Shylocks rip off desperate Ugandans

By JOSSY MUHANGI
Published December 3, 2009

KAMPALA, Uganda- They are invisible. They have neither proper addresses, nor official operational premises, or licenses, but their clients are a network of desperate Ugandans, craving quick money.

The mushrooming money lenders, typical of shylock, the notorious usurer in the Merchant of Venice by William Shakespear, employ all tricks to fleece unsuspecting customers, by committing them to mortgage their hard-earned assets, for little money, at obscene interest rates.

One such victim is Jane Nasasira, a local councilor, who urgently wanted money for school fees, and to boost her restaurant business.

Nasasira said it was urgent for her daughter to sit for her university final exams, so she approached a money lender, to borrow UGX 1 million.

“I only relied on the lender’s good faith,” she said, adding that the money lending business is premised on mutual trust, and neither of the parties wanted to lose out. “ [We agreed that ] he would not seize my house or land once I repaid the money.”

But when Nasasira failed to repay the money with an interest of UGX 200,000 that the lender demanded, the lender colluded with the local council and court brokers, who evicted her and fenced off of her land in Mbarara Municipality.

Nasasira appealed to the local police for help, but she was told that her case was a civil matter, involving two willing people, and police could not protect defaulters.

In September, Nasasira voiced her concern to President Yoweri Museveni when he met traders from Western Uganda in Mbarara. I listened to her narrate her ordeal, got interested in shylocks, and ventured into learning how they operate.

In Uganda, such money lenders are known as kafunas, a Luganda word literally translated to mean “fast gaining deal.” I tried to borrow UGX 300,000 from a lender, who only identified himself as Asiimwe. Asiimwe asked me to surrender my identity card, car log book, my ATM card and PIN number. In fact, he even insisted that we go to my bank, to prove that the PIN number I had given him was valid.

Before Asiimwe could give me the money, he insited that I sign a bunch of forms. I scrutinized the forms, and realized that he had actually filled in twice the amount of money that I wanted to borrow.

I refused to surrender my ID, so Asiimwe sked me for a post-dated check, indicating that, I would pay him UGX 600,000 at the end of one month. He assured me that he would only recover UGX 360,000 if I paid in time. He lent at 20 percent per month that day.

When Museveni met the businessmen in Mbarara, several people, esspecially women, told the head of state how they had lost their assets to the kafuna. The President asked for names of the kafunas, and promised the victims that his government would prosecute them. But almost three months later, the victims are still waiting for justice to be served.

I talked to the deputy Resident District Commissioner (RDC) Mbarara Mr Keith Mugabi, who said that the government cannot prosecute the kafunas because the transactins are usually conducted on a willing-buyer, willing-seller basis.

“The money lenders are difficult to prosecute, because they have lawyers and an organized system of self protection,” he said, adding that the victims unconditionally commit themselves to signing agreements, and when they default, it is difficult to bail them out.

Pursuant to orders of the President, the office of the RDC, in mid-October, convened a meeting of the affected, and some identified money lenders. The meeting was told that contrary to the Ugandan money lending institutions ACT Section 2, Cap 273, the mushrooming kafunas have no licenses or formally known premises.

I found out that the time the kafunas usually allocate for repaying the money and interest, ranges from one month to infinity, but even when a borrower repays after one week, the interest is usually computed on a monthly basis. Should one default by a single day, the lenders add the interest to the principle, to fetch another month long interest.

Another notorious trick, I discovered, is switching off mobile phones, to cut off access, which makes clients delay repayment and increase profits. Some lenders desert their premises, only to later claim default by clients.

Most kafunas, I found out, ask for post-dated checks, with amounts far exceeding the borrowed amount, which most customers can’t afford. Once a client defaults, the next step is turn him or her to the police for writing bad checks. It’s at this point that the kafunas usually start demanding valuable assets from the desperate clients, who are keen to escape prosecution. They then dupe the customers into writing agreements, to make it look like they have struck a sale deal with them.

Some humane lenders keep their bargain, while reckless ones (who are the majority), rob their clients in broad daylight.

A Kampala-based money lender, who only identified himself as Stephen said, his business is made up of a group of youths, who pooled their money, and began lending it to needy people, especially soldiers and teachers.

“We agree to have copies of their IDs, ATM cards, and PIN numbers, plus any other security, including logbooks, land titles, household property and electronics,” he said.

Stephens denied that they operate mysteriously, saying his office is at the bus park although it is not designated as a money lending institution, but as Kisabya Youth Association.

Another lender, who identified himself as Stanley, said he usually renders his services to friends, who have been denied loans by banks.

“We only attach defaulters properties when they have totally failed to repay, but do not take advantage of the agreements to rob them,” he said.

Vincent, another lender, said there was no need to put up sign posts because, his clients know him well.

“We do not drag people out of their homes, and offices to borrow from us,” he said, adding that they charge high interest rates because of operational costs, including recovery and renting premises, among others. “They come pleading with us to solve their urgent problems.”

Most of the lenders I discovered borrow the money from banks at 2 percent interest rate, then lend it to their customers at interest rates as high as 20 percent and up.

One would wonder why, with the sprawling banking business and micro-finance institutions in Uganda, people still fall prey to the unscrupulous money lenders.

Most Ugandans that I interviewed cited stringent banking rules and regulations as the main reason why they usually resort to the kafunas to meet urgent obligations.

“I use the kafunas to borrow money to repay my bank loans, because with the introduction of credit reference bureau services, banks are internetworked, making it difficult for me to borrow from a different bank, before repaying my outstanding loan,” one woman said.