A reader emailed with a pickle he found himself in after lending a hand to his colleague.
Good afternoon, it's my hope that this email finds you well.
I will go straight to the problem: As usual and within the Sacco policy of three times your savings and more, members get their colleagues or friends to sign their application as guarantors.
Me and another five colleagues guaranteed one of our staff for a loan of about Sh10million, let’s call him Anthony. Anthony unfortunately lost his job and was unable to service the loan.
I’d gone through a similar situation with another colleague some years back.
What we had done with him is that we entered a special agreement between the two of us, on how we’d settle the deductions. He’d held his side of his agreement and my Sacco savings were not deducted.
I called my five colleagues and informed them about this agreement; they agreed to enter something similar with Anthony. We had a sit-down with Anthony, flouted the idea to him and he agreed to it.
Anthony had a piece of land and was putting up residential houses on it.
The idea was that he transfers the property to us, we find a buyer quickly and settle his loan with the returns. Or he sells it to one of us then he, whoever would buy it, settles with the other five.
We got a registered value to value the property, and paid him from our own pockets. Anthony had said he didn’t have the money to pay the valuer, which we had understood. It was no big deal.
The valuer gave us a value of the whole property. We shared this value with Anthony.
Anthony however insisted that he had prospective buyers who were offering him much more than this value.
He asked that we give these ‘buyers’ some time to come forward with their offers. We agreed to it. But we waited and waited until we got frustrated, we decided to look into other ways to put pressure on Anthony.
We went back to the Sacco to discuss the possibility of getting a debt collector to recover our monies.
The Sacco agreed. They contracted a debt collector but the services of this debt collector weren’t for us, the members, but for the Sacco itself.
The collector organised for a meeting between us and the Sacco.
After a long meeting, the collector made it clear that he has zero obligation to us members.
He also agreed to call Anthony and tell him how he was going to collect on our behalf.
There was nothing signed between us and the collector, or with the Sacco.
Anthony was shaken and felt threatened by the collector, he immediately agreed on a modality of settlement.
When the collector learned that a positive settlement had been reached, he invoiced the Sacco.
The Sacco took money from our savings to settle his invoice.
We felt that this was totally wrong. We have written protest letters to them, letters they have continued to ignore.
So here is where I need your advice. My questions are:
i. Is it right to pay for a service whose process can’t comprehensively be shown?
ii. Can the Sacco claim to have rendered a service that has no binding MOU signed?
iii. Is it right for the Sacco to deduct a member’s savings to pay a third party?
Your advice is highly appreciated.
Thanks for writing in, Maina. And sorry your benevolence boiled down to this.
What you’re facing here is both a financial and moral dilemma.
The moral dilemma comes with what money is, at its root.
Money is a poison that seeps into the hearts of men. It corrupts relationships and hurts the guileless people in these relationships, doesn’t matter how noble their intentions were at the get go. And at its worst, this poison can turn fatal.
Anthony is not being a gentleman about the money he owes you guys. On the occasion he needed you guys to come through for him, you did. Now the tables have turned and he won’t do the same for you guys.
How the Sacco responded was not right, either. They should have been clear with you guys on the process of this debt collection and signed something stating explicitly what the debt collector was contracted for, who would pay for his services and what would become of the situation with either turnout, that either he collects the money or he doesn’t.
They ought to refund you.
But the painful truth is, Maina, your Sacco doesn’t care. It doesn’t care about you and Anthony’s inability to settle his loan.
It doesn’t care about your sleepless nights. It doesn’t care for your protest letters. It doesn’t care that you’re both playing on the same team. As long as they are able to recover Anthony’s loan for your savings – you and your five colleagues who guaranteed Anthony – then their risk is covered and passed on to you.
The ball is now in your court to do the dirty work of recovering your money.
Hang on to that thought for a minute as we talk about the financial dilemma.
I’ve spoken to a lovely lady called Rahab, she’ works in loan recovery, with one of the Saccos I save with.
She’s explained to me the measures our Sacco takes to recover their money in such pickles as yours.
When a member defaults, they give him three months to approach them and explain to them his situation. Most times, members are unable to settle their loans because of job loss or their business nosedives.
This dent to income can happen to anyone, at any time. It’s not unusual or unheard of. Such is life.
The Sacco is keen to help their member any way they can. I mean, we’re all a community here.
What the Sacco does is to restructure this loan. Restructuring a loan means increasing the loan term; this reduces the monthly loan repayments and increases the interest rate.
So if Anthony here had borrowed Sh10milllion at 12 per cent for 48 months, the restructured loan would be extended to a repayment period of 72 months at, say, 14.5 per cent. Anthony, instead of repaying Sh259,000 per month, would now be paying Sh200,000.
If Anthony is still unable to settle his repayment after three months on the restructured loan, the Sacco moves to Plan B. (Have you seen that movie, by the way, starring Sarah Hassan? Stream it for free on YouTube.)
It’s at this point the Sacco becomes ruthless with what’s remaining of the loan. They’ll recover their money from Anthony’s savings. After they’ve wiped his account clean, they’ll turn to the poor guarantors’ savings and proportionally deduct what’s left. Maina, what you had guaranteed Anthony is what is deducted from your savings. It’s rough.
After plan B has been effected and the Sacco is sleeping well at night, a debt collector is contracted. (I want to call him Bruno but I won’t.)
The debt collector collects on behalf of the guarantors whose savings have been bludgeoned.
The debt collector – and this is important, Maina – is paid on a percentage of the monies he’s recovered. The rate my Sacco uses is 15 per cent So if he collects Sh200,000, he’ll be settled Sh30,000.
(Come to think of it, on what basis did your Sacco’s collector invoice them? What’s the market rate for issuing threats?)
I’ve asked about what your Sacco did to you guys and Rahab tells me the Sacco shouldn’t have touched your savings to settle the debt collector.
Let’s flip the coin, let’s say Anthony here doesn’t cooperate with the collector. Well, the collector has the leeway to take any measures necessary to keep pressing. He decides what he’ll do – he could even decide to involve the cops.
Sometimes, despite putting his best foot forward, the collector is completely unable to recover from Anthony and his ilk. He’ll return to the Sacco with his white flag raised. It’s at this point the Sacco contracts a lawyer.
I asked Rahab how often this happens, that the collector is unsuccessful. She said, “In a portfolio of 100 defaulted loans, the collector is unable to recover at least 40 per cent. For the 40 per cent he’s unable to collect, then it’s for the members to put in their own measures to recover from the member they guaranteed.”
Which brings me back to the thought I’d asked you to hang on to earlier.
HOW TO WORK AROUND THE FINANCIAL AND MORAL DILEMMA
First, a story: In 2017, I was contracted to generate content for a local publication. I was required to send in content monthly, on strict deadline. Which I did without fail. It didn’t matter that we didn’t sign a contract – I rather take someone’s word than ink a dotted line with my signature.
Anyway. So I sent it content religiously but the client didn’t pay. I hang on because I was having fun, and I was growing as a writer. I hang on through 2017. And through 2018. I was willing to hang on through 2019. It wasn’t until I objectively looked at the money they owed me that I realised I was digging my own grave of debt. Plus I was demoralised and frustrated.
Late last year, I began the exhausting process of follow up. I got nothing but empty promises. I’ve been calling the accountant almost daily since this year began. I even showed up unannounced at his office last week.
Maina, don’t tire of following up with Anthony. Call him relentlessly. Show up at his construction site. Or at his door. Or the bar where he drinks over the weekend. Or the church where he worships on Sundays. Email him. Text him. WhatsApp him. Inbox him on Facebook. And not just you, but all you six who guaranteed him.
Unsettle him with the pressure. Unless he has a heart of concrete, Anthony will eventually succumb and settle with you guys. Pressure yields results.
I know this because I just received a call from the accountant to collect part payment tomorrow.
I really hope this helps, Maina. Let me know how it goes.
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