Taking loans to pay bride price is stupid, says debt manager

[Photo: Courtesy]

Njaanuary is financially hard on Kenyans being auctioned and whose houses are locked over rent arrears.

Elisha Opiyo, a debt manager spoke to Jael Musumba about living debt free, profiting from loans, why shylocks are here to stay, besides advising President Uhuru on foreign debt.

January is normally a dry month. Why is it hard for Kenyans to plan for it?

It is not really hard to plan for January. It’s just that most of us find ourselves unprepared because of the festive season when people overspend. To make matters worse, some employers pay salaries on December 15th, leading to early spending for Christmas and New Year. I advise people to pay their January bills in advance and come up with a budget for December which they should strictly follow to avoid January disappointments and hustles.

 The most financially successful people still take loans. Is there another option?

There are other options to source capital, but they do not raise as much. Loans from Saccos and mainstream financial institutions are the main sources of finance. However, not everyone qualifies to get these loans, especially from mainstream financial institutions due to strict requirements like collateral to guarantee these loans. Loans, when prudently used, can change lives for the better.

 Loans and debts ruin more people than they build. What can we learn from those who succeed through loans?

Yes, many people have been auctioned for failing to meet their obligations make repayments in time. It is therefore highly advisable to take loans after thorough appraisal of business ideas, to ensure that they are viable and productive. Individuals who succeed with loans invest prudently after thorough groundwork and research. Most of them are financially disciplined and focused.

Elisha Opiyo [Photo: Courtesy]

 People are screwed by bad loans. How can we profit from good loans?

Bad loans or bad debts are dangerous to both financial institutions and individual defaulters in that they lead to lost money or collateral. The only secret is having proper plans for the loans. Financial institutions should conduct proper vetting of applicants and only advance loans to credit-worthy clients to maximise profits.

  Is it possible to live completely debt free?

Yes.  One way is by living within your means and ensuring that you only borrow to finance projects and activities that will give good returns on investment.

Some Kenyans take loans to buy company shares, pay bride price and to finance weddings. Are there investments one should not borrow money for?

One should not take a loan to pay for something that does not give returns, like paying bride price or to finance weddings. But taking up a loan to invest in the securities exchange is a good idea. 

There is financial inclusion in Kenya through the many micro-finance firms in the country. But auctioneers are also doing brisk business. Where do we go wrong?

Access to the many financial institutions willing to give loans means that there is available capital for those who qualify. However, we have seen many cases of business ventures crumbling and in my opinion, many individuals go wrong by taking up loans without proper plan on how it will be utilized to give returns that are adequate to repay the loan.  

[Photo: Courtesy]

 How much would you charge a poor Kenyan to manage their debt?

This depends on the agreement. Financial advisers mostly offer this service to those who need it.

 Do debt managers like you get careless with money?

You cannot be careless with money, since it is a scarce commodity and there is no free money anywhere. We make budgets and strictly follow them, but sometimes we lose money, just like everyone.

 Kenyans know about debt collectors but not debt managers. How come?

Because this is how they have been referred to since time immemorial. However, people have begun to appreciate they do much more than debt collecting. They offer other services like reconciliation, negotiation for payments, dispute resolutions and credit control, meaning they’re all rounded and hence the names like debt managers.

Shylocks are financial devils. Why do Kenyans still fall for them?

They are not financial devils. It is only that they have discovered a gap in the financial system and are exploiting it. The process of acquiring loans from mainstream financial institutions are cumbersome, strict and thus limit people interested in loans. This leaves a majority with no option, but the shylocks for quick loans with high interest rates.   

How come more men than women take bad loans?

That is a misrepresentation. Women are more organised and disciplined in finances and are able to pay their liabilities in time, unlike men. Women have cultivated a culture of saving, increasing their chances of investing and hence accumulating financial resources. But we have seen men also coming up with chamas and investment groups to empower themselves.

There are Kenyans who take loans from banks to pay other loans. What’s your advice on this?

This is tricky, since the liability is not reduced. However, we have seen instances where someone takes a loan from the Sacco to pay a bank loan. This is prudent since bank loans attract higher interests than Saccos, thereby reducing the burden on the borrower.

[Photo: Courtesy]

 In your experience, what have you observed about Kenyans and their attitude towards credit control and loans?

Many fear taking loans because of the risk of default and being auctioned. However, from experience too, a majority of people who risked taking these loans for good use have ended up being very successful in their business ventures.

 

Kenyans are taking online loans in droves. Is it that we’re financial risk takers or just plain careless?

Kenyans are financial risk takers and careless as well. If an individual takes online loans and invests prudently and gets good returns, we can say that the risk was worth it. However, if the loan is not put to good use, it becomes a burden since they will accumulate huge interests and get blacklisted by the Credit Reference Bureau (CRB).

What personal assets should one take loans against?

One can take a loan against any asset which is tangible and has value.

 How much debt exposure should someone have in relation to income?

No one should be deducted more than a third of their salary and generally, they must be left with at least 40 to 50 per cent of the salary.

Kenya is highly indebted with foreign loans. What would be your advice to President Uhuru?

Kenya’s external debt has been rising over the past few years, mostly to finance infrastructural projects. Debt in itself is not a bad thing, but over reliance on debt can affect the economy in many ways.

Currently, Kenya’s external debt is Sh4.5 trillion - 54 per cent of it (Sh2.45 trillion) is foreign - which is rising to risky levels. More than 70 per cent of the budget goes to towards recurring expenditure. The build-up of debt over the past 10 years has been excessive and beyond our repayment capacity.

My advice would be to, among others, determine sustainable debt levels relative to resources, indicators like debt variables to GDP,   government revenue and expenditure and other macroeconomic variables. The president can also raise public debt using debt instruments like Treasury bills and bonds, selling unnecessary assets, or concessionary borrowing, which is accessing loans at lower interest rates. 

The president can also establish a public debt management office and finance projects through public-private partnerships. He can also cut salaries at the top and reduce wastage. The recent presidential order suspending new projects is a good start.  


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