What are Credit Reference Bureaux

Such rating agencies try to establish or rate the likelihood of a loan being paid in the time agreed in the contract. They also help assess how much the loan interest should be charged. This process by the credit reference bureaux is referred to as loan pricing.

Plans are at an advanced stage for the credit reference bureaux to rate or profile small business Enterprises. This is scheduled to start in May 2012, in Kenya to determine their credit worthiness for banking in kenya.

Need for Credit Reference Bureaux rating SMEs

SMEs employ about 80% of the workers and had an 18% contribution to the Gross domestic Product (GDP) in 2011. This statistics make the growth of SMEs key to the government’s agenda especially considering  Vision 2030 for Kenya.

The credit reference bureau that will be profiling SMEs in Kenya is known as Metropol Corporation. The small business enterprises will use the profiles to get credit financing for growth.

Benefits of Credit Reference Bureaux rating SMEs

• One of the major benefits of credit reference bureaux profiling, is that, the loans will be cheaper for the better rated Small and Medium Enterprises.
• The profiling will be standard for all the firms without favouritism.
• The rating will mean that attracting loans will be easier for those SMEs that are perceived to be less risky. One of the components of measuring risk is the ability of the SME to repay the loan advanced to it.
• By rating an SME, any financier or potential financier is able to reduce the time it takes in the loans application and approval processing. Credit reference bureaux already has the necessary and required information, which would be readily available to the financing firm.

The credit reference bureaux are being supported by departments in the Government which deal with SMEs. The central Bank of Kenya and the Kenya Bankers Association have strongly supported Metropol corporation too.

Some Criteria used by Credit Reference Bureaux to rate SMEs

• Business must have been in operation for 2 years at least.
• Companies must submit profiles of their credit history. The credit history profiles will assist the credit reference bureaux to rate an SME. Some of the things that are considered in credit history is how the bank account has been operated for the last few years. Bureaus will also see if there is any history for unpaid cheques.

The above concept is the same concept that is used to rate countries all over the world. Countries are rated by credit reference bureaux like Standards and Poors, which last year downgraded United States of America. United States dropped from AAA to AA+.  Last year the rating for Kenya improved from previous years. The rating of SMEs by Credit Reference Bureaux will greatly improve SMEs access to financial loans.

Definition of Debt Management Programs

Debt management programs are unique strategies or plans that are designed by the debtor to help in debt management. The plans are developed and implemented by an organization or a company on behalf of the debtor. These debt management programs are prepared for the debtor because of their lack of knowledge or because they have great debt.

How to Select the Best Debt Management Programs

Debt management programs also known as debt management plans may be able to help you work out a payment schedule that satisfies both you and your creditors.

1. Confidentiality of debt management programs

One of the most important aspects of the best debt management programs is to have strong commitment to your confidentiality. There is need for privacy of the client who visits a debt management program because they do not want other people to realize their financial problems.

The information presented during a credit counseling session is very sensitive. You may give credit card numbers or your bank information; with the raise of identity theft there is a need for you to be able to fully trust your debt management program with your financial information.

2. Certification of the debt management program

You must make sure that the program you chose has national accreditation. The credit counselors you work with should be certified. This helps ensure that you work with someone who has extensive training and has taken and passed all necessary exams to broaden their knowledge. The counselor who handles your money should be a professional with experience in dealing with debt management plans.
3. Online Debt Management Program

The online debt management programs’ greatest advantage is that it saves time. They work like the other programs but are conducted by counselors you do not come face to face with; they lower your monthly payments with your creditors helping you manage your debt. Certification and confidentiality must also be maintained

4. Non Profit Work

One good feature that the best debt management programs possess is non profit work. The programs always have your best interests in mind. Their goal is to assist you with your current financial problems. Their charges are mainly to pay off for the equipment and resources

Types of Debt Management Programs

There are many types of debt management programs such as, unsecured and secured debt management programs. Some of the most common varieties of debt management programs available include debt settlement programs, debt counseling programs and debt consolidation programs.

• Debt Settlement Programs

Debt settlement programs also known as debt elimination programs, allow you to payoff your debt within a period of one or two years. The debt settlement companies will negotiate with the creditors for a reduced debt amount; this also reduces the interest rate charges.

•  Debt Counseling Programs

Debt counseling programs teach you all you need to know about managing debt. The counselor tells you exactly which debt management program is appropriate for your personal debt situation. There are many agencies that provide credit counseling for free.

•  Debt Consolidation Programs

Debt consolidation programs are the most widely used debt management programs.  In this program your creditors are contacted to reduce your interest rates. Then the company combines all your monthly payments into one affordable amount.

This helps you to manage payments as you can pay one low monthly payment instead of several high payments.

Best debt management programs have assisted many in clearing debt and managing their finances.

What is debt Management?

 Debt management is the art of balancing the amounts owed against the amounts repaid. Information on personal debt management is key to debt provision companies to access the borrower. Debt management companies use credit reference bureau companies.

The information shared among lending companies helps in monitoring customer credit score.  The debt rate in the world has reached unmanageable proportions and different ways of managing debt have been devised.

Different Ways of Managing Debt

Acquiring a loan is easy but paying it back can be hectic for -many individuals. People use different ways to manage debts differently.

Prepare a Budget to manage debt

Preparation of a budget is important. When paying off your debt it is advisable to follow and maintain the prepared budget. The amount of money which is to be paid should be kept separately and try to save until you have enough money to clear the whole debt..

For easy debt management you should monitor what you spend and how much you spend each day. Saving money helps you to pay your debt quickly.

Assess How You manage Debt

It is important to assess and analyze how you pay your debt in order make proper repayment calculations regarding your debts. Prepare a list which includes all the items and monies that you have to use. This will help you to calculate the total amount of money you have. Deduct money for the debts from your total.

Manage debt by paying debts in a predetermined order

If you have a lot of debt, first decide to pay off the one with the highest increasing rates of interest then the rest can follow. You can also pay your debt according to the one you acquired first. These options may help you reduce your debt gradually.

Talk to your creditors to manage

Tell your creditors about what you can afford to repay and how much will be repaid at specified times. It is important to ensure all creditors agree to the terms and conditions of the repayment plan

Deal With Your Mortgage Payments as A Way of Managing Debt

If you have a mortgage loan you should improvise on paying them off slowly since their interest rates are relatively low compared to others, such as education loans. The value of a house appreciates with time, while the rate of interest may remain constant or may change in the future (on few occasions)

It is advisable that you try and repay the other debts first. Loans on secured assets can be repaid slowly, depending on their rate of interest.

Get guidance or help on managing debt

To get rid of your debts quickly you require help from a debt counselor. The counselor helps you to overcome your debts in a short period and gives you guidance on various ways of paying debt easily.

Smart spending is usually a result of counseling in managing debt.

Debt consolidation is handled by bankers or debt consolidation companies. Their objective is to enable you solve your debt problems by making timely repayments and managing your debts

This is a great option since the debtor saves on the amounts paid back to the bank. They are also able to better plan how much they need to repay for all their debts without having to remember many debts. There is comfort knowing that there is an expert who cares about your finances.

How can credit debt consolidation help you?

If You have debts that are devastating and tough to manage, then credit debt consolidation is the solution to the problem.  Instead of looking for where you are going to get the money for the countless monthly payments and delayed fees, debt consolidation enables you to obtain a loan to pay off all your debts and then you will basically have one debt payment per month.

When you decide to choose debt consolidation, you will not have to be anxious about getting in touch with many debtors. This has been a most frustrating element of owing debts. It may be that debt collectors are calling you while at work and also at home which can be very annoying.  For this reason credit debt consolidation becomes a popular alternative.

Credit debt consolidation loans also helps

Despite countless bills you owe or how far behind your repayments have fallen,  debt credit consolidation loans can help you. If you are being pursued by insensitive debt collectors and creditors

There are various curriculum available all planned to take your numerous, high-interest debts and cumulate them together for easy payment. This is certain to help lessen the stress and burden linked with accumulated debt, high interest rates and delayed charges. Debt consolidation loans have been used by many debtors to reduce and manage their debts in the past.

Credit debt consolidation loans are  properly considered to be alternatives to bankruptcy. You can decide to lower your general bills, stay away from additional damage to your credit ranking or credit rating. It is possible to get back control of your monies by t making the decision to act now.

Credit debt consolidation considerations

You may possibly want to get a consolidation that permits you to pay an amount every month that you can easily afford. If the sum for your credit debt consolidation is higher than what you were look forward to pay, then you might need to look at bargaining the terms to a more reasonable and affordable terms.  You should also consider the repayment period or schedules. It should be comfortable to you.

Other consideration for debt consolidation includes the ability of the company taking over to handle your loan. The debt consolidation company may not be able to take over the full amount of your loan, and such companies should be rejected.

The idea for debt consolidation is a brilliant idea, which must be taken up by people with little to non-financial discipline.

managing your finances

As soon as Christmas is over, the savers realise that they have spent more than they had anticipated. They have to save a bit more or reschedule the goals they had set to meet.

To manage unplanned spending during the Christmas season, follow the tips below and avoid regrets after the holidays

Dos to managing your finances

1. Determine the amount of money that will be needed to purchase the gifts. When this amount has been decided, move on to the next step
2. Determine the amount to be saved per month, to reach to the desired amount. Always give yourself enough time to achieve the desired amount.
3. Have a list of all the people you want to give gifts to. These lists are very important as it determines the number of gifts that will be purchases.
4. Start shopping for non perishable gifts early. Last minute shopping may mean that you spend more funds than budgeted.
5. When possible, purchase gifts when they are on sale. This may reduce the amounts used and the savings can be used for emergencies during christmas

Don’ts of managing your finances

1. Do not spend money you do not have
2. Do not borrow money from your credit cards or bill payment.
3. Do not buy unplanned items or items not on your shopping list
4. Do not go shopping with friends who may influence you to spend more than planned
5. Do not take a lot of time to shop when you know what you require. Go in and out of the shop without looking through he aisles
6. Do not window shop while carrying extra money in your wallet or credit cards
7. Do not purchase perishable presents before they are required because they will spoil. For example do not purchase fruits more than a week before they are required because they ripen and spoil before they are given as gifts

The above tips are a way to assist consumers during the Christmas  to help in managing your finances.

Reasons for agricultural financing of green houses

Many countries are dependent on agriculture. Agriculture is a major foreign income earner and it is also a source of income to subsistence farmers who sell their products locally.

In Kenya tea, coffee and pyrethrum have been the major cash crops for many years which have also been foreign income earners. However in the last few years horticultural crops, for example, french-beans, peas, tomatoes etc have also contributed to the agricultural economies of not just Kenya but of the world.

Agricultural financing of green houses has been a great challenge to many banks. The agricultural sector has a history of nonperforming loans. Since these loans have had to be written off, banks have not been very keen in agricultural financing of green houses activities.

The main reason for non performing debts has been due to crop failures as a result of insufficient rainfall and/or flooding. There has also been increased attack on the crops by pests.

Why banks support agricultural financing of green houses

In order to avoid crop failure due to changes in weather patterns, most farmers especially horticultural farmers, have turned to Agricultural financing of Green Houses and green house farming. Since banks have realized the potential in this area, most of them have partnered with the Green House expert companies to enable growth in this sector.

There is a huge market both locally and internationally for the horticultural products. This market has continued to grow with increase in population worldwide.

The partnership between banks and green house expert companies has enable salaried persons to supplement their incomes. Veteran farmers are also able to maximize on their inputs.

 Tips to help obtain agricultural financing of green houses from the bank

1. First visit the green house expert company which has partnered with the bank (this information can be obtained from the bank) where there will be a detailed explanation of what agricultural financing of green houses and green house farming involves, that is, the costs and the expected income and the period it would take to break even.
2. The customer then obtains quotation for cost of building the green house, cost of preparing the land, cost of obtaining seedlings. This will assist both the customer and the bank to determine the amount of agricultural financing of green houses will be required
3. With this quotation one then approaches the bank with a request for a loan which would not be classified as a quick loan.
4. Apart from the quotation from the company the bank will require the following details to be able to grant the loan or agricultural financing of green houses

• Proof by the customer of the current income either from salary or sale of produce.
• Customer contribution towards the project which is usually 10% of the quotation.
• Projected cash flow from the customer for the period of the loan.
• Proof of ownership of the land where the green house is to be constructed and this is by producing a title deed in the name of the customer

 Having satisfied the above conditions for agricultural financing of green houses, the bank will disburse the loan in phases to the Green house company. When determining the repayment period the bank will grant the customer a grace period (mainly six months) to factor in the construction of the Green House and planting season before harvest begins. Agricultural financing of green houses has become a niche where most big banks are completing to take the lead.

Currencies have been losing value, making life near impossible for citizens. Projects started before inflation have stalled, fuel prices have skyrocketed, and food prices tripled in most parts of the world. This has created a vicious circle of poverty, which has sucked some of the middle class to poverty status.

Employees want salary increments and which employers are not able to pay. This causes tension and further dips an economy into deeper inflation. Effects of inflation are listed below.

 Effects of inflation- Increased costs of production

 The cost of production of goods will increase due to increase in prices of raw materials, cost of electricity and fuel. This increase in cost is passed on to the consumer. With increased costs in the final product, the sales volume will decrease since most people will be unable to afford the product resulting in lower revenues. Lower revenues imply that companies are not able to meet their obligations leading to most of these companies laying off staff to manage their costs.

 Effects of inflation- poverty and unemployment

The unemployment rate increases leading to poor living standards. The ramifications of this are that the health bill increases, propelled by increased vulnerability of citizens to diseases. This leads to reduced productivity and low live expectancy.

 Effects of inflation-increased crime

 Rate of crime and general unrest (demonstrations, violence and lawlessness) will increase as there are no employment opportunities and yet the basic needs must be met. In general there will be insecurity. The types of crime become more and more sophisticated which may lead to acts of sabotage and terrorism

 Effects of inflation-low investor interest

Due to insecurity, potential investors become repelled and no job opportunities are created. This will increase the poverty levels and little to no development will be realized in the economy, Banking in kenya has been adversely affected by inflation

 Even with the bad times one has to hope that the people charged with the responsibility of controlling inflation will have the wisdom and intelligence to do so. If inflation is let to run amok it will ruin not just one country but many. The effects of inflation are serious for any economy and no economy is immune if inflation is not checked.

Lend lease is especially important for businesses which rely upon cutting- edge technology to operate efficiently, for example, the latest computers and communication devices.

lend lease should be greatly considered by businesses in early stages of  development. lease lending is like a quick loan to a business.

 Meaning of lend lease

lend lease

Lend lease means leasing equipment where a dealer already owns the equipment that  the business requires. In exchange for the equipment, the business (that is the lessee) makes monthly payments to the owner (the lessor). The ownership of the asset remains with the lessor or owner.

Lend leasing is greatly beneficial to the company because apart from ensuring the company has sufficient cash flows, the monthly payments are treated as tax deductible business expenses reducing the tax liability.

Some of the advantages to the business to go for Lend lease are:

• Reduces the amount of cash needed to finance acquisition of equipments and machinery.
• The monthly payment structure allows the payment to be treated as tax deductible business expenses.
• Leasing also makes it easier for the business to keep pace with technology especially if the business relies on the cutting- edge technology.
• It is a faster way of obtaining equipment.

 Business considerations for lend lease financing from the bank

1. Lease term- The length of the lease will affect the monthly repayments, that is, a longer lease term means lower monthly rent to be paid and vice versa.
2. Upfront payment- the customer should establish this in light of the cash flows so as not to commit the much needed cash for business operations.
3. Monthly payments- One should analyze the amount to ensure that the cash flow of the business is not affected.
4. Return Rights- It should be clear under what circumstances the lessee can return the asset when problems are encountered.
5. Early Termination- Most lessors are reluctant to include this clause, but it would be good for the lessee to negotiate an early termination right in exchange of paying a fee.
6. Option to purchase- the lessee should also negotiate an option to buy the leased equipment at a fair market value
7. Substitution Clause- This helps the lessee update or exchange the equipment to avoid paying for obsolete equipment or technology.

Lend lease is a very unfamiliar type of lending to most businesses in developing countries. Lend lease is the next level of borrowing for companies who need to grow and manage their cash flows.

Asset financing

Asset Financing can result in majority of firms experiencing cash flow problems which lead to business failures. One may however avoid such significant one-off expenses by financing the equipment, machinery or motor vehicle through asset financing.

Asset financing means the banks provide the finance needed to purchase the asset to the customer who makes monthly installment repayments. The asset financed is used generate cash flows and the same asset acts as collateral for the debt.  His is usually not considered as a quick loan.

Asset financing has greatly helped businesses like the transport and manufacturing industries to expand and be able to plan for asset replacement. The tremendous growth in these industries has contributed greatly to the economic development by creating job opportunities.Asset financing consideration when lending to the customer:

Cash flow positioning and future projections for Asset financing

1. The customers current cash flow, that is, how much does the business generate which determines the customer’s repayment ability.
2. The projected cash flow increase. Once this new asset is acquired and operates at the optimum, there is expectation of improved cash flows all other factors will remaining constant.

Asset financing – Age and usage

1. The age of the asset to be purchased especially for vehicles. Most banks have a limit to the age of the asset they can asset finance.  This is to safeguard the customers’ interest and reduce any future high maintenance cost of the asset which would greatly affect the cash flow.
2. The use of the asset – whether it is for personal or commercial use. This mainly applies to motor vehicle purchase as machines are basically acquired for business use. If the vehicle is for personal use, then the wear and tear is not as high as when it is for commercial use.

Customer contribution and involvement in Asset financing

1. The customers’ contribution will also be taken into consideration. Most banks do not finance 100% the cost of the asset and mainly they peg the contribution on the age of the asst and even the use of the asset. The older the asset the more contribution by the customer and vice versa, while if the asset is for commercial use then the higher the contribution expected from the customer.
2. The repayment period of this type of financing will depend on the current cash flow and sometimes the expected cash flow.
3. Interest rate charged will greatly depend on the age of the asset and the use of the asset.

Small businesses should take advantage of this type of financing to enable them release their cash for trading and avoid the business being cash- starved. Asset financing is a financial solution for small and medium sized companies, which are the bank bone of many economies.

Reasons for a loan without a bank account

loan without a bank account

The argument was that the bank account enabled the bank to determine the ability of the potential borrower to service the loan. The bank account would be used to compare the credit turnovers against the debit turnovers.

Most banks  have realized that this concept does not really make sense to a certain category of potential borrowers; the people in formal employment. Majority of these people in formal employment have only one source of income, that is, the salary income. A salary is reliably paid at the end of every month.

 Loan without a bank account through check off system

In order to have a competitive edge, most banks have reviewed the requirement to operate an account for a minimum of six months before being considered for a loan. They have therefore instituted what is called ‘check off system’ with the employers.

Loan without a bank account through check off system is an agreement between the banks and the employers of the potential borrowers. Deductions for loan repayment are deducted at source through the payroll.

When lending to this category of potential borrowers, the banks appraisal is on the employer and not the borrower.  Banks analyze the employer to know:  how long they have been in business, who the directors of that company are and even staff turnover within the company.

This has made governments to be seen as trusted employers of potential borrowers. Banks have been targeting many Government institutions like Teachers Service Commission (TSC), civil servants, Armed forces, international organizations and even the police forces.

The banks, on agreement with the employer to give a loan without a bank account, will sign a Memorandum of Understanding which will clearly indicate the following:

• The agreed date the deductions for the loan repayment will be done from the payroll and when the same will be submitted or remitted to the bank.
• The preferential interest rate the employees will be charged by the bank.
• The maximum repayment period for the loan granted to the employee by the bank.

 The only requirements for loan without a bank account these potential borrowers need are:

1. Pay slip for at least three months as proof of the amount of net salary they receive on a monthly basis.
2. Letter of appointment from the employer which indicate the terms of employment for example if they have been employed in permanent or temporary basis, retirement age.
3. To be able adhere with the two thirds rule, employers approval must be obtained and confirm that there are no other loan commitments. The two thirds rule means that the borrower must retain two thirds of their salary to live on.

Inspite of the above the responsibility and risks of lending to the potential borrower does not pass to the employer, the bank must still practice prudent lending. Giving a loan without a bank account is a decision that banks all over the world are using to make higer profits.