Wednesday, June 22, 2011

Debt Problems

Debt problems reach and encompass all kinds of people from all cultures and different walks of life, without any preference to age and income levels. This common situation reaches throughout life and it knows no boundaries. Nothing can burden one's spirit quite like this financial situation. A debt problem affect daily lives by adding stresses and the feeling of helplessness and destroy relationships, thereby adding to the distress of the situation. There are many programs available that are related to helping with these financial situations. Credit counseling organizations offer consolidation programs and restructuring programs for borrowed funds. Some financial institutions offer free classes to educate the consumer about all the vast aspects related to personal situations.

A personal financial situation may be the result of simply overspending and not having important basic knowledge or experience with handling money. Sometimes just acquiring some counseling from an expert in the field of finances will help tremendously. A professional who is not personally affected by a borrower's particular situation can logically assess the situation from a fresh and unbiased viewpoint, and can bring insight and suggestions to combat the debt problem. Individuals, who are daily striving to reach attainable goals and maintain households, may not be able to see their situation objectively and may have a mindset that everything possible to do to eliminate the problem is being done already. However, with debt problems there are many issues to consider as well as many solutions available to help in solving the dilemma.

These financial situations can bring chaos to a marriage and affect the entire family unit. It can weigh so heavily upon the family as well as an individual to the point that depression raises its head and manifests itself within the growing situation as well. It is an excellent idea to seek Christian counseling towards achieving relief from debt problems. "He that handleth a matter wisely shall find good: and whoso trusteth in the Lord, happy is he" (Proverbs 16:20). It is also a positive step towards feeling empowered again and not defeated. Many people all over the world are stuck in this rut and do not know how they got there or how to achieve freedom from the ever imposing effects of this burden.

One of the main financial burdens today is credit card debt. Charge cards are unsecured borrowed funds and the interest is usually so high that it seems the balance never changes no matter how long one pays on it. To combat this problem it is wise to pay off the balance every month when using a credit card. A debt problem associated with this type of borrowing can add years to paying off one purchase made today. Debt problems surmount as unforeseen circumstances can happen to anyone whether through loss of employment, medical problems or simply overspending. Gain control of these financial plans today by seeking help from a professional and finding out about all the alternatives to being released from this worry.

Wednesday, June 15, 2011

Kenyan Laws on Loan Sharks (Shylocks)

Loan sharks are called "shylocks" in Kenya, and they are flourishing. The term comes from the ruthless moneylender, Shylock, in William Shakespeare's, "The Merchant of Venice." They operate like unregulated finance companies, relying on the sanctity of contract law to keep them in business. And they have not been disappointed. Their poorly worded, ambiguous, photocopied contracts are often misunderstood or misinterpreted by borrowers, many of whom discover after signing the contract that they are obligated to make interest payments of as much as 10 percent of the loan amount per day, or more.

Contract Law

  • Loan sharks rely on the sanctity of contract law. 
    Chapter 23 (3) of the Kenyan Law of Contracts states that any debt must be in writing to be enforceable. And Chapter 23 (2) (2) provides that "no contract in writing shall be void or unenforceable by reason only that it is not under seal." Strictly interpreted, this means that any signed written agreement is valid. Loan sharks have been able use this law in order to have their "contracts" upheld by the courts.

Microfinance Act of 2006

  • Many Kenyans have lost everything to unregulated loan sharks. 
    In Chapter 19 Part 1 (2) of the Microfinance Act of 2006, a "microfinance business" is defined as anyone engaged in lending or extending credit at his own risk, "including the provision of short-term loans to small or micro enterprises or low income households and characterized by the use of collateral substitute." The Microfinance Act also requires anyone conducting this kind of business to be licensed. In Part II Section 9 (1) (c) of that same act, it states that a license can be revoked and the business shut down if the business being conducted is "detrimental to the interests of its depositors or customers." It is not clear why loan sharks in Kenya have not been challenged with the Microfinance Act of 2006; even the loan sharks refer to the business they conduct as "microfinance."


  • All microfinance businesses must be licensed through the Central Bank of Kenya. 
    Chapter 19 Part II (4) (1) provides that "no person" can operate as a microfinance business unless such a person is registered as a company pursuant to the Companies Act and licensed through the Central Bank of Kenya. The penalty for noncompliance, as provided in Chapter 19 Part II (4) (2) is "a fine not exceeding one hundred thousand shillings, or to imprisonment for a term not exceeding three years, or to both."

Subject Authority

  • The Central Bank of Kenya has broad authority over microfinance businesses. 
    Pursuant to Chapter 19 Part II (4) (i) concerning microfinance businesses, the Central Bank has the authority to prohibit any "such other activity as the Central Bank may prescribe." Chapter 19 Part IV provides for Central Bank's authority to inspect the records and even to intervene in the management of any microfinance business.

Blogging thoughts by Sitebuilder
What is blogging, exactly?
Blogging is just a different way to build a Web site. Its content is organized by the date/time of its "posts," which are what blogs call "Web pages" (even the word "posts" suggests time-sensitivity).
So why did it become so popular? It was not due to the journal format. Nor was it the heavy link-exchanging that bloggers do (Google discounts their importance).
It was not blogging itself at all. Instead, it was a technology called "RSS" (enables visitors to subscribe to your latest content) that caused blogging to enter the mainstream.
RSS, however, is not blogging. It is an excellent technology that rapidly disseminates your latest content to both Search Engines and visitors.

Tuesday, June 14, 2011

How To Create Multiple Income Streams

Not too long ago, the only method I had for earning money was my job. I’d get up, go into work, come home, and collect my paycheck – and I believed that was good enough for me.
When I had children, though, I began to realize that my life was not all that different than an investment portfolio where I had all my money in one particular stock. All of my income was reliant upon one job, and if that job went away, my family and I would be hurting.
But how could I solve this problem carrying a big debt load, a full time job, and the needs of a family? I realized what I needed to do was create more sources of revenue, even if they weren’t as much as my full time job, so that if something happened there it would not be nearly as disastrous. Here’s what I did.
I started a computer consulting side business. Nothing complicated, mostly just helping computer-phobic people select systems that match their needs, doing some tune-ups, and a few minor repair jobs. It doesn’t take much time at all and earns a bit of regular money.
I started a blog. You’re reading it, actually. I earn some income from the advertisements and the writing can be done pretty much whenever, filling in gaps in my time.
I built up a big emergency fund. I used the money from these sources to build up a large emergency fund. While the income stream here is rather small (5% interest on several months’ salary), the fact that the income is based on my own capital that I could use very quickly if needed makes it very nice.
Later, after I eliminate some debt, I hope to look at investments that will earn a better income for me, but for now these will suffice.
Obviously, these sources all require work, with the exception of the emergency fund. These are usually called active income streams. The emergency fund, which requires no active work, is a passive income stream. Obviously, passive income streams are better over the long haul because they provide income without additional work contribution. Active income streams generally involve a trade of work for money, which means that your time is consumed. However, passive income streams almost always require some significant money to start with, something many people don’t have.
What’s the real benefit here? Why put out a lot of effort for multiple active streams? The reason is the same one you’ll find for why you should have a diversified investment portfolio – if one of those streams dries up (I lose my job, the blog starts to dry up, people stop calling for consulting), I’m still doing all right because the other ones keep going. And when they’re all going, I make significantly more than I spend, so I can pay off debts and eventually build up more sources of passive income.
It all comes back to spending less than you earn; multiple active income streams just ensure that the earnings are pretty stable and that there’s a big gap between earnings and spending. Then, when you’re debt free, you can start taking those earnings and look for ways to build up passive income through investments.
How do I get started? The first step for the average American is to make a serious commitment to spend less than you earn. Without that commitment, none of this will work. Focus on paying down debts with the difference between your earning and your spending after you build up a small emergency fund.
The next step is to figure out something you’re good at. Perhaps you have a knack for making your grass look amazing, or maybe you know how to frame pictures so that they make exquisite wall hangings. Maybe you can write solidly very quickly. Almost any strong trait you have leads directly to some sort of profit-making venture that you can do in your spare time. Spend some time figuring out your talent, then think about how that could make money.
Once you’ve got something figured out, commit some regular time to it. Give up an hour of television each day to bake bread or matte finish photographs, then find places to sell them. Once you get the kinks of whatever your little business is worked out, it’ll become a steady small source of income for you – another income stream.
Then, use that income stream for something financially positive. Don’t spend it immediately. Instead, contribute that money to debt repayment or use it to invest in something – stocks or otherwise.
The real goal here is financial independence. By making yourself less dependent on a specific revenue stream (i.e., your primary job), you’re giving yourself independence and the flexibility to make choices that you never had before.

Can microfinance be a friend to the poor?

A UK parliamentary group report questions how the microfinance sector works and what it is trying to achieve, and asks for more rigorous evidence to be made available

For much of the last 15 years, microfinance has enjoyed an unparalleled reputation as a surefire way to reduce poverty. Through much of that time, there were voices questioning this orthodoxy and pointing out that it wasn't that simple, but they found themselves ignored. Well, their time has finally come.
At an event in the House of Commons on Wednesday to discuss a new report of the all party parliamentary group on microfinance, academic experts declared themselves delighted that finally their criticisms were being heard and that the microfinance sector was being forced to question how it worked and what it was trying to achieve.
The report, Helping or Hurting: what role for microfinance in the fight against poverty?, is a sensible first step in beginning to tackle the many problems that have been so well covered in the media in recent months – ranging from the spate of debtor suicides in Andhra Pradesh, India, and accusations that commercial microfinance institutions are tantamount to loan sharks with habits of predatory lending (I have debated whether microfinance is a development panacea, or an ineffective poverty trap and asked if it is merely a neoliberal fairytale).
The report admits one of the first complaints of the critics: that the evidence of microfinance's impact on poverty is hugely conflicting. That's partly because the sector has developed very rapidly, diversifying into all kinds of different schemes around the world. So one scheme may work in one place but could be disastrous in another. There are countless variables because microfinance is never operating in a vacuum, but in the context of many social and economic circumstances. For example, research in Bangladesh has been relatively positive about poverty reduction, but is this because of microfinance or because the economy has been growing at the rate of 8% a year? The research has simply not been rigorous enough.
The report urges a much better appreciation of how hugely diverse the sector has become: it can encompass small NGOs working with the poorest, right through to commercial banks lending to the relatively well-off. Has its focus shifted from helping the poor to financial inclusion – a subtle but crucial difference? Furthermore, microfinance has developed well beyond credit, branching out into savings, insurance and remittances.
These have vastly different impacts on the poor, and the report maintains this has not been sufficiently understood. For example, Anton Simanowitz, of the Insitute of Development Studies, pointed out that very different regimes for dealing with delayed repayments could make a big difference. In one scheme he saw, borrowers were forced to sell productive assets vital to their businesses, such as sewing machines, to pay off debts. An outcome at odds with any aim of helping the poor to improve their income.
Microfinance has been trading on an undeserved reputation. The report urges an end to the hype and a much more critical, nuanced approach from donors as to whether a particular microfinance scheme actually does what it claims to do and, through social performance evaluation, can prove it. Muhammed Yunus, the inventor of microfinance and founder of the Grameen Bank in Bangladesh, calls this a "branding" problem in which the sector is being tarred by the behaviour of rogue operators, said Julia Modern, one of the report's authors. The key issue is how to tackle this problem through better regulation and accreditation: this is likely to be the area that the parliamentary group on microfinance tackles next.
Significantly, the report did not go as far as arguing for an end to commercial microfinance, which Yunus has suggested may be necessary. Rather it suggested that with 2.7 billion people "unbanked" in the world, commercial organisations need to play a role. Dr Susan Johnson, of Bath University's department of economics and international development, backed up the point, arguing that some NGO schemes had much higher interest rates than commercial ones. She had an example of a self-help microfinance scheme spreading rapidly in Kenya despite prohibitive interest rates. It was too simplistic to argue that the problems of microfinance were all to do with its commercialisation in recent years.
But the "strongest message" the report wanted to send was that the sector is "unbalanced", and that while access to loans has expanded greatly in the last 15 years, other financial services such as savings, insurance and remittances have lagged far behind. The report urged the UK's Department for International Development to play a central role in "refocusing" the sector.
The report also asked for more rigorous evidence. Some microfinance schemes work, but what makes them work needs to be identified. At the moment that evidence, despite plenty of research, doesn't exist – a puzzle that Johnson rightly questioned.
Many of the questions now being asked of microfinance were raised right at the start, added Johnson, back in 1996 when the idea began to develop huge momentum. But they were ignored, and only now are people prepared to listen to the difficult questions. "We said from the start that 'credit was debt as soon as it is handed to a poor person', but were marginalised." She hoped the report was the beginning of microfinance rediscovering its original mission – to help poor people.

Is microfinance a neoliberal fairytale?

The complicated twists and turns in Bangladesh over the position of Muhammed Yunus, the Nobel prize winner, continue. Last week government officials were quoted saying that he had been ousted from his position as managing director of Grameen Bank, and there is clearly a nasty dogfight going on in Bangladesh over the reputation of its most famous citizen. Blame is now flying around in every direction – including the Norwegians for giving him a Nobel prize in the first place.
In the meantime, the film that has played a powerful role in challenging Yunus's global reputation as a pioneer of microfinance will finally be shown in London on Friday( I wrote about the film on this blog a month ago). After the film, the Danish film-maker Tom Heinemann will be in conversation with Alex Counts of the Grameen Foundation. Given how fiercely contested the whole subject of microfinance and the role of the Grameen Bank in particular has become, Counts deserves credit for taking on the debate publicly.
Inevitably, much of the media coverage has focused on Yunus himself, rather than the much broader questions Heinemann is asking about microfinance as an effective strategy for poverty reduction. After I last blogged on this, I had some very interesting responses, including one from the Cambridge economist Ha-Joon Chang, who directed me to a paper he had written (pdf) with Milford Bateman – one of microfinance's most vociferous critics and an interviewee in Heinemann film. Their critique of microfinance makes some very convincing arguments that urgently need rebuttal from the many development agencies and foundations around the world that have ploughed huge sums into the expansion of microfinance in the last decade.
Here are some of Chang and Bateman's top findings:
1 Microfinance is based on an attractive but false premise that poor people can make themselves richer providing they have access to credit. But wealth creation, outside of fairytales, is very rarely the result of individual effort. Rather it is a collective endeavour – requiring skills and knowledge – in institutions such as companies, co-operatives. Microfinance has erroneously put the individual centre stage, reflecting a neoliberal world view.
2 Microfinance has always maintained that it is self financing apart from the initial start-up costs. But what the last few months have revealed is that unless there is a big injection of government or aid funds, microfinance institutions have to charge very high interest rates. Without subsidy, interest rates soar to 50% and even higher. That really cuts into any possibility of small businesses being able to reinvest their profits.
3 Most loans are not used to create small businesses at all; they are used for "consumption smoothing" as the economists describe it, in other words, those items of extraordinary expenditure such as weddings, funerals or education and health fees. That is the kind of scenario which leads to indebtedness.
4 Finally, microfinance is not very successful at creating prosperous small businesses in the long run. Much was made of the "telephone ladies" in the 1990s who took out microloans to buy mobiles and rent them out. Initially they made handsome profits, but as Chang points out their income has dropped dramatically. If a business idea works and is accessible to poor people, everyone will pile in; it's why you see rows of women sitting patiently selling a few tomatoes in African marketplaces. Overcrowding is a result of very limited options in terms of technology, skills and financial resources: microfinance doesn't solve any of those problems.
Chang and Bateman cite academics arguing that the claims of microfinance are "in many respects a world of make-believe." These points all seem damaging enough but Chang and Bateman go even further, arguing that microfinance could actually inhibit poverty reduction by diverting attention and resources from the much more important state co-ordinated policy interventions, financial institutions and investment strategies that have been crucial to the success of fast-growing economies such as Vietnam, China and South Korea.
The gist of the argument is that the enthusiasm for microfinance has been rooted in the myth of the heroic individual entrepreneur, the rags to riches fairytales, Dick Whittington style.

Monday, June 6, 2011

Blue Financial Services reduces loss by 79%

Blue Financial Services, which bills itself as an innovative pan-African financial services provider and enabler of progress, upliftment and improvement in people's lives, managed to drastically reduce its losses in the year ended 28 February 2011.

The group incurred a loss of R284.9 million for the 12 months compared to a loss of R1.0 billion in the 2010 financial year - a 72% improvement.
This translates into a decline in loss per share from 170.25c for 2010 to a loss of 29.59c per share for 2011. Headline loss per share improved in a similar manner declining from 134.96c per share to a headline loss of 27.77c per share - a 79% improvement.
The group reported a loss of R168.2 million for the 6 months ended 31 August 2010. The loss for the second half of the financial year of R116.7 million, without removing once-off costs and loan advance write-off's in excess of R100 million, is an improvement of 30.6% over that for the first 6 months.
"The 2011 financial results represent a significant improvement from those reported in 2010, a year which signalled severe financial difficulties in the group and which brought into question its ability to continue operating as a going concern.
"The recapitalisation of the group by Mayibuye and the commencement of the key phases to its turnaround strategy for the Group from September 2010, has yielded positive and sustainable improvements in financial results and overall business fundamentals which provide the platform to return the group to profitability," Blue said.
The Group has pursuant to this turnaround strategy inter alia:
- Restored the net asset value to R46.6 million from the negative R19.4 million at February 2010 and negative R205.8 million at 31 August 2010;
- Concluded a Debt Rescheduling Agreement with lenders to the Group comprising R746.3 million (86.5%) of the Group's total external funding obligations at the reporting date. This agreement allows for a three year stay on principal payments to lenders and remedies all related covenant breaches that existed;
- Successfully converted R274.0 million of debt to equity with shareholder approval to convert a further R50.0 million.  The Group will further benefit from a reduced interest expense in future years;
- Received a R300 million facility through a claims purchase agreement for capital funding line for loan advances as part of the Group's recapitalisation;
-Reduced operating expenses by R193.2 million (27%) or to R22 million per month by February 2011 from that reported in the 2010 financial year. Operating expenses for the year include once-off costs in excess of R75 million relating mainly to costs associated with the recapitalisation of the Group and turnaround  strategy;
- Achieved a reduction in the overall impairment charges on non-performing loan advances of R49.6 million from that reported for the 6 months ended 31 August 2010 due to focused collection efforts. This reduction was achieved despite interest written-off amounting to R36.4 million during this period;
- Commenced active new lending totalling R150 million since September 2010. Total new loans for the year amounted to R280.7 million (2010: R690.0 million);
-Reduced the extent of credit impairments on new lending due to improved credit scoring; and
-  Reduced the cash flow shortfall between the income from collections and that required to meet the Group's normal operating expenses and interest obligations. The elimination of this shortfall is key to ensuring that capital collected from customers is applied to new loans.
"In addition to the above there has been an overall improvement in the Group's operational process, governance, internal controls and business sophistication. Loan advances have decreased by 30.4% from R783.0 million in 2010 to R544.6 million at 28 February 2011," Blue stated.
The group operates in the various jurisdictions inter alia as a registered bank, Insurance company or micro finance provider. In all the jurisdictions the main product lines are micro finance, business finance, housing finance, savings products, insurance and mobile.
On 10 December 2010, the Mayibuye Group (Proprietary) Ltd acquired a majority stake in the Group and is currently implementing a turnaround strategy under the leadership of the Group's new Chief Executive Officer with support from Mayibuye. The Group, through an arms-length outsourced arrangement, is further leveraging off the key competencies of the Mayibuye Group specifically in credit, collections and information technology, which were identified as key areas of improvement required throughout the Group.
"As a cornerstone of the turnaround strategy, the Group has adopted, a new set of core values being Respect, Reliability and Returns."
During the year under review, the group operated in 12 countries namely, Botswana, Ghana, Kenya, Lesotho, Malawi, Namibia, Nigeria, South Africa, Swaziland, Tanzania, Uganda and Zambia. The Group commenced operations in Ghana during February 2011. The Group has 213 branches and employed 1800 permanent staff and contract staff members at the date of this report.