Silver lining in debt crisis
What you need to know:
- Many Kenyan firms have sunk into losses, taking a hit from a mounting stock of bad debts linked to delinquent borrowers.
- Kenyan banks’ non-performing loans rose to eight per cent of the total in March 2016 from 5.7 per cent in the same period a year earlier.
- Quest Holdings Chief Operations Officer Erick Oluoch said the Kenyan debt collection services is young with potential for growth.
Some of the world’s leading debt recovery specialists are looking at Kenya with a great deal of zeal following a rise in bad debts, which have attracted warnings of a possible crisis.
Many Kenyan firms have sunk into losses, taking a hit from a mounting stock of bad debts linked to delinquent borrowers.
Several commercial lenders and other financial institutions have particularly recorded a steep rise in Non-Performing Loans, (NPLs) signalling the effect that tougher economic times have had on the pockets of borrowers.
But this appears to be sprouting a booming business for companies that manage distressed debt with many offering rosy promises of “rescuing” commercial banks and corporates bogged by the bad debts.
A range of players drawn locally and internationally are wading into the Kenyan market with offers of solutions to the bad-debt crisis as other measures fail.
They include Commercial Intelligence (CI) Group, a debt collection agency headquartered in Singapore and which has just set up a branch office in Kenya targeting the East Africa region.
It follows in the footsteps of existing foreign and local players already in the local debt collection services market here serving commercial banks and other players.
They include Kenya’s Quest Holdings, South Africa’s Nimble, Kenya’s Metropol and Collection Africa Limited (CAL), which is under South Africa’s TransUnion stable.
“We decided on Nairobi with the outbreak of banking fraud cases in 2015 led by Imperial Bank and others. This brought to our attention the chaotic state of the banking industry in Kenya,” said CI founder and chairman Michael Shone in an interview with Smart Company.
CI boasts of 30 years experience “successfully recovering debts” of every complexion from loan defaults to misappropriated funds to non-payment of outstanding invoices and other fraudulent practices.
Mr Shone said CI’s target market in Kenya includes banks with large non-performing loan portfolios and corporates with a variety of collection and recovery difficulties, which require innovative approaches to resolve their challenges.
“As far as we can tell from our recent research there are very few, if any, recovery specialists operating in Kenya in our end of the market,” says Mr Shone.
“That is one reason that the debt issue is so great for corporates and banks alike.”
Kenyan banks’ non-performing loans rose to eight per cent of the total in March 2016 from 5.7 per cent in the same period a year earlier.
The country’s financial markets were rattled in April last year when the Central Bank of Kenya #ticker:CBK took control of mid-sized Chase Bank after it failed to meet its obligations.
It was the third mid-sized or small lender to be put into receivership in nine months. It has since re-opened under the management of #ticker:KCB and the Central Bank’s deposit insurer.
The CBK governor Patrick Njoroge at the time blamed “delayed payments” and “enhanced reclassification of accounts to non-performing status at end 2015 statutory audits” for the surge in bad debts.
Some tough tactics employed by collection agencies have been deemed abusive and unprofessional in the past.
Potential for growth
But Mr Shone said the firm will operate within the legal structures available to it.
“We are not in the business of resorting to heavy handed tactics and in any case where large debts are involved abuses are entirely inappropriate and counterproductive,” he explains.
Quest Holdings Chief Operations Officer Erick Oluoch said the Kenyan debt collection services is young with potential for growth.
He added that while commercial banks have endorsed their services, commercial sector players including fast moving consumer goods have a lot to gain from debt collectors.
He said Quest Holdings has often been forced to negotiate with defaulters when the economy is struggling because they don’t often fail to pay out of choice, but because of economic circumstances.
No where to hide
To offer efficient tracing services to lenders faced with the burden of tracking down loan defaulters, Quest Africa rides on Kenyans’ social media zeal, which it has turned into a ‘goldmine’ which it rummages through to understand behavioural patterns of people referred to them by banks to help in recovery of debts.
“You can no longer hide since you, your children or friends have an online presence and we have a full department handling such cases of ‘lost’ defaulters,” said Africa Risk Management chief executive officer Jared Aimba in an earlier interview. Africa Risk Management Group owns Quest Holdings.
Kamau Kunyiha, Creditinfo chief executive officer said they provide banks with portfolio management services, which he explained includes informing banks on accounts likely to go bad so that they can apply the appropriate strategy to the right portfolio.
CI Group’s said its charges for debt recovery are dependent on the specifics of each case.
“Some are more difficult than others,” says Mr Shone whose firm employs lawyers, accountants and investigators as part of a debt collection team.
