Can members of this forum desist from quoting religion everytime they fail in an argument? It's actually rather not kosher.

A bank is not a sacco. A sacco is for members who are doing the same activity. In other places it is called community banking and for your information these are the banks that are least affected by the economic downturn.

However,unlike Equity,they do not insist on people bringing other people to guarantee the loan. They do not attach one's property until after they have gone to court and convinced the bank of the need to do the same.

Community banks all over the world do not tell you to come with guarantors. You are basically 'judged by the content of your character'. Not by whom you know or do not know just to make shareholders happy.

Whether you like it or not,you cannot find any logicial or even moral (since you bring up God all the time) for illegally attaching someone elses property when the main borrower defaults without warning.

Just because a Kenyan bank does it,does not make it right. It is wrong in the eyes of Commonwealth law,and even the eyes of whoever is your moral compass.

In short,it is a practise that is going nowhere in the long run. and if any bank uses that as a template of operation,it is doomed to fail in the future too when it lacks people who are willing to be guarantors.

My evidence is the fact that even those who have replied on this post have no intention of becoming guarantors. You also have KREP to tell you about banks that use other people solely as collateral.

What will happen is that a secondary illegal market will appear where people charge to become guarantors. Something tells me that this is already happening.

mukiha,no problem. Apology accepted.

I actually like Equity since they opened up the doors for many. However,this guarantee thing is something that I am fully convinced will lead to the grave.

I remember sometime back when some africans where told to sign here for a peace deal and instead made land contracts with white people.

Having a contract does not make it right or even legal for that matter. It is called hoodwinking the public and there is always a backlash. I am sure that when someone will take this issue to court,they may actually have a chance.

If it smells rotten it probably is rotten and something tells me that soon and very soon,this will be challenged in court seeing that it is illegal all over the world.

Even the dreaded IRS has to go to court to attach one's sole source of income. They just can't come up one morning and take your whole salary because you signed a paper.

If this is a law that is accepted in Kenya it is immoral. Laws that go against common decency are all being removed and going the way of the dinosaur. I have faith in Kenya and believe if such a law exists where a court can allow someone's children to go hungry just to make equity happy,it will go too.

I have friends by the way. lol

@nanfor:
There is nowhere in the world where a contact can or has ever been invalidated by a court because the person who signed it did not read it.

However,if the contract is written in an intelligible language (i.e.,one that nobody can understand),the one can have a case....you file for interpretation of the clause and if the court is also not able to understand it,then it can be invalidated

This happened in New York some years ago when a guy challenged a clause in a credit card contract...the judge was not able to interpret the clause (which was a 300-word sentence!!!) and therefore declared it invalid..... This formed the basis of the so-called 'Plain-English' law now common in many state in the US and some countries in the world.

Nonetheless,if the clause is clear,then you must abide by it. It is no defense to claim that you did not read it. Though you can claim that you were not given the opportunity to read and were forced to sign (e.g.,bus companies allow you in their bus and give you a receipt that refers to company's terms and conditions...but those terms are not posted in the bus!).

All the same,we have to be very careful because if we say it is OK to default on a contract and then claim we did not read it,we shall have declared that contracts are meaningless!

I am still waiting for your suggestion as to how the bank can guarantee itself that the loan will be paid.

Nanfor.....so many words brother/sister!!!

I agree with you that the interest rates in Kenya are high!!!

I disagrre with you on the issue of guarantors coz a bank must place mechanisms on how to recoup their loans........no short cuts here!!!!


Make money.....then you will enjoy all the fine things in life!!!

Again Mukiha,you are trying to misinform the public. Or maybe you are the one who is misinformed.
The credit system in the USA works just fine for the rich and the poor. A poor person in the slum can get a loan at a lower rate than a rich person as long as he is asking for what he can afford to repay and has a history of repaying other loans advanced.
That is the reason many Kenyans have made it there despite their family backgrounds in Kenya.
This credit crunch you are trying to infer was not about credit ratings but the practice of some mortgage companies offering loans to people who could not afford it. Please do not try to confuse the two issues.
In fact I hazard to say that giving someone who earns 20k ksh a month a loan where he repays more than 40% of his salary is the very reason of the credit crunch in the west so don't think you are safe or unique.
Fixed rate mortgages are the way to go. Mortgage companies have been feeding people on this cacophony of adjustable rates with the idea that interest rates will go down. They never do and if there is a Kenyan who has experienced his interest rates falling on a loan,please do share.
About Islamic banking making loses,your argument goes to prove that you are a shareholder again. I am an investor,whether my bank is making a profit or not is not my business. I want to borrow and make a profit with what I have borrowed. what good does it do me if Equity is making 90% profit and I am hungry in my house?
For those who are interested and not clouded with the name Islamic,take a walk to Gulf and First community,you might save your family the pain of losing your house to a legal shylock.
@McReggea,
I agree as a former banker that a bank must place mechanisms to protect their funds. What I disagree with is this notion that 4 guarantors is the way to go. My view is that is it is a tool being used by this bank to stop lending.
When a bank is having problems with cash flows,the first thing they do is start issuing stricter rules on borrowing with the notion that they are protecting themselves. It is always a lie as banks will lend to all and sundry as evidenced with their behavior just before the ATM's started having problems. Just conveniently at the same time when doing a split.
I know for a fact Mukiha that Equity has advised its managers to reduce lending and deny a loan application for the flimsiest of reasons.

Agreed Wendz with what you have said. Guarantors are used but not as an exclusive process of who should get credit as is the case with equity. Like I said before,guarantors are used in certain instances. Only in Kenya are they the end all and be all in borrowing.

In fact,we used guarantors at the very end of the process of accessing risk not first or a requirement in giving a loan!

I don't know about other banks cash positions. I know that Equity managers have orders from above. If you don't believe me,go borrow now and see what you will go through.

This is not bad or negative. It may in fact save Kenyans from taking up loans that are dangerous to them. You can call me the Sacco missionary if you like. But borrowing from a Kenyan bank at those rates is suicide. Especially for a mortgage.

We can agree to disagree but on my part,if I ever seek a Kenyan loan,I will avoid one with guarantors unless there is a mathematical reason for me to do so. I will also move to the bank that uses credit reports to gauge one's ability to pay. If you know that bank,please do share too.

The future is here so let us embrace it instead of using Neanderthal banking methods thinking that all is well.

By the way Mukiha,Islamic banks have been cushioned from the current credit crunch precisely because their mortgage lending methods were stringent and honest. For your mortgage again I say,think Islamic banking in Kenya and get a fixed mortgage loan.

haha Mukiha,you are a funny man but that is taken as an attempt at being funny...It is always a good idea to look in the horizon. We shall talk about this 'stringent lending rules' you are talking about....That made my day....'Wewe enda tu oune kama utapatiwa loan' is not an example of lending rules leave alone stringent.....I can tell you right now how much you can borrow at a certain income and your credit rating and employment history,age and expenses in any state in the USA....I went to a bank here and all they told me was 'just apply,we shall look at it.'....If that is what you call rules,then I have a lot to learn. I may be wrong but I think if a bank manager is your friend is also a consideration of lending.....Stringent my foot!

Ok Mukiha,I will stop being facetious as I believe this topic is very important especially if we are going to avoid shy locking that is lawful.
You have to stop reading Bdafrica for the reasons of the credit crunch. It was a problem that began in about 2002 thanks to poor banking rules.
A person who goes to the bank can know how much they could borrow even before they got there.
It worked until some guys at Wall Street came up with the idea of derivatives. They would re-package these mortgages and sell them to other entities. Believe me when I tell you,even your bank could have bought these derivatives. Towns and cities all over the world bought them.
They were not buying mortgages. Derivatives can be packaged so well,you would never know the base asset or investment. Heck,even my boss didn’t know what they were.
Because they were so profitable,poor lenders decided to start giving out more mortgages. So in order to do this,they would get someone who could not qualify for a traditional fixed rate mortgage and convince them to get these ARM’s.
So the 20k guy would end up with a 1 million loan which was an ARM and he was to refinance it later when property values went up. Since everyone was buying,soon there were no property buyers.
So house values started falling.
It affected everyone. Not because of bad lending practises but because of those derivatives I just mentioned. These instruments were packaged as A plus low to no risk investments so everyone got into them. Of course when people stopped paying the ARM’s these derivatives became worthless pieces of paper.
That is the credit crunch. Not this lie you are trying to spread here about using credit reports to give out loans. If you think you will get a loan in the US without a credit report,I would advise you stick in Kenya.
So in short the credit crunch came about due to:

giving out Adjustable rate mortgages to those who could not qualify for fixed rate mortgages
Selling derivatives based on these ARM’s to unsuspecting financial entities
the owner of the ARM failing to repay the loan
Then banks became more stringent in their lending coming up with all manner of excuses when you went to borrow
Please stop me when you see any of the above four criteria not affecting a Kenyan consumer.
Next think very hard about thinking that you are safe. Be very careful about the type of loan you get and the collateral your bank is asking for.

@nanfor:

I was just quoting what you wrote

Now,when you say fixed rate do you mean:

A) that the percentage rate remains constant through the life of the loan (even though the interests amounts are calculated on reducing balance)?

OR

B) that the total interest amount is calculated up-front and loaded to the loan account...then monthly installmensts are calculated from this total?

Even the SACCOs you mention as better alternatives use the 'reducing balance' method and the going rate is one percent per month...in truth,12% pa. There are banks lending at lower than this....right here in Kenya!!

The problem with option B is that you cannot do what I did with my mortgage....read the story here: http://www.stockskenya.c...x?stk=1004&top=14497

@nanfor:

You say: 'A reducing rate mortgage under option A is not a product I would even consider.'

Now let me educate you for a change:

The option A that I mentioned was: 'A) that the percentage rate remains constant through the life of the loan (even though the interests amounts are calculated on reducing balance)'

This is the best loan plan anywhere in the world! It is even better than the Sharia method!!

The point is: since you interest rate (APR = Annualised Percentage Rate) is fixed,your monthly installment will never change as long as you stick to the agreed amounts...just like the Sharia loan or the kind of loan you described.

However,this has an additional benefit: If you get some windfall,or if you get a pay rise and you are able to a small additional amount,this extra payments go towards reducing your principle balance and thereby reducing the interest amount allocated each month.

Read my story again and you will see the clear benefit...by the way that is the kind of loan I had,the interest was fixed at 15% and was calculated on a reducing balance.

If you cannot see that benefit,then I think you don't fully understand the meaning of 'reducing balance'.

In my case for example,the loan amount was Sh2.25m.

On the first month the interest was 15% divided by 12 months = 1.25% of sh2.25m = Sh28,125.

Now,the person who paid the required minimum of sh31,491 got sh28,125 going towards interest and the balance sh3,366 going to the principle. That left a loan balance of sh2,246,634.

But in my case,I paid sh40k on the first month. Of this sh28,125 went towards interest and sh11,875 towards principle....leaving a loan balance of sh2,238,125.

You can see I have a smaller loan remaining than the guy who stuck to the agreed plan...

Now on the second month,the situation changed: The standard plan interest was again 1.25% of sh2,246,634 (the remaining loan balance...that's the meaning of 'reducing balance') = sh28,083.

The guy pays sh31,491 again and sh28,083 is consumed by interest and sh3,408 goes to the principle.

In my case,the second month's interest was 1.25% of sh2,238,125 = sh27,977...notice it is sh106 smaller than that of the standard plan. and the rest to the principle.....

The difference is small at the beginning but in a few years you will be miles ahead on the principle.....by paying onle 27% extra I was going to cut the repayment period by 50%.

You cannot achieve that with the plan that you advocate nor with a Sharia loan plan. If you up your repayment by 27% you will reduce the repayment period by 27%!!!

That's the catch!!!!!!!

Now,looking at the mortgage calculators available on many American finance house websites,I am convinced that they also use the method of option A.

Thus I conclude that you are mistaken!!!!!!

The reason loans are expensive in Kenya (and I agree that they are too expensive) is that the interest rates charged are very high. It is not because of the method use to calculate the instalments!!!!

As noted by another contributor,in Japan they are paying 1%pa while in Kenya the average is 15%