Shylock business is a rip-off

Walking around Odeon Cinema in Nairobi, you can’t miss the signposts: Instant Loans on Items. Here, you submit an electrical appliance for a loan and then sign a contract. Breaching the contract means you lose the item and you cannot claim it once the repayment deadline has passed.

Shylocks, who are basically loan sharks, bank on the sanctity of a contract law that a borrower signs. These contracts are worded to act as a snare to the borrowers who usually misinterpret them. Most end up failing to meet the deadline and their items get auctioned.

The popularity of Shylock dens in Nairobi is usually fueled by lengthy and tiring procedures in obtaining loan from mainstream financial institutions.

From the horse’s mouth:

“I’ve been in Shylocking business for 5 years now and it’s thriving because people want instant cash and the prolonged bank processes make Kenyans avoid the financial institutions,” says Mr Makanyaga* who operates around Odeon Cinema in the capital Nairobi. “We give you cash against a product, preferably an electrical appliance. By looking at the item, I can tell the amount it will fetch in the market if one fails to comply with the contract.”

This acts as security, often for a shorter period typically seven days.

 “If you don’t repay the loan with the interest we can either negotiate you pay the interest first and I keep the item as you continue looking for money or I sell it,” adds Mr. Makanyaga*.

The risks:

Shylocking is not a bed of roses.

Sometimes the sharks have to deal with stolen items and this makes them prone to being sued in case they are caught. Besides, they may be given faulty or obsolete items and end up losing money since they cannot resell them.

While talking to Makanyaga*, a guy who looks drunk arrives and asks him for a Ksh500 loan. Taking his Samsung phone, Makanyaga* takes his contract note book and after scribbling something he counterchecks the phone and gives him the money. With a repayment period of seven days, the borrower is supposed to bring back Ksh650, a 30% interest. “That’s how we survive and we barely make losses,” he chuckles adding that he once gave someone Ksh50, 000 as a loan.

Eunny*, an accountant with a city-based company, is a frequent visitor to loan sharks’ dens. She says that when she has a pressing need, she turns to the Shylocks because they are the last option and getting money from them is easy. “Sometimes you find yourself in a fix; there is a pressing need and with a budgeted salary you have to turn to the Shylocks to meet this emergent need,” She volunteers to tell.

 “When you know there is a place you can get easy cash, you become addicted to it. Although the interest is high and the initiative makes people lazy, you are left with no choice.” Eunny*, like many urban dwellers, have resigned to this kind of rip-off.

Eunny was introduced to the Shylocking business in 2014 by her then workmate and she has created a rapport with the sharks since she is a regular borrower. “When you become a regular customer you create a mutual understanding with the lender and he may decide to scrap off some money when you don’t default; that way the loan burden becomes less.”

Because they are unregulated, Shylocks take advantage of gullible Kenyans and weave the contract in a way that sets the borrower to default so that they can sell the mortgaged item at a higher price than the loan. This is how they thrive.

Professional opinion;

The government should legalize shylocking in Kenya because the aim is to help a needy Kenyan at a fee. There is need to draft laws that can regulate the business so that they can start competing with the regulated financial institutions.

Only this way will there be sanity and benefit for the government. Otherwise, this is a rip-off to struggling entrepreneurs and businesses.

I can’t even talk about virtual money lenders like Tala, Branch, M-shwari and the like!