By Isaac Tugume
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 maximise 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. Today Salt n Pepper exposes the dirty tricks banks and loan sharks use to fleece unsuspecting borrowers of their little hard-earned money.
For starters, banks do not make profits by hoarding their customers’ money in vaults. Banks mostly make profits through lending out the money deposited by their clients and charging exorbitant interests on those loans, although they accrue money through handling several other transactions. Thus, the busiest and most important section of every bank is the loans department. It is a company within a company of sorts, which has the hierarchy and power to ensure that people in the economy get loans whether they want or not. The sales and marketing section of the loans department is so busy because they have set targets to of hooking a certain number of borrowers to the bank in a given period of time. The mode of attracting these borrowers is not an issue to consider, because failure to hook them means automatic sacking of all people in the loans department.
However, no Loans Manager is naive enough to issue a loan that is not insured. Insuring a loan means that the borrower bears and is overly liable to all insurable risks involved with the money he/she takes from the bank. Thus, in case the borrower fails to pay, the bank can easily claim reimbursement from the insurance company. This means that the bank is insured against all bad loans and in a case where a borrower fails to pay, still the bank does not make a loss.
After the loan is insured and issued to the borrower, the bank starts demanding for 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.
Banks and money lenders 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.
Most Kampala loans sharks are Mafioso. 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, reason why most people who borrow from them never fully prosper. There are so many myths about money lenders but all of them not withstanding, 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 failing 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 re-pay 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 fine and penalties. By so doing, the bank makes money.
The current Interest Rate according to Bank of Uganda governor Tumusiime Mutebile, is 13%, after being reduced from 15% in October and September 2012 respectively. But the interest rate is the easiest excuse through which banks rob clients. Commercial banks borrow the money they lend to borrowers from the Central Bank.
But there is a rate at which the commercial banks pay back the borrowed money from the Central bank. This is what is called the Interest Rate or Borrowing rate. If the interest rate is 13%, it means the Commercial Banks will be charged that much on every loan they borrow from Bank of Uganda. In order for the banks to pay back the Central Bank reserve loan, the Commercial Banks will charge each borrower about 50% or 60% of the Interest rate on each loan, so as to maximise profits. When the Central Bank raises interest rate, the Commercial Banks’ profits rise and borrowers suffer. When Bank of Uganda lowers the interest rate, the commercial banks have no obligation to lower their rate because they will hurt their business. So if you got a loan say in January 2010 that spurns over five years when the interest rate was 11%, when Bank of Uganda increased the rates to above 15% between 2011-2012, the monthly installments on your loan increased by a considerable percentage. By late November 2012, the Central Bank had reduced the interest rate but this does not mean the Commercial Banks lowered their rates, because Mutebile does not have the mandate to force them to reduce their interest rates. All borrowers who got loans when the interest rates were high will not have their loans transacted at the lowered interest rate.
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 reason, 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 the harassing with calls and publications of borrowers’ pictures in newspapers, before swiftly instituting litigations.
Most officials in loan departments gamble with borrowers’ property. It is common for these guys 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 submitted 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 enlighting them on the risks involved before taking a loan or how best to apply the borrowed money to investment. They 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.