BY PEPPER INTELLIGENCE UNIT
These days when you see so and so collapsing dead don’t look further. First inquire whether he or she had issues with a financial institution and the answer is likely to be yes. And when you probe further you learn that a certain financial institution took over his or her property. This is the dilemma Ugandans are facing. The rate at which Ugandans continue losing their hard earned properties on the hands of financial institutions is alarming. The other day it was Dynapharm Uganda and the latest is Kwagalana tycoon Teopista Nabbale whose three arcades are on the verge.
The truth is that the high lending interest rates by Ugandan commercial banks and loan sharks have not only increased the cost of borrowing but are killing Ugandans softly, according to experts we talked to for this story. The financial institutions have limited access to capital for business expansion and this has reduced disposable income and increased untold suffering in the general population.
At this rate, the financial institutions are likely to attach and sell businessmen’s properties across the country but this will soon impact on the economy.
Most of the businesses which hinge their success on borrowed funds are going down with commercial banks advertising properties that were staked as collateral security in acquiring loans.
The stringent measures that banks use to recover the loans have left most tycoons in tears and others dying due to untold stress.
Although the Central Bank tasked financial institutions to restructure loans for customers on a flexible basis to allow businesses to thrive after Covid-19 pandemic, the situation is worsening every day that passes.
The impending bad banking system outcome is twofold; tycoons will lose properties to banks and at some point the banks will be stuck with collateral hence economic depression. It is widely known that increasing non-performing loans (NPL) affect banks’ asset quality, and this automatically impacts the economy.
It should be noted that the banks’ asset quality had been deteriorating prior to Covid-19, and the pandemic which put the country in a lockdown for two years worsened the situation.
Currently the banks are in a dilemma of general economic slump and having to battle through an unprecedented level of bad debts. Commercial banks in Uganda are bracing for hard times caused by the decline in the country’s exports, the weak Uganda shilling, and the double-digit inflation. With such a bad existing financial situation, the upsurge of non-performing loans threatens to wipe them out of business. To mitigate the above they are pushing the burden to Ugandans, something that will send them out of business.
The banks in Uganda that fall in the above category include Stanbic Bank, the largest by assets and network; Standard Chartered Bank, the second largest bank by assets; and dfcu, Absa and Orient Bank.
The Central Bank’s decision to increase the key policy rate by 100 basis points from 6.5 percent to 7.5 percent has further pushed up lending rates in commercial banks. This will have a knock-on effect on borrowers as loans get more expensive.
Following the rise in the Central Bank Rate (CBR) by Bank of Uganda, commercial banks will soon be raising their lending rates, a move that will hit those who are already in debt.
The unavoidable increase in policy rate to stabilize the economy is expected to drive up lending rates in commercial banks, which could have a negative impact on the financial system. Though Bank of Uganda intervened and put guidelines for Borrowers following the restructuring/repayment moratorium, most borrowers had no payment ability since the businesses were badly affected by COVID-19.
TRICKS USED: UNDUE INFLUENCE
As Ugandans continue to lose personal properties worth billions of shillings to financial institutions and moneylenders in borrowing scams, there is a need for the Bank of Uganda to regulate them. In many transactions borrowers are made to sign off their property to appear like they have sold them to the lender. The signed document is meant to serve as a guarantee, but the lenders turn around to use them to grab the borrower’s property. Several borrowers have unwillingly lost cars, houses and land at a giveaway price. Despite Bank of Uganda receiving complaints, there has been low appetite to crack the whip.
Commercial banks, loan sharks and most micro finance institutions lend people money not with an intention of making them wealthy but exploiting them. What money lenders mostly aim at is how to maximize their profits or interests on the loan, through confiscating the borrower’s collateral. Most borrowers actually are not told by lenders that they are meant to pay four times or more the money they borrow.
This is because money lenders employ a lot of dirty tricks before giving out loans, with a secret hope that the borrower may fail to pay back the loan, such that his/her properties are confiscated. A good loan transaction, according to money lending business, is not one where the borrower pays back fully; it is when he/she fails to pay back, such that their properties or those of their sureties are attached and auctioned.
CONNIVANCE IN COURTS
The latest trick the financial institutions and moneylenders use lately is tricking the borrowers into recovering money through the courts of law. Regardless of whether the borrower is willing to pay or stake his other properties outside his security, the lender insists on the court process.
The lenders employ the services of the court bailiffs and arrest the borrowers.
Upon the arrests, the borrowers are shown ex-parte judgments that commit them to prison for six months. This is done to squeeze the relatives of the borrower to sell his/her other fast moving properties (not in collateral) like marital homes to raise the money and save him. Remember this is done when the lender is in custody of the collateral that was provided before the loan transaction. Alternatively after committing a borrower, the lender goes ahead to transfer the collateral into his name. This is landing the borrower into double punishment jeopardy because he wastes time in prison and again pays back the heavily interest loan.
This trick was also employed by financial institutions and moneylenders to frustrate the borrowers especially after most businesses collapsed due to covid-19 pandemic. The lender goes through court bailiffs who intimidate the borrower day and night that once he does not sell the property, he will get arrested. This is done with a trick of undervaluing his property so that he can be forced to look for buyers that can pay an amount slightly higher than the undervalued price. Once the borrower gets an independent buyer, the lender comes on board and takes part of his money but leaves the borrower with a small balance to feel that he has sold his property. However, on the same day, the lender makes the borrower sign fresh documents as the former plans to attach another property that was not part of collateral. At the end of it all the borrower loses more properties to service a scammed loan.
CONNIVANCE WITH TYCOONS
The financial institutions and moneylenders lend out money to individuals after conniving with investors to take over the properties once the loan is not fully paid. This has mostly affected the owners of schools. The school owners normally rush to moneylenders for quick cash to run the school activities. The lenders entice the borrower with top-ups until they realize that the directors of the school can’t pay back. They bring on board investors who promise to recapitalize the businesses. After recapitalization, the moneylender goes through court bailiffs to sell the school. The tycoon who is already on board pays off the directors who at the end are pushed out of the school. This has affected school owners in Entebbe, Kawempe, Mukono and also in other areas.
ADVERTISING PROPERTIES IN MEDIA
The financial institutions and moneylenders are working hand in hand with powerful law firms in town to intimidate the borrowers. While giving out the loan, the borrower is tricked into handing over extra land titles and told that they are safe. Since no encumbrance is put on the use of land, the borrower goes ahead and develops it. At some point, the loan sharks appear and photograph all the properties set up on the land and advertise them in the newspapers to lower the borrower’s esteem and intimidate him into paying. They do this on the basis that once the bank sells your property, you will be declared bankrupt hence incapable of making any other transaction. In doing so the borrower is pressurized to sell off his valuable properties cheaply so that they are not attached. As part of intimidation the lenders buy vast space in the newspapers and display all the properties so that they can expose you to your wives and children as a person on the brink of losing a family estate. They do this so that the family members can panic and raise the money to repay the loan very fast.
After the loan is insured and issued to the borrower, the bank starts demanding monthly or bi-weekly installments depending on the arrangement. The borrower pays a given percentage tax on the loan, plus several other transactional fees, before starting to pay the monthly installments. However, these installments are not constant and keep on changing from one month to another, depending on the whims of the bank’s loans department. When the bank wants profits, the loans department will be ordered to inflate the installments by a given percentage each month or after a given period of time. But in case the borrower fails to pay back the loan and his/her properties are attached, the bank does not consider the already paid installments. Instead, it considers the entire loan as not paid, before instituting financial litigations against the borrowers.
Some financial institutions and moneylenders behave like the Mafia. Borrowers say some people first perform rituals on the money before lending it to others; for example, there is a myth that Asians first keep their money in toilets before lending it out to borrowers, the reason why most people who borrow from them never fully prosper. There are so many myths about money lenders but all of them notwithstanding, there is a habit amongst loan sharks disappearing on the day of payment. Several borrowers in Kampala accuse lenders of absenteeism when needed to pick their money, with an intention of holding the borrower liable for fines due to delay. A story is told in Kikuubo of a top city mogul who owns banks and lends people money. But when the agreed day for repayment comes, the Mogul disappears and switches off all his phones or ensures that the borrower does not see them. After the borrower fails to see the Mogul, he/she waits for the next day. But before the day clocks, the borrower is besieged with court bailiffs armed with warrants of eviction or arrest over failure to repay the loan. This disappearance trick is used by a lot of city loan sharks, such that they can grab the borrowers’ properties. However, officials of loan departments in banks can also intentionally alter the installment dates so as to trick the debtor into failing to pay at a certain date, such that they can levy fines and penalties. By doing so, the bank makes money.
Some financial institutions and moneylenders gamble with borrowers’ property. It is common for these guys in loan departments to use a land title, car log-book or other form of authentic collateral offered by the borrower to other lenders to give them money. Loan sharks have a policy of projecting people who are most likely not to pay the loans. They also know borrowers who died but left a lot of land titles, debentures, contracts, agreements and tangible properties in the bank’s possession, which can also be used to borrow money elsewhere. In extreme cases (severe), some people have been evicted from their houses after fully paying the loan installments, not knowing that the land title was sold by officials in the loans departments. Sometimes the borrower pays, but he/she is given a duplicate title yet they submit an authentic one and on other days the borrower’s document file may disappear.
Lenders also have a policy of ambushing borrowers with loans, promising them heaven on earth if they borrow money from the banks. They convince borrowers to take loans without enlightening them on the risks involved before taking a loan or how best to apply the borrowed money to investment. The bank officers cannot sensitise the borrower because they do not want him/her to pay back; they are targeting what he/she has that is more valuable than the loan cash. They always move around with documents which they rarely allow the borrowers to go through. They only appear with the documents with marked spots for the borrowers to sign without understanding the terms. Although it is not coercive, one can say that they use undue influence on their clients to land them in trouble hence losing of properties.
These loans have caused trouble for very many Ugandans. What banks do is send their loans’ officers to corporate companies to hunt for borrowers, who want a hefty advancement of their salary. The bank enters into a deal with the employer that since the borrower is an employee, his/her salary shall be paid through the lending bank’s account, on a given date. However, it should be noted that these loans are also insured. But if the company delays to pay the borrower salary due to a number of reasons, the bank officials, well knowing that the company’s salary account has not been credited yet, go ahead to levy penalties on the borrower’s account by deducting a percentage of money when the salary is eventually paid. In a situation where the borrower is terminated from a job or his/her contract expires, the banks start harassing with calls and publications of borrowers’ pictures in newspapers, before swiftly instituting litigations and threatening to go for some properties that were not part of collateral.
Financial institutions and moneylenders know that human beings in the economy, just like institutions and several other organisations, survive on credit. A bank does not make business if its clients are not indebted to it. This is because in bank accounting principles, the client’s money is the bank’s debt, and the client’s debt is the bank’s money. Hence, a client who does not have debts with the bank is not credit worthy and therefore not a good customer. This is because all clients are supposed to be enslaved to credit (money), which is only in the custody of the bank or money lender. For example, if you do not have airtime on your mobile phone; the computer says “You do not have enough credit to make this call.” So when you load airtime- put money on your phone, you get credit to make a call. This is exactly the same with banks; when you deposit money, they credit your account and debit theirs. When you borrow their money they credit their account and debit yours. The more you borrow and take long to pay, the more they debit your account while crediting theirs. In the end, they accumulate exorbitant credit whether the debit account clears the debt or not. But by that time, the borrower, who runs the debit account, would have already been enslaved, jailed or impoverished by his creditors.
UGANDAN BANKS: WHAT YOU DIDN’T KNOW? HAVE YOU EVER BEEN TREATED FAIRLY OR UNFAIRLY BY ANY OF UGANDA’S COMMERCIAL BANKS? TELL US YOUR STORY: CALL / TEXT/ WHATSAPP 0777959024. YOU CAN ALSO SEND IT TO email@example.com.