The Accountant-May-June 2017

Business Practice and Development
– 61,111 =Ksh. 238,889
Further if B was to take a loan before
default, he would have gotten 300,000 *
3 = 900,000
After default he can only access =
238,889 * 3 = Ksh716, 667
The loss to B= loan before default- loan
after default = 900,000- 716,667 =
Ksh.183, 333
This definitely demoralizes B and other
affected guarantors. This is not fiction but
the reality in the SACCO subsector.
Illustrative case
The following story may shed light on
what is at stake. Wanyonyi borrowed a
loan of 500,000 repayable in 60 equal
installments. To qualify for the loan,
he approached eight guarantors who
willingly guaranteed his loan. He was
respectable among his colleagues at work
and beyond. He was also among the best
employees in the institution. All these
taken into consideration gave him a good
credit rating at least as far as his colleagues
were concerned.
A year down the loan repayment,
Wanyonyi’s employer was in a financial
distress. It was a difficult time for the
employer and for employees too. Rumors
were doing the rounds and a lot of tension
engulfed the entire firm. It was evident
that downsizing was inevitable and
everyone was praying against it. However,
as always the inevitable had to happen
and unfortunately, Wanyonyi was not
so fortunate. Yes, Wanyonyi was among
those who were rendered redundant. It
was a painful realization that the monthly
salary was no more. To make matters
worse, he had loans to service and other
living expenses to meet. It was a gloomy
state of affairs for the father of three.
When eventually the final dues were
computed and Wanyonyi summoned
to the human resource department, it
was a long walk for this 39 year old.
He was aware that the gratuity due to
him was not even enough to repay his
outstanding loan, leave alone funding
his family living expenses for a month
or two. It was a bitter pill to swallow.
From the net payable he only managed
to remit about a quarter of the total to
the SACCO. This left his guarantors in
a precarious position. His deposits were
equally exposed before the guarantors’
deposits were attached; a painful reality
after sacrificing for so many years to
accumulate savings up to ksh 180,000.
Three months later Wanyonyi was still job
hunting, he was surviving on odd jobs at
least to provide a basic meal to his family.
By now the SACCO had given alerts to
the guarantors to the effect that the loan
was doubtful. It was another difficult
moment for Wanyonyi and his guarantors.
The deposits were attached to offset the
outstanding loan and any accumulated
interest and default penalties. Wanyonyi
was declared a defaulter and he could not
access the SACCO services again. If he
ever wished to rejoin, he would have to
repay his guarantors and wait for about
six months more before he could access
the services. The guarantors had their
borrowing capacity reduced. They would
not be able to access the same amount of
loan accessible before the loan default.
Questions to consider:
a. Will B and others be motivated to
save anymore?
b. Isn’t the SACCO also losing in the
process?
c. Is this the best available method of
recovery?
d. Can’t insurance come in handy to save
the situation?
e. Doesn’t this create an unending cycle?
The reasons for defaulting on the loans
are varied. Some of the major reasons
are as follows:
a. Lose of employment/ source of
income (Case of Wanyonyi)
b. Incapacitation ( accident , natural
calamities)
c. Deliberate default to get back
at members (borders on theft or
unfaithfulness - breach of trust).
10 MAY - JUNE 2017