The predator lurks in daylight … with a loan!

The other day I dropped by Judy’s hair salon for a quick touch up. I have been patronising this salon for several years; not really because she is the best hairdresser in town, but mainly because going to Judy’s always leaves you in stitches, literally!

No sooner have you settled in a seat than she starts to regale you with stories on who came to the shop the other day, who dyes her hair black yet we know her real age, who got married, who got divorced, the real Kenyan political situation and lots more.

However, on that day Judy wasn’t upto her usual customer information routine. In fact after she pulled my hair a couple of times, I asked her what was wrong.

It took me longer than my usual hour visit before I managed to leave.

Judy was in low spirits because she had taken out a loan from a local bank to buy shares on the Nairobi stock exchange. Specifically, Judy was the now-not-so-proud owner of 10,000 safaricom shares which as of when we spoke had lost 40% in value. However the loan Judy took out is still earning interest which in turn is eating into the salon’s kitty.

Judy is not alone. In fact the most recent IPO of the Co-operative Bank showed a lacklustre performance, not only because of the closing down of rogue stockbrokers, suspect trading of shares (Bamburi and Crown Berger) and the financial crunch. Investors such as Judy had no money to buy shares because they are now paying off loans for shares whose prices have plummeted. I dare even Joseph Nyagah the enthusiastic Co-operative Minister to try and convince Judy that Co-operative Bank shares are a good buy. In fact I dare the entire co-operative movement to pull off this one!

The NSE and Capital Markets Authority also have a dire job on their hands of convincing investors such as Judy that when they finally finish paying off the Safaricom share loans, that the stock market will still be a worthy wealth creation opportunity. I personally wish them luck in this endeavour.

From the media blitzkrieg over the Safaricom IPO with banks fighting for prime time media slots to pawn off loans to Kenyan investors, the Co-op bank IPO came and went very quietly. Maybe even the banks realised that trying to entice prospective investors to take out loans again would be in poor taste, especially following the debacle of the Safaricom share dip.

However this silence does not mean that the war for loans is over. The battle to flog loans is still raging. In fact on main streets of many Kenyan towns you find the ubiquitous tent sporting a financial institution's logo with marketers offering loans. Apart from a pep talk and maybe even a cup of tea for the lucky, you can get a house loan, car loan, education loan or even money to go to Dubai to buy goods that you can sell on your return. As long as you have a payslip, you can get a loan.

Then the banks have also become innovative in their accounts. One time monthly payment accounts are all the rage. However, these one size fit all accounts do not give any leeway if say you don’t use the majority of the features. You get charged every month regardless. Furthermore, consumers who previously would never have even thought of applying for a credit card are having them forced onto them. Most bank ATM cards at least double up as debit cards.

Banks are eating up Kenyan investors mercilessly… and it smells of predatory lending.

Predatory Lending

According to the US Federal Reserve Board, predatory lending includes:
1. Offering unaffordable loans without regard to the borrower’s ability to repay the obligation;
2. Inducing a borrower to refinance a loan repeatedly, even though the refinancing may not be in the borrower’s interest; and
3. Concealing the true nature of the loan obligation from an unsuspecting or unsophisticated borrower.

According to Wikipedia types of lending sometimes also referred to as predatory include “payday loans, credit cards or other forms of consumer debt, and overdraft loans, when the interest rates are considered unreasonably high”.

Predators characteristically target the financially unsophisticated as well as those who do not qualify for mainstream credit products.

In the United States, the practice is prevalent amongst minority populations. Predatory lending in Native American communities is significant. The National Community Reinvestment Coalition in a 2000 survey found that nationally, Native Americans fall victim to predatory lenders more often than the general population and were 2.5 to 3 times more likely to receive “sub-prime” loans than whites.

African Americans and other minorities have also been found as being disproportionately led to sub-prime mortgages with higher interest rates than their white counterparts . An article on kenyanemergency blog called it a ‘financial Katrina’ which is unfolding, threatening to wipe out low-income neighbourhoods.

With such destructive loans currently being widely publicised in the media, one would think that this practice is a new phenomenon. However, Muhammad Yunus arguably the most popular micro-financier began Grameen ostensibly to protect small entrepreneurs from predatory lenders.

Barack Obama also used predatory loans as a campaign issue.

Closer to home, columnist Joachim Buwembo writing in the East African in the September 1-7 2008 edition in an article “Kampala debtors compete for 4Ws and space at Luzira Prison” talked about this consumer debt as a “new” disease. Reporting that in August four prominent Ugandans were imprisoned as a result of debts, Buwembo said that this crises has shown “how fragile our businesses and personal economies can be”. Ironically the same newspaper also had an article about the (central) Bank of Tanzania formulating a mechanism to reign in micro-finance institutions that were charging as much as 200% of the principle amount.

The current financial crisis and increased consumer indebtedness makes it clear that entrepreneurs such as Judy need to learn early and well how to manage finances responsibly and develop healthy “money habits”.

In simple English, that means when the deal is too sweet, think twice!

Opening the public procurement door to the small business entrepreneur

It has now become recognised that an important catalyst to business growth is enabling entrepreneurs to compete on the public procurement market.

Government is by far the biggest consumer of goods and services in any economy. Unfortunately, most small business enterprises are locked out of the public procurement system.

However with the current financial crises causing huge job losses, the need to make it easier for small businesses to win government contracts and thus protect jobs has gained in prominence.

In the UK where just today one of the largest employers British Telecom announced 10,000 job losses, the conservative party has also put the necessity for small businesses to competitively bid for government tenders on their agenda. The party has developed an action plan that calls for Whitehall to open up the massive £125 billion government procurement budget to small and medium firms across the country.

Other small business enabling action items include calling for the scrapping of a rule requiring companies to provide three years of audited accounts when bidding for contracts. This regulation acts as a barrier to startups simply because they may not have been in operation for three years.

They are also calling for the introduction of a single questionnaire to bid for government contracts worth less than £50,000. This would only have to be filled in once and logged for future contract bids. This process would radically reduce the administrative burden involved in bidding for government contracts.

Publicising tenders by requiring that all contracts over £10,000 be published online should also increase the number of entrepreneurs who find out about such procurement opportunities.

Finally, in line with the United States Small Business Administration, the conservatives are aiming for 25% of public contracts to be awarded to small and medium enterprises. This in their view would help to overcome the risk aversion that leads many entrepreneurs to overlook government contracts.

Trade Assistant Minister Omingo Magara during the launch of preparations for Global Entrepreneurship week (slated to begin on 17th November) said that his ministry was seeking ways in which to encourage and enable local entrepreneurs to compete on the public procurement market. The conservatives action plan would go a long way in achieving this.

Refugee communities in Kenya have changed the look, taste, speed and style of business.

Today thousands of bloggers are writing about the various challenges faced by the 11 million refugees who have no country to call home and the 40 million more who have been displaced because of war and natural disasters.

At Yipe, we thought as part of our contribution to the initiative, we would pay homage to the refugees that have had a positive impact on the way we do business.

Since Kenya's independence, the country has been home to refugees from the Horn, East and Central Africa.

All these communities have had an effect on the way we do business here in Kenya:

Uganda

Kenya has played host to Ugandans fleeing Obote, Amin, Obote II and other Presidents during the country's tumultuous years. Coming from a country where the academic system was developed, many refugees were quickly employed in Kenyan schools. Their impact on students who would later in life become entrepreneurs was that these teachers not only taught excellent English and Maths (both essential for running an enterprise) but they also gave budding student entrepreneurs a world view.

Once Museveni was installed, the number of refugees seeking asylum diminished and many of the ones living in Kenya returned to Uganda. Some of the Ugandan exiles even went home to leadership positions.

However evidence of this relationship persists as Kenya remains a leading trade partner to Uganda, and if one looks at the trucks plying our highways, you tend to find a bunch of matoke banana's tied to the chasis!... yes, they even made an impact on our diets.

Rwanda and Burundi

Many exiles running away from the genocide and civil war taught french in Kenyan schools, opening up francophone countries for local entrepreneurs to venture into.

Apart from french tuition, Rwandese exiles were also influential in the "mitumba" second hand clothes market.

With stability many returned to their countries, however similarities in work ethic between Kenyan entrepreneurs and these neighbours persist, leading many Kenyan entrepreneurs to set up enterprises in these countries.

Ethiopia

Fleeing first from Haile Selassie then Mengistu, many Ethiopians came to Kenya. Their impact has been on the introduction of delicacies such as their definitive dish injeera, and the number of Ethiopian restaurants in Nairobi seems to be on the increase.

Interest in Ethiopian crafts has also led to the establishment of Ethiopian art galleries.

Somalia

After Barre's fall, Somali refugees sought refuge in Kenya. Whilst the more fortunate ones found asylum in western countries, in true entrepreneurial fashion, the community managed to set up an informal but efficient money transfer system. These money courier outfits became so popular that even Kenyans in the diaspora started using them because they were cheaper than Western Union and also the money would get to the doorstep of the person receiving the money.

Congo

Refugees running away from the late Mobutu introduced a sense of style, lingala music and of course dance (ala Kofi Olomide!). This "haute" culture remains with certain radio stations and nightclubs devoted to lingala music. Their artistes have also enriched Kenyan entrepreneurs who have promoted their concerts in the country.

Even though they arrived in Kenya penniless, afraid and without hope, these communities have left their footprints indelibly marked for Kenyan entrepreneurs, opening more doors to business opportunity.

Thus, we pay homage to these communities... Let's unite to re-unite refugees.

Audacity of Hope: Lessons for Kenyan Youth

Depending on where you are, you either heard a lot about Africa Youth Day or nothing at all.

The day which passed with little fanfare had the theme of "Peace, Solidarity and Positive Values promoted by the African Youth" which is ironic because in Kenya, this year has been marked by youth unrest. Starting off with the post-election violence where the youth were mobilised to forment chaos upto the school unrest where secondary schools were torched.

In the aftermath of the student crisis, a sense of frustration and hopelessness emerged amongst the youth. Frustration because their opinions were neither sought nor heard in matters that concern them, and hopelessness in an education system that drums in information but does not guarantee a job at the end.

But there is hope and today marks a great day where youth power to be the engines of change has resulted in a candidate, Barack Obama as a presidential contender. His campaign has shown what when they put their mind to it, and form a united front, the youth can indeed dictate who will lead them.

Kenyan youth can now stand up and be counted. Like the youth campaigners for Obama, they can refuse to be passive and be instrumental in moving their own agenda. The Waki Report in graphic detail talks about how these same young Kenyans were used in settling political and ethnic scores of others. For the ones that lost their lives, or the ones who murdered, raped or looted all in the name of politics, where are their politicians now? What were they fighting for?

The Obama campaign has shown that the youth have taken matters into their own hands. Obama is their candidate and reflects their ideals and understands their needs. To make sure he is elected they have volunteered their time, efforts and resources to make sure that there is true change in America.

The word “audacity” means to be daring, bold, courageous and brave. From the moment he declared his candidacy, the Obama campaign has reflected these values.

The lesson we can learn here is that true change can only come if we believe that we are the drivers of change and are bold enough to step up to the starting line, and the run. It is now in the hands of the youth to be proponents of a new political system, the system as written in the book Audacity of Hope (2006) that “we have a stake in one another, and that what binds us together is greater than what drives us apart, and that if enough people believe in the truth of that proposition and act on it, then we might not solve every problem, but we can get something meaningful done”.