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.

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.

 Relationship between Lenders and Debt problem loans

debt problem loans

Lending is  risky business which often leads to debt problem loans; it is therefore inevitable that on occasion things will go wrong. Even seasoned lenders will experience cases of bad debts. Many times they will be tempted to indulge in wishful thinking and that the debt problem loans are only temporary. The debtor or borrower believes they will get things right in the end. Debt Problem loans like any other problems in life, do not just go away and  help with debt solutions must be developed.

Irrespective of how soundly based the original lending decision was, at the first sign of trouble, a new appraisal of the position should be done.

Some of the reasons that create  debt problem loans include:

• Natural disasters that have affected the cash flow, for example, earthquakes or floods. Sometimes a person may take up amortgage finance loan, which they expect to pay comfortably. If a natural disaster causes the home to collapse, the loan repayments have to continue. if the home is insured then the insurance pays for the loan. This will lead to debt problem loans
• Political instability and/or civil wars may escalate the debt problem loans. Civil wars and instability lead to displacement of populations. This in turn causes the borrower to default, especially if they have relocated to a far off land.
• Acts of terrorism. This like natural disasters and relocations aggravate the debt problem loans. Acts of terrorism cause distraction of property and loss of jobs. The destroyed property may be the reason why the loan was sourced originally.
• Death of Key man in management of the business is a major cause of debt problem loans. The key man or point man may be the only person who handles many of the financial functions of the company. When this point man dies, the new office holder may not be aware of some of the loans that need to continue being repaid. This interruption in installment repayments leads to debt problem loans since the installments may have grown to unmanageable levels.
• The borrower diverting the cash from the business to other uses may cause debt problem loans. The borrower may lack discipline in managing their finances and diverts money from loan repayment to other uses in the running of the business. This diversions lead to loans not being paid in time and the penalties and interests for such indiscipline are substantial. The diversion of cash may be due to corrupt practices by the borrower or borrowers agent.

Many lenders especially those banking in Kenya have to report on the debt problem loans and provide for these problematic amounts. This means that the profits that are reported by banks is reduced by the debt problem loans amounts.

 Mortgage finance business and commercial banks

Mortgage finance

For a long time, commercial Banks shied away from Mortgage financing. They argued that it was such a long term financing and most of them were not ready to tie down their customers deposits for such a long extended period. They preferred lending for medium term (that is three to five years) and short term (that is two years and below). Mortgage financing was therefore left to institutions which were specialized mortgage financing institutions, for example, Housing Finance Corporation of Kenya (HFCK).

However, with increased demand in the market in recent years for property ownership and competition in the banking industry, the Commercial Banks have had to re-evaluate their previous position on mortgage financing. With so many Banks penetrating the market, banks have had to think outside the box to enable them survive in banking industry.

 Strategies in use by commercial banks to enter mortgage finance platform

Unfamiliar territories come with great challenges, which if not tackled well will result in huge failures. Some of the commercial Banks have decided to build synergies with already existing mortgage financing institutions by purchasing shares in these institutions. The main advantage of this is that they obtain human expertise. The banks provide capital financing.

Other commercial banks have opted for the option of creating mortgage finance departments. these option comes with challenges for the new enttrants into mortgage finance.

Challenges faced by banks as new entrants to mortgage finance.

1. Lack of knowledge and experience-Most new mortgage finance banks have little understanding about the property market and end up dealing with un-scrupulous property developers who overvalue the properties. These properties are over-valued because of the demand which is not marched to the supply.
2. Staff de-motivation due to lack of expertise by the employees on the concept of mortgage finance. This has resulted in frustration for both the employees and their customers.
3. Raising capital by the commercial banks to accommodate mortgage finance. the banks have to explain to existing and potential shareholders the importance of venturing into this new line of financing and this is not easy. Shareholders must be convinced and give consent for such large capital outlays.
4. Identifying the right property developers to work with and who will not take advantage of the banks customers in terms of the property value and even reliability.
5. Time constraints while balancing the expectations of the shareholders in terms of immediate returns verses the reality that the benefits from mortgage finance will not be released immediately. Closing a deal on mortgage finance would not be as fast and the returns are realized after a long time.

However, the commercial banks are in the right track as this is the current growth area to be tapped in order to survive the market. Diversification is the key to survival for banks in highly competitive markets and Commercial banks must get into mortgage finance business to reap the benefits.

loans for women

Whether she is a stay home mum (what is known normally as a house wife), a business woman or even a professional woman her impact is felt. In the recent years more of the governments in the developing countries have identified the potentials in the women and have sought to empower them economically by facilitating easy access to quick loans for women.

Women in the developing countries have had challenges with accessing the loans for women as they have no collateral to secure  these loans for women. The governments have discovered the benefits of lending to the women which include the following:

 Loans for women have improved standards of living

• Loans for women help women be able to generate reliable income which improves their standard of living and that of the entire family. Thy can comfortably afford the basic living necessity example food, clothing and shelter.

Loans for women lead to economic and political empowerment

• Loans for women enables women to be self reliant and therefore protect themselves from exploitation and abuse of any nature. In the developing countries women are prone to domestic violence and other abuses as they are not empowered economically.
•  women are enabled to expand their businesses and therefore create job opportunities. This will enhance the economic growth of the country as the level of unemployment rate is reduced.
• When women become successful in business they will be able to share the knowledge with their peers, enhance the economical growth of a country. In other words to empower one woman is to empower a whole generation.
• With the growth in the business, apart from the ability to afford the basics women need in life they can diversify in their investments and become key players in decision making in the country.
• Loans for women boosts womens self esteem and therefore the women are able to participate in decision making in key sectors in the country run for political offices. This enables them to fully participate especially in policy decisions made which greatly affect the women.

 Loans for women lead to better health for society

• The health of the family is directly related to the reliable income of the woman. They are able to access and afford the health facilities for themselves and even for the children who are prone to tropical diseases in the developing countries for example malaria and  polio.

Women the world over and especially in developing countries need a voice and this can only be achieved when they are empowered economically by making loans for women more accessible.

credit scoring in Kenya

There are two main ways that credit rating in Kenya is done. These are individual judgement method and credit scoring or rating method

Individual or staff judgement method of credit rating in Kenya

This method relies on the staff who is rating the application for the loan on to uses their good judgement. Credit rating staffs are aided in arriving at their decision by a list with checks and balances. The pros are weighted against the cons on the check list and the staffs make decisions. The staffs also consider the risks of having the applicant as a customer of their institution. The staff may compare an application against another application of the same category to assist him or her arrive at a decision.

Credit rating in Kenya method

This method does not rely a lot on the staff judgement as it is a statistical method. The applicant submits their application to the financial institution for review. The credit rating staffs use manual or automated systems which score the application. The rating form is something that is agreed in the financial institution and risk unit has to be involved. The banks try to address as many risk issues as they can in the rating sheet.

The applicant is rated on where they work, their marital status, their age, whether they own the home where they live and salary they earn. These rating criterion are dependent on the financial institution. There are many more criteria on which to base credit rating in Kenya. After the staffs have completed inputting the information from the application form to the rating sheet form, a rate is given. The rating method has less individual errors and biases. There is also increased and enhanced precision in credit rating.

The method is sometimes thought to be rigid. To overcome this problem, the credit rating staffs have over-ride rights to the rating system and the decision can be over-ruled. This over ride has to be approved by a supervisor.

The importance of credit rating and scoring of each application that is received in a bank cannot be ignored. In some countries, there are companies that do the credit rating and one can pay to get their rating for credit cards or loans.  Credit scoring and Credit rating in Kenya is still developing and the score sheets keep changing.

In many parts of the world credit bureaus have been in operation for many years. They give credit rating for customers and it makes it easier for banks and financial institutions to give loans to majority of customers who are able to repay the loans. The Kenya credit reference bureaus are used to ascertain the credit worthiness of customer for loans.

Why the Kenya Credit Reference Bureau

Kenya Credit reference bureau

With the legislation of the Kenya credit reference bureau in 2008, the central bank allowed a third party to source customer credit history. In the past, banking in Kenya had clauses that protected the customer, because the banks were not allowed to share customer banking details. There were customer confidentiality clauses binding the banks from sharing information about customers. This made the sharing of important information like the bad debtors illegal. The sharing of customer information has now been allowed, showing the importance of the Kenya credit reference bureaux.

It is mandatory for banks to give a listing of all their bad debtors’ information to the Kenya credit reference bureau. The information collected from all financial institution is collated and is useful especially for credit facilities. It is seen as a way to ensure that bad debts reduce. The bad debts in banks have meant that profits have been limited, since the bad debts have to be provided for in the financial statements of the banks.

Importance of Kenya Credit Reference Bureau

The banks’ reputation has also been affected by the huge bad debts portfolio. Banks with high bad debts provisions are seen as failures in their operations. The banks images will be improved meaning increased business for the banking sector.

When an applicant approaches a bank for credit facilities, the bank submits the identification number of the customer and their name. The Kenya reference bureau confirms if the applicant has been listed on their data base for any reason. A report is then given to the bank. If the applicant is listed, the application is declined. The reason may be given to the customer if they inquire or require it.

How to improve your Kenya Credit Reference Bureau rating

If you are planning to take a loan with a bank, it would be important to ensure that you do not have any unpaid debts that are not being serviced. The city council of Nairobi also give lists of those who have arrears with any council repayments like land rents and rates. As the Kenya credit reference bureau grows it will become the reliable way for scoring Kenyans on loans.

Home Loan

This is a facility that assists you to acquire your own home. Various banks and financial institutions will give home loans or mortgages to those who have applied and their applications are successful.

Home loan helps you own your own home

The loan applications are processed within given times for most lending institutions. To ensure that your loan is processed within the minimum time limit, ensure to fill out the applications forms completely and properly. Give all the required documents.

The requirements from each bank are different and they depend on the strategy of the bank. Some of the banks require that the mortgage is partly financed by you the applicant. The amount that is required will vary from bank to bank. The bank may tell you that they will finance the mortgage up to 80% or 90% of the property sale amount. This means that you have to get the extra 20% or 10% and deposit it in your loan account with the bank.

Additional costs associated with your Home loan

There are other costs that are associated with the home loan, apart from the property cost. They are:

• Interest on the mortgage amount. The interest will be different depending on the bank or institution financing the loan. The length of the repayment period will also affect the interest charged on the loan. Less interest will be paid if the loan is for a shorter time.
• Stamp duty – This is a percentage cost on the cost of the property. This is a fixed amount which depends on the laws of the land. The current rate is 4% in Kenya
• Valuation fees – This fee is dependent on the valuer. Most banks have their own list of approved valuers which you should get before you have your property valued.
• Legal fees – This will be dependent on the loan amount. The higher the amount of loan the higher the legal fees requested. The bank or lending institution will have their list of preferred law firms. It is important to get this list from the institution providing the loan facility
• Bank Facility fee, which is a fee that is charged by the banks for facilitating the loan. It is a one- time charge. It differs from bank to bank and is dependent on the bank.
• Property insurance may be required by some banks for the life of the loan. This is important as it insures your property so long as the loan is being repaid. The fee is paid annually.
• Mortgage life policy is also dependent on the bank. This policy means that is you died while the loan was still outstanding the bank would claim the balance from the insurance company. This is an annual fee
• Penalty charges for lump-sum or full clearance before the stated life of the loan. These penalties will depend on the bank or institution. Some lending institutions give you a discount if the loan is repaid earlier than agreed.

It is therefore important as you approach the bank for the loan to find out the other costs that will be associated with the home loan or mortgage. Before the loan is taken, you should shop around to get the best offers that will suit your pocket and circumstances.