Loan Sharks – BOZ Must Act!
By Dickson Jere
The amount of emails and inbox messages I have received in recent weeks is unprecedented following my snippets on loan sharks and Court Judgments. I never realized how BIG this problem is – it is very big in our society that people are losing properties everyday to these loan sharks. The Chinese seem to have found a niche in this market!
You see, most of these loan companies are legally registered and operate under the Money Lenders Act of Zambia. They are not really under the direct supervision of the Bank of Zambia (Central Bank) like commercial banks and micro finance institutions. Ideally, money lenders were envisaged to be small time “kaloba” people in our communities to provide “small change” kind of transactions. But now, it appears, even big companies who are supposed to be registered as Micro Finance Institutions with BOZ have opted to go under the Money Lenders route, which has no much supervision. But yet they provide huge monies and sit on a lot of properties as collateral than even the big micro finance institutions. And people are getting duped and losing money and properties through unorthodox lending mechanisms.
Even though genuine money lenders with ethical conduct still exist in Zambia, some have gone rogue. The modus operandi is similar. It works like this;
- Ask the borrower to sign Contract of Sale of his or her property but it is supposed to be “collateral” as it where.
- The borrower is further asked to sign off the Deed of Assignment for the property as part of the sale in case of default but then it was supposed to be “collateral”.
- Change the amount and interest from Kwacha to Dollar and lump the borrower with huge “interests”
Many a borrower have signed off these documents without really understanding the implications. These, by any standards, are legal documents which require assistant of the lawyer to really understand them but desperate borrowers just sign them off!
You see, these days banks require that a borrower or any third party mortgage should come with a letter from law firm that clearly states that the borrower has “sought independent legal advice and the documents and it’s implications have been explained” to him or her. This is meant to safeguard the bank itself from accusations that it made a borrower sign documents which was not clearly explained. But this is not the case with the money lenders.
The principle of “collateral” has always been clear. Once the borrower has defaulted, the lender ought to go to Court and obtain an Order for Foreclosure and Sale. And that sale should be done on “open market” where various bidders tender and the lender is not allowed to participate. Lenders are conflicted!
This is normal transaction. But now a new concept of sale of properties has emerged to undo the tedious collateral disposal mechanisms.
BOZ should intervene urgently in this matter! Make interim rules on borrowing while waiting for the legislative intervention. The financial market is being distorted! A parallel lending market with unorthodox collateral system is slowly developing. This must concern BOZ.