BY DAVID ONJILI
One man’s meat is another one’s poison; this is so evident with the recent move by the Kenyan Government to pass the interest capping rates on bank loans in September 2016. What this has led to is a number of unregulated microfinance institutions to prey on cash starved Kenyans especially those that are employed.
With banks now raising the minimal requirements for ordinary working class Kenyans before they can acquire loans so as to hedge themselves against the risk of default in repayments, a number of employees are now falling prey to the microfinance institutions that seem to be colluding with employers to target them in check off arrangements.
Attractive as these models of finance may be to staff, a keener look shows just how easily employees are getting the short end of the stick. The predatory nature from the lenders raises a pertinent issue that many employees must guard themselves against. A prime example is the exorbitant rates that the money is lent to an individual. The lenders have interest rates that are as high as 30% monthly for amounts borrowed. Another characteristic is that they are hidden in beautiful packages of salary advances, personal and emergency loans that employees easily access only to increase their debt burden later.
The most interesting feature and why many of the targets are the working class is that most of this financing disregard the borrower’s net pay. Once the financier who preys on you establishes contact with your employer, all that is needed is simply your employment details so that a check off system is established and the financier can now have his money back. This totally disregards the employee’s ability to repay and does not even look at how that individual will meet other obligations, be they personal or family related. It ensures that most of them are in a constant cycle of debts in the disguise of salary advances and emergency loans.
Collusion with employers and remedy
It is now emerging that a number of truant employers are colluding with some of these financiers for a commission that is usually pegged on the number of employees who take up the loans, their frequency of borrowing and the sum borrowed. In other instances, the employers co-own the ventures with the lenders and are even operated by them through proxies. Thus lending to their own employees at exorbitant rates is just another way of growing their wealth.
A number of lenders are now willing to pay a handsome commission to the staff at the finance department who prepare payrolls to ensure they get their way within the organization. The information they get is sufficient for them to tailor their lending to specific unsuspecting staff at the organization. One thing that most employers seek from their staff is productivity, this is achieved in various ways like good enumeration, attractive work conditions that allow staff to input on the decision-making affecting the organization, While money is never ‘enough’ to anybody one way employers can guard their staff is to ensure that they do not allow such truant financiers to bait their employees.
It may appear like a lifesaver in the initial stage but in the long run, once employees are deep into debt they become stressful and less productive. While no employer can stop the employee from reckless spending and irresponsible borrowing, they can stop or regulate the amount of money an employee can borrow and be deducted from their salary in a check off system. It is important that your staff take home at least 65% of their net salary, so if a member of staff is borrowing money that will make their total deductions hit more than half their net pay, a good employer must deny them that loan facility by denying his organization being used by the lenders to prey on his staff.
Benson Ocholla, a 40-year-old motor vehicle assembler was a happy man when he landed a job in Nairobi. Polygamous with two wives and 5 children, earning a net pay of Sh45, 000 this was enough to sustain both his families and enable him join the ranks of employed Kenyans. Life was great until one Sunday evening when he got a phone call from one of his wives that their son had been hurt by an axe while splitting firewood upcountry and needed urgent medical help.
Monday morning, he had collected Sh7, 000 from his savings alongside donations from colleagues and friends. This was Sh13, 000 short of the total amount needed to ensure treatment for his son, his next move was to seek a salary advance from his employer and this was not possible because the company only paid salaries at the end of the month and never had a policy to release such funds from the finance department. But, there was a way he could be helped. Francis, their financial guy told him he could use his payslip to secure immediate financing from a financier. By 3pm the same day, Benson had signed and agreed to borrow Sh15, 000 from the financier with his payslip acting as ‘collateral’ and that the money would be deducted directly from his salary. With an injured son and the loving heart of a father, he quickly signed. Come end month, he was surprised when his payslip was Sh19, 500 less the amount (Sh45, 000) he normally earns as a net pay.
This is when it dawned on him that the credit facility of Sh15, 000 had attracted a 30% interest and that he had to repay that entire amount in less than 3 weeks. This was total exploitation from his financier with collaboration with the finance department as he later came to learn after sharing similar experiences with his colleagues. Benson would later find out how his colleagues would borrow cash anytime and it attracted interest of between (20 and 30) % repaid within the month, despite the exorbitant rates, many of his colleagues had embraced it to sustain themselves. The fact that the money was readily available had blinded them, while it was not reliable, popular rumour had it that their lender was the wife to their General Manager and that this was collusion with their management to exploit them, that explains why they never got salary advances.
The rain started beating Benson the following month, when he realized that he could not meet his monthly expenses and had to come back for a loan, he had now been trapped in a cycle of debt, which he knew nothing about getting out.
