Equity predatory lending

[KenyanPlato]

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Seems they fatten entrepreneurs and then destroy them. Kenyan banks or rather banks are very predatory. You always have to be careful when borrowing money from banks. Anyway if this story is true then what happened here is very unethical. I think the guy didn't understand the terms properly or he was led astray by bank management. I reviewed equity loan contract one and I told the person borrowing they had no chance in hell generating enough cash flow to repay it. They borrowed against my advise and defaulted within a year.

https://mobile.twitter.com/TonyMurega/status/1471169700604305415

[RV Pundit]

Never borrow from Kenya banks unless you have. You're competing with treasury offering banks 12 percent risk free bonds. Personally I love living debt free. Wacha nifanye maendeleo yangu pole pole.

If you're prepared to become slaves of banks borrow.

My brother in law (married to my wife sister) - dude from Nyeri - recently borrowed sijui from Ngao credit - gave out his car - then somehow he stopped paying last year due to covid - shock on him - fine of 50k every month plus interest - the money quickly rose to a million plus - now the wife out of shame decided to negotiate and pay - we had to do harambee - honestly I would have let the car go.

Where I stay - in my local bar - people are crying - lots of depression - folks have lost everything to auctioneers or are in the process.

Borrow if you must but be extremely diligent and discipline...never miss a repayment - they simply go crazy on your account and start loading all funny charges and fines

I saw my dad struggle with bank debts and I said to hell - I am not going to join that club. I rather I save or borrow from family or friend.

Stay away from debt. Stay away from rent. First money you get try to buy or build a house. Then avoid debt and you will live a happy financial stress free life.

[Georgesoros]

I wonder whether he read the fine print.
If you pay the same day, there should not be a charge.
I will goto court. But Kenya courts???

[hk]

This more of agency banking liquidity breach penalties. Agents shouldn't not be accepting deposits or withdraws beyond their "float" amount. Otherwise they'd be jeopardizing customers deposits.
Credit in kenya is expensive due to high interest rates, until the macro are fixed, the economy will never takeoff.

[RV Pundit]

On paper macros look great. Base rate of 7 percent and most banks are quoting 12-15 percent - most at 13 percent.

Treasury bond at 12 percent is out-competing private lending but again most banks are quoting 13 percent even with rate capping removed

So macros look decent - on face value.

The problem I see - is CBK sleeping on the job - when it comes to fines and non-interest fees that bank uses to punish any loans that starts to go bad.

This is why SACCOS are better...at least when under distress they dont double down on the poor victim.

CBK has to wake up and become the regulator it ought to be. Most banks are making money from non interest income - (loan processing fee, late payment fees, credit card charges, service charges, penalties, etc.)

This more of agency banking liquidity breach penalties. Agents shouldn't not be accepting deposits or withdraws beyond their "float" amount. Otherwise they'd be jeopardizing customers deposits.
Credit in kenya is expensive due to high interest rates, until the macro are fixed, the economy will never takeoff.

[RV Pundit]

Also parliament should consider regulating non interest income. Fees and penalties should never exceed a percentage of interest rate.

In the meantime borrow only if you're very very disciplined. Any missed or late repayments will trigger all sorts of attacks on your poor account.

[hk]

On paper macros look great. Base rate of 7 percent and most banks are quoting 12-15 percent - most at 13 percent.

Treasury bond at 12 percent is out-competing private lending but again most banks are quoting 13 percent even with rate capping removed

So macros look decent - on face value.

The problem I see - is CBK sleeping on the job - when it comes to fines and non-interest fees that bank uses to punish any loans that starts to go bad.

This is why SACCOS are better...at least when under distress they dont double down on the poor victim.

CBK has to wake up and become the regulator it ought to be. Most banks are making money from non interest income - (loan processing fee, late payment fees, credit card charges, service charges, penalties, etc.)

This more of agency banking liquidity breach penalties. Agents shouldn't not be accepting deposits or withdraws beyond their "float" amount. Otherwise they'd be jeopardizing customers deposits.
Credit in kenya is expensive due to high interest rates, until the macro are fixed, the economy will never takeoff.

The interest spread is 5%, depositors are being hosed .This goes to show the real macros are terrible. No one in kenya can borrow below Tbills rate. This is the reason why Most sizable businesses borrow from IFC via local banks.

[RV Pundit]

Yes it depositors who are getting short end - barely making any money because underlying inflation is 5 percent. But back to the issue - the macros are good - except for depositors - and anybody in distress or starting to default. That is when kenya banks basically conspire to finish someone completely. Borrowers who are discipline and dont experience any financial shock are breezing through.

Maybe kenya gov will reduce it's apetite for bonds...I know they cancelled 150B one recently. I was planning to invest in it. 12 percent is a real deal. More kenyans need to be aware.

If you put in 10m - you'd be getting 1.2M per annum - which is good money. Rather than putting 30M apartment - you can be getting 3.6 million stress free...per annum...or 300K a mont

The interest spread is 5%, depositors are being hosed .This goes to show the real macros are terrible. No one in kenya can borrow below Tbills rate. This is the reason why Most sizable businesses borrow from IFC via local banks.

[Kadudu]

Our parliament is useless and toothles. Parliament can fix a lot of things even  more than the executive and can even dictate to the CBK, but our parliamentarians are sleeping on the job. That is why I insist things like CDF should be abolished as in anyway goes against the constituition. Parlimentarians job should be solely based on national legislature and checking the national government. Development issues should be left to the national and county goverments. This is the basic soul of the new constituition.

Also parliament should consider regulating non interest income. Fees and penalties should never exceed a percentage of interest rate.

In the meantime borrow only if you're very very disciplined. Any missed or late repayments will trigger all sorts of attacks on your poor account.

[hk]

Yes it depositors who are getting short end - barely making any money because underlying inflation is 5 percent. But back to the issue - the macros are good - except for depositors - and anybody in distress or starting to default. That is when kenya banks basically conspire to finish someone completely. Borrowers who are discipline and dont experience any financial shock are breezing through.

Maybe kenya gov will reduce it's apetite for bonds...I know they cancelled 150B one recently. I was planning to invest in it. 12 percent is a real deal. More kenyans need to be aware.

If you put in 10m - you'd be getting 1.2M per annum - which is good money. Rather than putting 30M apartment - you can be getting 3.6 million stress free...per annum...or 300K a mont

The interest spread is 5%, depositors are being hosed .This goes to show the real macros are terrible. No one in kenya can borrow below Tbills rate. This is the reason why Most sizable businesses borrow from IFC via local banks.

The Spread goes to show that the base rate is too low, if government is borrowing at 12% the base rate shouldn't be at 7%. The inflation is almost as high as the the base rate.
The return on investment in real estate is below 12% especially if one has to borrow to build. So the market is indicating that its smarter to invest in Tbills than real estate.

[RV Pundit]

Some of it is also Kenyans as citizen - forming lobbies - and bring these issues to parliament. We need to organize around issues. But our tribal politics stand in the way. If say bank customers had some lobby group - raising issues - not individually - but as group - someone would listen.

Our parliament is useless and toothles. Parliament can fix a lot of things even  more than the executive and can even dictate to the CBK, but our parliamentarians are sleeping on the job. That is why I insist things like CDF should be abolished as in anyway goes against the constituition. Parlimentarians job should be solely based on national legislature and checking the national government. Development issues should be left to the national and county goverments. This is the basic soul of the new constituition.

Also parliament should consider regulating non interest income. Fees and penalties should never exceed a percentage of interest rate.

In the meantime borrow only if you're very very disciplined. Any missed or late repayments will trigger all sorts of attacks on your poor account.

[RV Pundit]

Yes for now gov has to totally reduce debt apetite - and try to balance the budget or sell safaricom and the likes to finance the budget. For me I would balance the budget by selling gov shares annually

The moribund privastion commission need to be revamped. Gov should target at least 3B dollars annually from the sale of SOES until we are out of debt distress.

I would loath for gov to stop spending in basic infrastructure...that will be MOI era again. A negative feedback loop

The Spread goes to show that the base rate is too low, if government is borrowing at 12% the base rate shouldn't be at 7%. The inflation is almost as high as the the base rate.
The return on investment in real estate is below 12% especially if one has to borrow to build. So the market is indicating that its smarter to invest in Tbills than real estate.

[hk]

Yes for now gov has to totally reduce debt apetite - and try to balance the budget or sell safaricom and the likes to finance the budget. For me I would balance the budget by selling gov shares annually

The moribund privastion commission need to be revamped. Gov should target at least 3B dollars annually from the sale of SOES until we are out of debt distress.

I would loath for gov to stop spending in basic infrastructure...that will be MOI era again. A negative feedback loop

The Spread goes to show that the base rate is too low, if government is borrowing at 12% the base rate shouldn't be at 7%. The inflation is almost as high as the the base rate.
The return on investment in real estate is below 12% especially if one has to borrow to build. So the market is indicating that its smarter to invest in Tbills than real estate.

Lets say you sell Safaricom and KCB, the crown jewels. Then next year how'd you finance the budget, the budget deficit would just be kicked just 1yr down the line. Yes, government should sell safaricom and kcb, not necessarily to raise money but to get out of the marketplace. Politicians shouldn't be calling KCB to help their friends get loans. Or Safaricom being forced to bank with politically connected banks.
Basic infrastructure is needed not the mega infrastructure but the priority is getting the private sector growing. Once private sector is growing , the government collects more taxes to build infrastructure creating a virtuous economic circle.

[RV Pundit]

If you reduce gov spending - you risk going back to moi era - low budget - low public investment - dead economy. Therefore it's important as we deal with debt distress to keep gov expenditure growing.

Selling these SOES will give us the breather for the economy to generate more taxes - so after 3 yrs - KRA would be collecting maybe 30 percent more - and economy would have grown - so debt to gdp will have come down to 50 percent

So for maybe it should be alternating from financing budget from selling SOES and from borrowing.

These SOES like you know are just inefficient and need to go.

Take away profitable ones via IPOS/Listing - and give up on the loss making hopeless ones by selling them cheaply.

The middle one - reform them - after they are profitable sell them via IPOS

Lets say you sell Safaricom and KCB, the crown jewels. Then next year how'd you finance the budget, the budget deficit would just be kicked just 1yr down the line. Yes, government should sell safaricom and kcb, not necessarily to raise money but to get out of the marketplace. Politicians shouldn't be calling KCB to help their friends get loans. Or Safaricom being forced to bank with politically connected banks.
Basic infrastructure is needed not the mega infrastructure but the priority is getting the private sector growing. Once private sector is growing , the government collects more taxes to build infrastructure creating a virtuous economic circle.

[hk]

If you reduce gov spending - you risk going back to moi era - low budget - low public investment - dead economy. Therefore it's important as we deal with debt distress to keep gov expenditure growing.

Selling these SOES will give us the breather for the economy to generate more taxes - so after 3 yrs - KRA would be collecting maybe 30 percent more - and economy would have grown - so debt to gdp will have come down to 50 percent

So for maybe it should be alternating from financing budget from selling SOES and from borrowing.

These SOES like you know are just inefficient and need to go.

Take away profitable ones via IPOS/Listing - and give up on the loss making hopeless ones by selling them cheaply.

The middle one - reform them - after they are profitable sell them via IPOS

Lets say you sell Safaricom and KCB, the crown jewels. Then next year how'd you finance the budget, the budget deficit would just be kicked just 1yr down the line. Yes, government should sell safaricom and kcb, not necessarily to raise money but to get out of the marketplace. Politicians shouldn't be calling KCB to help their friends get loans. Or Safaricom being forced to bank with politically connected banks.
Basic infrastructure is needed not the mega infrastructure but the priority is getting the private sector growing. Once private sector is growing , the government collects more taxes to build infrastructure creating a virtuous economic circle.

The question isn't whether to stop government spending, its the  degree of spending appropriate to enable private sector growth . As it is now, government spending is going to slow down to a halt if the private sector doesn't pick up. Basically Kenya has maxed out its credit card, the only solution is private sector growth. The question is how to kick start private sector growth. Surely it can't be increased government spending.

[RV Pundit]

The fundamentals.
We cannot go back to running our economy on one engine. We need two engines. You cannot fly a  huge plane with single engine...in case of a failure...you crash.

We need both
Private sector investment led growth
Public sector investment led growth.

Public sector is sick - it's maxed out it's credit card - but it own 200 SOES - including Safaricom whose sales alone can finance the budget deficit for a year.

Next year we can sell more of KCB, Kengen and KenRE.

The 3rd year we sell part of Kenya Pipeline, KAA and any other assets.

After those 3yrs - our taxes will have grown - our economy grown

We resume to leveraging by borrowing. That is already a decade...and we would have sustained our growth...and probably doubled our gdp if not trippled.

You suggestion to shut down the public sector engine - and restart the private sector engine - will automatically half our economic growth - and lead us the anemic growth we last saw during Moi era.

The question isn't whether to stop government spending, its the  degree of spending appropriate to enable private sector growth . As it is now, government spending is going to slow down to a halt if the private sector doesn't pick up. Basically Kenya has maxed out its credit card, the only solution is private sector growth. The question is how to kick start private sector growth. Surely it can't be increased government spending.