Illegal money lenders, commonly known as loan sharks or Bank Lambert, are stepping up their game in an attempt to bypass the law.
While central bank has come hard on the illegal money lenders, it still remains a challenge to do away with them.
The growing demand for quick money from people who either do not qualify for mainstream bank credit or detest the tedious procedures required for loan applicants have created a market for the loan sharks.
‘Loan sharks’ describe themselves as business people who offer small loans to their clients despite not being registered at the central bank as authorised lenders.
As opposed to banks and financial institutions that extend credit using salary or property as guarantee, loan sharks prefer property or signed cheques as security.
The issue of cheques has become unpopular among loan sharks as once they bounce, both the loan shark and the issuer get into trouble with the law.
To avoid this, the loan sharks prefer property, which they actually take possession of until the loan is paid. In case of any delay, the property is quickly sold off, many a time at an amount way higher than the loan, but the shark keeps it all.
As the demand for their services goes up, so does the credit line.
A section of loan sharks is now using cars as guarantee for credit extended.
However, since you cannot sell someone else’s car unless it is in your name, the loan sharks are insisting that before the credit is issued, the ownership is transferred.
The transfer process often involves the lender and the debtor going to Rwanda Revenue Authority (RRA) to change the car ownership details on the debtors’ motor vehicle log book, popularly known as ‘yellow card.’
Changing a car’s yellow card details is a simple process usually carried out after the purchase of a motor vehicle to show the new owner of the vehicle.
A yellow card contains details of the car such as make, model, year of manufacture and owner.
The two then agree on credit terms, including the interest on the loan. On repayment of the ‘loan’ the procedure to transfer the car ownership is repeated at RRA to revert ownership back to the debtor.
With that, the lenders end up ‘owning’ multiple cars for short periods of time, and this has caused RRA to suspect unusual activity.
Consequently, RRA carried out an investigation that discovered that illegal money lenders were using motor vehicle services department to conduct their affairs.
RRA Commissioner-General Richard Tusabe said they have since began working on a solution to ensure that their office is not used for such practices.
“We have seen that risk and we are working on it, we are going to give you a solid solution in the coming days. ‘Bank Lambert’ is illegal, when you see how busy the motor vehicle services department is, it tells a story that something is wrong,” Tusabe told The New Times.
He said the solution will be rolled out in the next two or three months.
“We have picked it and we are going to apprehend the wrongdoers who are exploiting it. The Government does not allow the practice, I promise that you will see change in the next two, three months,” Tusabe said.
Why do people use loan sharks?
City loan sharks have become popular largely due to their convenience in extending quick short term credit, as opposed to banks which could take weeks in addition to numerous terms and conditions.
According to a loan shark who spoke to The New Times, most of their clients are often salaried people looking for easy money to get them to the end of the month, people looking to solve urgent problems and emergencies while others are business people looking for a capital, say to clear goods.
Salaried people looking for ‘small and quick’ loans, according to another lender, are often seeking between Rwf50,000 and Rwf400,000, repaid with interest.
Loans that exceed Rwf1 million are the ones that often require assets such as cars.
A client who admitted to using loan shark services told The New Times that the amount loaned is rarely proportionate to the value of the motor vehicle with the former being way higher.
Asked on the risk he exposes his property to when dealing with loan sharks well aware that he could lose his motor vehicle, he downplayed it, saying he is always sure that he will raise the money loaned and his lenders are ‘reasonable’ people.
The central bank vice governor, Monique Nsazabaganwa, maintained that the practice is illegal in the country and both the lender and the debtor can be prosecuted.
On whether legalising and regulating the practice would ensure some order, Nsazabaganwa ruled it out.
“It’s not possible for such a practice to be legalised. We have deposit takers and other lenders who are registered. Both the lender and the borrower are flouting the regulations,” she said.
Nsanzabaganwa said that among the reasons the Government discourages the practice include the fact that one is never guaranteed that they will get their property back and that their interest rates are exorbitant.
She said the central bank regularly carries out customer awareness campaigns to ensure that the public is informed of the available legal credit options.