In recent months a number of people went to jail for issuing bouncing cheques. A very close scrutiny of several cases shows that a network of unlicensed lenders is carrying out a very profitable enterprise and using the law to guarantee their illegal profits.
The scheme works like this: John Shark is a unlicensed lenders. Joseph Muturage needs money very urgently and the bank will not loan him any money without proper collateral; one of Joseph’s friends suggest borrowing money from John Shark, the unlicensed lender. John Shark agrees to loan 1 million RWF with a cheque as collateral.
The cheque includes 1 million plus interest.
The interest is calculated on a weekly basis or a bi-weekly basis, 25% for every two weeks seems to be the norm. Joseph needs the money for one month and signs a cheque for 1.5 million RWF. After a month, he is having difficulty paying back; no problem,
John requests another cheque to cover another month interest 500,000 RWF; now Joseph owes 2 million RWF on 1 million francs borrowed. At the end of the second month, if Joseph cannot find the money, John threatens to go to the Bank and if the cheque bounces to go to the police as a criminal case can be filed if a cheque bounces.
Joseph does not want to go to jail; he is ready to give his car, his house and his first born. If Joseph has none of those, John Shark goes to the police and Joseph finds himself in Jail.
From the presentation above, it is clear that John Shark is carrying on money lending without a license and asking usury interest.
Money lenders are licensed by the Central Bank (BNR) and the interest they can charge is also monitored by BNR. Money lending without a license is a criminal activity that should be stopped by the Police.
How to determine when it is a money lending activity that is involved?
Every time a cheque bounces and an individual files a criminal charge, the Police should do some investigation asking the kind of item or service the cheque was supposed to pay and whether the lender has a license.
If the cost of the item or service is much less than the money on the cheque there is presumption of unlicensed lending.
In the case of an item bought, the seller should have a valid trade license; in the case of a service, the buyer and the seller should have a valid contract.
If today you are caught in the situation of owing money to an unlicensed lender, what can you do? Put a stop on the cheque before it bounces and when confronted with the lender, pay his money without interest and if he threatens you then report him or her to the police.
If you are an unlicensed lender, what can you do from now on? File an application for a lender license. This is provided by the Central Bank (BNR) and there are a number of conditions and requirements to be met.
For example, the loans have to be properly documented and registered at BNR and you cannot charge usury rates.
As Rwandan banks are notoriously difficult providing loans without house collateral, BNR could license some businesses which carry a lot of cash, like FOREX companies, to offer loans at competitive rates.
While researching this story, we met a man who went to jail for a bounced cheque of 2 million: he had borrowed 1.2 million; with interest the debt went up to 4 million, he gave his car and was still owing 2 million; the lender sent him to jail. Another man went to jail for 3 million, he had borrowed 1 million. Another man was saved by his aunt: on a debt of 1 million, he owed 3.5 million.
A lady I met almost lost her house: she had borrowed 600 thousand RWF without telling her husband; the unlicensed lender was ready to take her house; as it is a common property, the husband saved the day.
These cases of unlicensed lending take place in many developing countries. For example: two weeks ago a Bombay (Mumbai, India) High Court ruled that “a money lender, who does not possess a license, cannot approach the criminal court if a repayment cheque given by debtor bounces.”. Rwandan Police and Courts should do the same and stop this madness.
The author is a social commentator