification badge and the current practicing license of the auctioneer you intend to engage and if in any doubt, please always contact the Auctioneer Licensing Board based at Milimani Commercial Courts Nairobi or the Auctioneers Association.

Quetsion. Why should I engage the services of a licensed auctioneer and not any other person?
Answer. A good citizen adheres to the laws of the land. By engaging a licensed auctioneer you are acting within the law. Lately, there has been a trend where the Courts are awarding debtors huge sums of money in form of damages and other reprieves against creditors who engaged unlicensed persons to perform the duties of a licensed auctioneer. Many property sales, realization of securities and repossessions have been reversed / nullified by the courts for this reason alone.

Question. Can an auctioneer enter my property without my authority?
Answer
. Yes. A licensed auctioneer is under the law authorized to enter into any property to enforce a court order or instructions from third parties against your property in the course of his duties. An auctioneer may request for police escort where he predicts resistance or intimidation by the debtor or where he has to break any door to gain access to property. This will always be at the expense of the debtor / owner of the property to be executed against.
Question. Is there a code of conduct for auctioneers?
Answer. Yes. All licensed auctioneers are required to follow the laws of Kenya and particularly to carry out their business in accordance with the provisions of the Auctioneers Act No 5 of 1996, Auctioneers Rules 1997 and the Auctioneers Practice Rules of 2009. Auctioneers Practice Rules 2009 outlines the code of conduct for licensed auctioneers.

Question. Who licences court process servers?
Answer. Court process servers are licensed by the process servers committee based in the High Court of Kenya. The process server's license is renewed annually upon payment of the requisite fees. A list of all the licensed process servers for the current year (2011) is readily available and accessible to the public at the Kenya law reports website www.kenyalaw.org  
Question. Who pays auctioneer's fees and expenses for auctioneering services?
Answer. The auctioneer's expenses in most cases are to be met by the debtor. However if the debtor cannot be traced, or has no assets upon which execution can be levied, or the proceeds of the sale are not sufficient to cover the charges, then the creditor pays the fees or the shortfall thereof.

Question. At what point is the auctioneer entitled to his fees for an attachment?
Answer. An auctioneer is entitled to his full fees as provided in the scales as soon as he initiates the process of attachment i.e. upon placing attachment notice (proclamation) upon the debtor's assets.

Question. How is the auctioneers fees determined?
Answer. The scale for calculating auctioneer charges is provided for in the Auctioneers Act, fourth schedule Auctioneers Rules 1997. Please visit the official Kenya Law Reports  website www.kenyalaw.org where you will be able to browse all the laws of Kenya (Acts of Parliament) including the entire Auctioneers Act and Rules made therefrom complete with the auctioneers fees scale. 


Question. Can an auctioneer carry my goods away without any notice?
Answer.
No. A licensed auctioneer before carrying away your goods is required under the law to issue, in case of a court warrant, a proclamation notice of seven days and fourteen days for distress for rent cases.

Question. Can I transfer or move the goods comprised in a proclamation notice issued by an auctioneer to unknown place to defeat attachment?
Answer. It is an offence under the auctioneers rules and the Penal code for the debtor or his agents to interfere with any goods comprised in a proclamation before they are redeemed by payment of the amount demanded therein or such lesser amount as the creditor may agree in writing. Upon being proclaimed, the goods come into the custody of the law and the debtor/owner therefore loses control over the goods as long as the attachment stand.

Question? What should I do when an auctioneer come calling?
Answer.
When an auctioneer visits you, please co-operate and do not panic, his/her actions are well rooted in law. He is only performing his duties as required by the law. An auctioneer must however, identify himself/herself precisely and state the purpose of the visit.